Operations Management Processes and Supply Chains, 13e Krajewski Test Bank by QuentinAxel

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 1 Using Operations to Create Value 1.1 Role of Operations in an Organization 1) Operations management refers to the direction and control of inputs that transform processes into products and services. Answer: TRUE Difficulty: Easy Keywords: operations management, inputs, process, transformation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

2) An operation is a group of resources performing all or part of one or more processes. Answer: TRUE Difficulty: Easy Keywords: operations management, inputs, process, transformation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

3) The three main line functions of any business include Operations, Finance and Marketing. Answer: TRUE Difficulty: Easy Keywords: operations, finance, marketing Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

4) The scope of supply chain management is restricted to the synchronization of the process among the various business functions within the firm. Answer: FALSE Difficulty: Easy Keywords: supply chain management, processes Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

5) Regardless of how departments like Accounting, Engineering, Finance, and Marketing function in an organization, they are all linked together through: A) management. B) processes. C) customers. D) stakeholders. Answer: B Difficulty: Moderate Keywords: departments, functions, processes Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

6) The foundations of modern manufacturing and technological breakthroughs were inspired by the creation of the mechanical computer by: A) Charles Babbage. B) James Watt. C) Eli Whitney. D) Frederick Taylor. Answer: A Difficulty: Moderate Keywords: Charles Babbage Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

7) Which of these Great Moments in Operations and Supply Chain Management did not occur in the twentieth century? A) invention of the assembly line B) publication of the Toyota Production Systems book C) establishment of railroads D) strategic planning for achieving product variety Answer: C Difficulty: Moderate Keywords: history, railroad Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

8) The three main line functions of any business include: A) operations. B) marketing. C) finance. D) information systems. E) all of the above F) only A), B) and C) above Answer: F Difficulty: Moderate Keywords: operations, finance, marketing Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

9) Operations management refers to the systematic design, direction, and control of ________ that transform ________ into products and services. Answer: processes, inputs Difficulty: Moderate Keywords: process, input, transform, product, service Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

10) The three mainline functions of any business are ________, ________, and ________. Answer: operations, finance, marketing Difficulty: Moderate Keywords: operations, finance, marketing, functions of a firm Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

11) Supply chain management is the synchronization of a firm's processes with those of its ________ and ________ to match the flow of materials, services, and information. Answer: suppliers, customers Difficulty: Moderate Keywords: supply chain management, suppliers, customers Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

12) What are the three key functions of a firm and what is each responsible for? Answer: The three main functions of a firm are operations, finance, and marketing. The operations function transforms material and service inputs into product and service outputs. The finance function generates resources, capital and funds from investors and sales of the firm's goods and services in the marketplace. The marketing function is responsible for producing sales revenue of the outputs. Difficulty: Moderate Keywords: manufacturing process, service process Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Describe the role of operations in an organization and its historical evolution over time.

1.2 A Process View 1) A process involves transforming inputs into outputs. Answer: TRUE Difficulty: Easy Keywords: process, inputs, outputs Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

2) Every process has a customer. Answer: TRUE Difficulty: Easy Keywords: process, customer relationship Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

3) Departments within a firm typically have a common set of objectives, and share resources among them to achieve those objectives. Answer: FALSE Difficulty: Moderate Keywords: functions, departments Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

4) At the level of the firm, service providers offer just services and manufacturers offer just products. Answer: FALSE Difficulty: Moderate Keywords: manufacturing, service, similarity, goods, services Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

5) The outputs of service processes typically cannot be held in a finished goods inventory. Answer: TRUE Difficulty: Easy Keywords: manufacturing, service, similarity, goods, services Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

6) Manufacturing processes tend to be capital intensive. Answer: TRUE Difficulty: Easy Keywords: manufacturing process, service process, capital intensive, labor intensive Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

7) Quality is more easily measured in a service process than in a manufacturing process. Answer: FALSE Difficulty: Moderate Keywords: manufacturing process, service process, quality Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

8) Contact with the customer is usually higher in a manufacturing process than in a service process. Answer: FALSE Difficulty: Easy Keywords: manufacturing process, service process, customer contact Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

9) The outputs from manufacturing processes can be produced, stored, and transported in anticipation of future demand. Answer: TRUE Difficulty: Easy Keywords: manufacturing, service, similarity, goods, services Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

10) Which of these statements about processes is not true? A) A process can have its own set of objectives. B) A process can involve work flow that cuts across departmental boundaries. C) A process can require resources from several departments. D) A process can exist without customers. Answer: D Difficulty: Moderate Keywords: process, customer relationship Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

11) Operations management is part of a production system that can be described in the following manner: Organization: inputs→processes→outputs. Which one of the following correctly describes a production system? A) Airline: pilots→planes→transportation B) Bank: tellers→computer equipment→deposits C) Furniture manufacturer: wood→sanding→chair D) Telephone company: satellites→cables→communication Answer: C Difficulty: Moderate Keywords: production system, input, process, output Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Reflective Thinking Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

Figure 1.1 You are the Production Manager for the toy manufacturing process at the ABC Company.

12) Use the information provided in Table 1.1. An example of an internal customer is: A) the lumber company. B) the Receiving Department at ABC. C) the Shipping Department at ABC. D) the toy store at the mall. Answer: C Difficulty: Moderate Keywords: internal customer Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Reflective Thinking Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

13) Use the information provided in Table 1.1. An example of an internal supplier is: A) the lumber company. B) the Receiving Department at ABC. C) the Shipping Department at ABC. D) the toy store at the mall. Answer: B Difficulty: Moderate Keywords: internal supplier Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Reflective Thinking Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

14) Use the information provided in Table 1.1. An example of an external customer is: A) the lumber company. B) the Customer Service Department at ABC. C) the Shipping Department at ABC. D) the toy store at the mall. Answer: D Difficulty: Moderate Keywords: external customer Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Reflective Thinking Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

15) Use the information provided in Table 1.1. An example of an external supplier is: A) the lumber company. B) the Receiving Department at ABC. C) the Customer Service Department at ABC. D) the toy store at the mall. Answer: A Difficulty: Moderate Keywords: external supplier Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Reflective Thinking Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

16) Which of the following is an example of a nested process? A) At the start of the new semester, a student first pays tuition and then goes to the bookstore. B) A customer service representative verifies a caller's account information. C) A candidate's intent to graduate is checked for financial holds by the Bursar and for degree requirements by Advising before the diploma mill prints their sheepskin. D) A stockbroker calls a client and advises her to sell silver short. Answer: C Difficulty: Easy Keywords: nested process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

17) Which of the following statements is more of a general characteristic of a manufacturing organization, as compared to a service organization? A) Short-term demand tends to be highly variable. B) Operations are more capital intensive. C) Outputs are more intangible. D) Quality is more difficult to measure. Answer: B Difficulty: Moderate Keywords: manufacturing organization, service organization, capital intensity Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

18) Which one of the following statements is more of a general characteristic of a service organization, as compared to a manufacturing organization? A) Output can be inventoried. B) The response time is longer. C) There is less customer contact. D) Quality is not easily measured. Answer: D Difficulty: Moderate Keywords: manufacturing organization, service organization, facilities Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

19) Manufacturing processes usually have: A) physical, durable output. B) high levels of customer contact. C) output that cannot be inventoried. D) low levels of capital intensity. Answer: A Difficulty: Moderate Keywords: manufacturing organization, service organization, physical output Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

20) Service processes usually have: A) physical, durable output. B) low levels of customer contact. C) output that can be inventoried. D) shorter response times. Answer: D Difficulty: Moderate Keywords: manufacturing organization, service organization, capital intensity Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

21) A(n) ________ is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides one or more outputs for its customers. Answer: process Difficulty: Moderate Keywords: process, activity, input, value Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

22) Service processes tend to produce ________, ________ outputs. Answer: intangible, perishable Difficulty: Moderate Keywords: manufacturing, service, similarity, goods, services Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

23) List and briefly describe five differences between services and manufacturing. Processes provide examples to illustrate your arguments. Answer: Manufacturing Processes Service Processes Physical, durable products Intangible, perishable products Output can be produced, stored, and transported Can't be stored and transported Customers can be part of the input and Low customer contact part of the process Have days to deliver Must be offered within minutes Capital intensive Labor intensive Quality easily measured Quality not easily measured Examples will vary. Difficulty: Moderate Keywords: manufacturing process, service process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

24) Identify a large employer in your hometown. Describe this organization's inputs, processes, and outputs. Answer: Answers will vary based on the employer selected. Difficulty: Moderate Keywords: input, process, output Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe the process view of operations in terms of inputs, processes, outputs, information flows, suppliers, and customers.

1.3 A Supply Chain View 1) The customer relationship process includes the activities required to produce and deliver the service or product to the external customer. Answer: FALSE Difficulty: Moderate Keywords: customer relationship process, order fulfillment process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

2) The supplier relationship process selects the suppliers of services, materials and information, while the order fulfillment process facilitates the timely and efficient flow of these items into the firm. Answer: FALSE Difficulty: Moderate Keywords: supplier relationship, process, order fulfillment process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

3) One distinction between core processes and support processes is that core process can cut across the organization while support processes do not. Answer: FALSE Difficulty: Moderate Keywords: core process, process analysis Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

4) A set of activities that delivers value to external customers is a: A) supply chain. B) core process. C) support process. D) system. Answer: B Difficulty: Moderate Keywords: activity, core process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

5) Budgeting, recruiting, and scheduling are examples of a: A) development. B) core process. C) support process. D) system. Answer: C Difficulty: Moderate Keywords: activity, support process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

6) The process that facilitates the placement of orders and identifies, attracts, and builds relationships with external customers is called the: A) customer relationship process. B) new service development process. C) order fulfillment process. D) supplier relationship process. Answer: A Difficulty: Moderate Keywords: process, customer relationship Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

7) The process that includes the activities required to produce and deliver the service or product to the external customer is called the: A) customer relationship process. B) new service development process. C) order fulfillment process. D) supplier relationship process. Answer: C Difficulty: Moderate Keywords: process, order fulfillment Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

8) The process that that selects the suppliers of services, materials, and information and facilitates the timely and efficient flow of these items into the firm is called the: A) customer relationship process. B) new service development process. C) order fulfillment process. D) supplier relationship process. Answer: D Difficulty: Moderate Keywords: process, supplier relationship Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

9) The cumulative work of the processes of a firm is a(n) ________. Answer: supply chain Difficulty: Moderate Keywords: processes, supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

10) ________ provide vital resources and inputs to core processes. Answer: Support processes Difficulty: Moderate Keywords: support process, core process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the supply chain view of operations in terms of linkages between core and support processes.

1.4 Operations Strategy 1) A firm's core competencies reflect the collective learning of the organization, especially in how to coordinate processes and integrate technologies. Answer: TRUE Difficulty: Easy Keywords: core competency, core process Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

2) Firm A wants to enter a foreign market and has a skill that is difficult to duplicate. Firm B desires this skill, so Firm A works with Firm B in an arrangement known as a joint venture. Answer: FALSE Difficulty: Moderate Keywords: strategic alliance Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

3) The framework for carrying out all of an organization's functions is: A) the competitive priority. B) the corporate strategy. C) the market analysis. D) the organizational design. Answer: B Difficulty: Moderate Keywords: corporate strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

4) Which element of a firm's core competency is particularly important in service organizations, where customers come in direct contact with employees? A) workforce B) facilities C) market knowledge D) systems and technology Answer: A Difficulty: Moderate Keywords: core competency, strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

5) A company realizes that recent layoffs at its primary company reflect potential falling demands for its customers' products, and hence for its own products. The company has engaged in: A) flow strategy. B) market segmentation. C) mission statement redefinition. D) environmental scanning. Answer: D Difficulty: Moderate Keywords: environmental scanning Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

6) Core competencies are: A) product or service attributes that represent the needs of a particular market segment. B) another name for competitive priorities. C) various flow strategies. D) the unique resources and strengths that management considers when formulating strategy. Answer: D Difficulty: Moderate Keywords: core competency, strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

7) Which of the following is an example of a core competency? A) flexibility B) top quality C) low-cost operations D) systems and technology Answer: D Difficulty: Moderate Keywords: core competency Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

8) Price, quality, and the degree of customization are all examples of: A) volume needs. B) other needs. C) product needs. D) delivery system needs. Answer: C Difficulty: Moderate Keywords: needs assessment Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

9) The Gap, Inc. has targeted teenagers and young adults in need of casual clothes, and through its GapKids stores, the parents or guardians of infants through 12-year-olds. This is an example of: A) market segmentation. B) a collaborative effort between the company and its customers. C) a needs assessment. D) a mission statement. Answer: A Difficulty: Moderate Keywords: market segmentation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

10) One form of strategic alliance is the ________, in which two firms agree to cooperate to produce a product or service together. Answer: joint venture Difficulty: Moderate Keywords: joint alliance Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

11) The process by which managers monitor trends in the external business environment for potential opportunities or threats is known as ________. Answer: environmental scanning Difficulty: Moderate Keywords: environmental scanning, strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

12) What are the four core processes in a firm and how are they related? Answer: The customer relationship process identifies, attracts, and builds relationships with external customers and facilitates the placement of orders. The order fulfillment process includes activities required to produce and deliver the service or product to the external customer. The new service/product development process designs and develops new services or products, which may be to customer specifications. The supplier relationship process selects the suppliers of services, materials, and information and facilitates the flow of these items into the firm. All of these processes exist to provide a service or product to the customer. Difficulty: Moderate Keywords: core process, customer relationship, service/product development, order fulfillment, supplier relationship Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define an operations strategy and its linkage to corporate strategy and market analysis.

1.5 Competitive Priorities and Capabilities 1) Competitive priorities are the means by which operations implements the firm's corporate strategies. Answer: FALSE Difficulty: Moderate Keywords: competitive priority, corporate strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

2) Development speed for new product and service introductions is a possible competitive priority for operations management. Answer: TRUE Difficulty: Easy Keywords: time, competitive priority Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

3) A firm once made purchasing decisions based on which supplier had the lowest cost. But once cash flow was healthy, purchasing decisions were made based on the fastest delivery of goods and services by firms. In this case, delivery speed is clearly the order qualifier. Answer: FALSE Difficulty: Moderate Keywords: competitive priority, order qualifier Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

4) Volume flexibility is handling a wide assortment of products or services efficiently. Answer: FALSE Difficulty: Moderate Keywords: variety, volume flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

5) Admission to the prestigious school had become so competitive that a high GPA is no longer enough to separate one fresh-faced high school student from another. Today's outstanding candidate must also demonstrate their involvement in a myriad of extracurricular activities in order to be admitted. It seems that good grades are now: A) a needs assessment. B) order qualifiers. C) order winners. D) a mission statement. Answer: B Difficulty: Easy Keywords: order qualifier Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

6) The first three cars I bought all fell apart around 50,000 miles. It was called planned obsolescence and no one seemed to care until companies entered the market that promised 70,000, then 80,000, and finally 100,000 mile warranties. What sets a great car apart from a good one now is not the quality, which is assumed, but performance, safety and fuel economy. A car that can achieve all three is highly sought after. In the automotive market, performance, safety and fuel economy are sterling examples of: A) order winners. B) a needs assessment. C) order qualifiers. D) a mission statement. Answer: A Difficulty: Easy Keywords: order winner Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

7) You are interested in buying a laptop computer. Your list of considerations include the computer's speed in processing data, its weight, screen size, and price. You consider a number of different models, and narrow your list based on speed and monitor screen size, then finally select a model to buy based on its weight and price. In this decision, weight and price are examples of: A) order qualifiers. B) a needs assessment. C) order winners. D) a mission statement. Answer: C Difficulty: Easy Keywords: order winner Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

8) You are interested in buying a laptop computer. Your list of considerations include the computer's speed in processing data, its weight, screen size and price. You consider a number of different models, and narrow your list based on its speed and monitor screen size, then finally select a model to buy based on its weight and price. In this decision, speed and monitor screen size are examples of: A) order winners. B) a mission statement. C) a needs assessment. D) order qualifiers. Answer: D Difficulty: Easy Keywords: order qualifier Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

9) Using an airline example for competitive priorities, the process capability of handling service needs of all market segments and promotional programs would be best described by: A) top quality. B) variety. C) consistent quality. D) delivery speed. Answer: B Difficulty: Easy Keywords: variety, competitive priorities Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

10) A company's ability to quickly introduce a new service or product would be best described as: A) volume flexibility. B) variety. C) consistent quality. D) development speed. Answer: D Difficulty: Easy Keywords: development speed, competitive priorities Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

11) A business focusing on increasing the efficiency of its operations is more directly addressing: A) volume flexibility. B) variety. C) consistent quality. D) low-cost. Answer: D Difficulty: Easy Keywords: efficiency, low-cost, competitive priority Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

12) While other suppliers bidding for the contract brought bids with lower per unit costs, Orchard wanted to take delivery based on the fact that the components they were using were machined to their exacting specifications 99.99999% of the time. Orchard's competitive priority was: A) top quality. B) consistent quality. C) on-time delivery. D) delivery speed. Answer: B Difficulty: Moderate Keywords: competitive priority Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

13) A popular haberdashery could take a customer's measurements in the afternoon and produce a dandy suit ready for customer pickup by next morning. Their competitive priority was: A) variety. B) top quality. C) delivery speed. D) on-time delivery. Answer: C Difficulty: Moderate Keywords: competitive priority Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

14) For students not wanting a traditional major in marketing or accounting, for example, the college decided to create a general business major, which allowed any combination of the easiest business courses to comprise the program. The competitive priority achieved in this example is: A) customization. B) delivery speed. C) consistent quality. D) low-cost. Answer: A Difficulty: Easy Keywords: customization, competitive priority Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

15) A company's ability to support varying rates of production is best described as: A) volume flexibility. B) variety. C) consistent quality. D) development speed. Answer: A Difficulty: Moderate Keywords: volume flexibility, competitive priorities Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

16) A company's ability to handle a wide variety of services and products efficiently is best described as: A) volume flexibility. B) variety flexibility. C) customization. D) development speed. Answer: B Difficulty: Moderate Keywords: volume flexibility, competitive priorities Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

17) A firm gains competitive advantage by outperforming competitors in terms of competitive priorities, which fall into four major groups: ________, ________, ________, and ________. Answer: cost, quality, time, flexibility Difficulty: Moderate Keywords: competitive priorities, cost, quality, time, flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

18) ________ is the elapsed time between receiving a customer's order and filling it. Answer: Lead time Difficulty: Easy Keywords: time, delivery speed Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

19) ________ measures the frequency with which delivery-time promises are met. Answer: On-time delivery Difficulty: Moderate Keywords: on-time delivery Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

20) ________ is the ability to satisfy the unique needs of each customer by changing service or product designs. Answer: Customization Difficulty: Moderate Keywords: customization, flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

21) Every sub-contractor knew that their quality had to be excellent to be considered for the project; it was their ability to deliver on time that would secure the lucrative contract. Quality was recognized as being a(n) ________, but on-time delivery was the ________. Answer: order qualifier, order winner Difficulty: Moderate Keywords: order qualifier, order winner Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

22) The Minimal level required from a set of criteria for a firm to do business in a particular market segment is called a(n) ________. Answer: order qualifier Difficulty: Moderate Keywords: order qualifier, order winner Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Reflective Thinking Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

23) Explain what an operations strategy is and the importance of competitive priorities. Give an example from an organization (public or private, manufacturing or service). Answer: An operations strategy is the means by which operations implements the firm's corporate strategy. Competitive priorities are the key capabilities that operations must develop to compete successfully in a market segment. Possible competitive priorities include low-cost operation, highperformance design, consistent quality, delivery speed, on-time delivery, development speed, customization, and volume flexibility. Examples will vary. Difficulty: Moderate Keywords: operations strategy competitive priorities Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

24) Name the two competitive priorities for quality and give an example of each. Answer: The two competitive priorities are top quality, which is the determination of the level of operations performance required in making a product or performing a service, and consistent quality, which measures the frequency with which the product or service meets design specifications. Examples will vary. Difficulty: Moderate Keywords: competitive priorities, top quality, consistent quality Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

25) Name the three competitive priorities for time and give an example of each. Answer: The three competitive priorities for time are delivery speed, on-time delivery, and development speed. Delivery speed refers to the elapsed time between receiving a customer's order and filling it. On-time delivery measures the frequency with which delivery-time promises are met. Development speed measures how quickly a new product or service is introduced. Examples will vary. Difficulty: Moderate Keywords: competitive priorities, delivery speed, on-time delivery, development speed Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify nine competitive priorities used in operations strategy, and explain how a consistent pattern of decisions can develop organizational capabilities.

1.6 Trends and Challenges in Operations Management 1) Most products today are composites of global materials and services from throughout the world. Answer: TRUE Difficulty: Moderate Keywords: globalization, products Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

2) The increased global presence of many firms has lessened the burden to behave ethically. Answer: FALSE Difficulty: Easy Keywords: ethics, global presence Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Ethical Understanding and Reasoning Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

3) In an assembly operation at a furniture factory, ten employees assembled an average of 600 custom chairs per 5-day week. What is the labor productivity of this operation? A) 12 chairs per worker per day B) 20 chairs per worker per day C) 15 chairs per worker per day D) 25 chairs per worker per day Answer: A Difficulty: Moderate Keywords: labor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

4) A manufacturing process requires 12 minutes of labor to make 10 units of product. Which of the following actions will increase productivity? 1. Increase labor per 10 units of production 2. Decrease labor per 10 units of production 3. Increase number of units per 10 minutes of labor 4. Decrease number of units per 12 minutes of labor A) 1 and 3 only B) 2 and 4 only C) 1 and 4 only D) 2 and 3 only Answer: D Difficulty: Easy Keywords: labor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

5) The details of weekly output and input for a fabrication process are as follows: output is 600 units, with a standard selling price of $50 per unit. For the week, total labor costs are: 8 workers at 40 hours for the week, are paid $20 per hour. Total material costs for the 400 units are $8,000. Weekly overhead is charged at the rate of 1.3 times the labor costs. What is the multifactor productivity for the week? A) 0.54 B) 1.32 C) 1.84 D) 2.00 Answer: B Difficulty: Moderate Keywords: multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

Table 1.2 The Green Battery Company manufactures lithium ion batteries. The current process uses 15 workers and produces 50 units per hour. You are considering changing the process with new automated technologies that increase output to 75 units per hour, but will require only 10 workers. Particulars are as follows:

OUTPUT (UNITS / HOUR) NUMBER OF WORKERS MATERIAL COST / HOUR

CURRENT PROCESS 50 15 $1000

NEW PROCESS 75 10 $1250

Workers are paid at a rate of $15 per hour, and overhead is charged at 150% (or 1.5 times) labor costs. Finished batteries sell for $200 / unit. 6) Use the information provided in Table 1.2. What is the multifactor productivity of the current process? A) less than or equal to 6.0 B) greater than 6.0 but less than or equal to 9.0 C) greater than 9.0 but less than or equal to 12.0 D) greater than 12.0 Answer: B Difficulty: Moderate Keywords: multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

7) Use the information provided in Table 1.2. What is the multifactor productivity of the new process? A) less than or equal to 6.0 B) greater than 6.0 but less than or equal to 9.0 C) greater than 9.0 but less than or equal to 12.0 D) greater than 12.0 Answer: C Difficulty: Moderate Keywords: multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

8) Use the information provided in Table 1.2. Based on your productivity calculations, what decision should you make? A) implement the new process B) stay with the current process C) need more information to make a decision D) Either process is acceptable (since the multi-factor productivities are the same). Answer: A Difficulty: Moderate Keywords: multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

9) It takes the Blacksburg shipyard twenty weeks with 200 workers to build an airplane. Material costs are $15 million and overhead costs are $1.5 million. Workers cost $35 per hour including benefits and work 40 hours per week. Each airplane sells for $50 million. What is the multifactor productivity ratio? A) less than 1.0 B) greater than 1.0 but less than or equal to 2.0 C) greater than 2.0 but less than or equal to 3.0 D) greater than 3.0 Answer: C Difficulty: Moderate Keywords: multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

10) Which of the following would be considered a disadvantage resulting from globalization of operations? A) loss of proprietary technology in working with offshore suppliers B) alienation of customers in foreign market of operation C) high levels of worker skills in foreign countries D) strong global competition and increased worldwide demand Answer: A Difficulty: Moderate Keywords: global competition Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Diverse and Multicultural Work Environments Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

11) With regards to globalized operations and cost advantages, what China is to manufacturing, India is to: A) services. B) human resources. C) finance. D) supply chain. Answer: A Difficulty: Moderate Keywords: global competition Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

12) Companies that do not have operations in China find it difficult to compete based on the basis of low prices with companies that do. Instead those companies tend to compete based on: A) quality and social responsibility. B) speed and small production runs. C) luxury. D) quality and small production runs. Answer: B Difficulty: Moderate Keywords: global competition Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

13) Productivity is defined as ________ divided by ________. Answer: output, input Difficulty: Moderate Keywords: output, input, productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

14) Half of the world's greenhouse gases are produced by only seven nations including ________, ________ and ________. Answer: China, United States, India (students can answer in any order) Difficulty: Moderate Keywords: environment, greenhouse gas Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

15) How has global competition affected productivity? Cite specific examples and reference the productivity equation to support your thesis. Answer: Examples will vary; students should argue that the increase in global competition has increased productivity for those firms that have survived. Firms that fail (or have already failed) to effectively compete with new competition suffer from reduced sales, so the numerator in the productivity equation will be lower, perhaps without a commensurate decrease in the denominator, resulting in reduced productivity. Firms that are effectively competing against global competition probably have higher levels of productivity. Global operations might include cheaper or better raw materials and labor, resulting in a smaller denominator and higher productivity. Global competition might also inject new management techniques and leaner operations if some services are outsourced to specialist companies. Difficulty: Moderate Keywords: productivity, raw materials, labor Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

16) What are some disadvantages of globalization? Answer: Operations in other countries can have disadvantages. A firm may have to relinquish proprietary technology if it turns over some of its component manufacturing to offshore suppliers or if suppliers need the firm's technology to achieve desired quality and cost goals. Political risks may also be involved. Each nation can exercise its sovereignty over the people and property within its borders. The extreme case is nationalization, in which a government may take over a firm's assets without paying compensation. Exxon and other large multinational oil firms are scaling back operations in Venezuela due to nationalization concerns. Further, a firm may actually alienate customers back home if jobs are lost to offshore operations. Employee skills may be lower in foreign countries, requiring additional training time. South Korean firms moved much of their sports shoe production to low-wage Indonesia and China, but they still manufacture hiking shoes and in-line roller skates in South Korea because of the greater skills required. In addition, when a firm's operations are scattered globally, customer response times can be longer. Coordinating components from a wide array of suppliers can be challenging. Difficulty: Moderate Keywords: globalization Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Application of Knowledge Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

17) What are some ethical issues that are prevalent in organizations that have a global operations presence? Answer: Some countries are more sensitive than others about conflicts of interest, bribery, discrimination against minorities and women, minimum-wage levels, and unsafe workplaces. Managers must decide whether to design and operate processes that do more than just meet local standards. In addition, technological change brings debates about data protection and customer privacy. In an electronic world, businesses are geographically far from their customers, so a reputation of trust is paramount. Difficulty: Moderate Keywords: ethical issues, ethics, globalization Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Ethical Understanding and Reasoning Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

18) Barry's Tire Service completed 100 tire changes, six brake jobs, and 16 alignments in an eight-hour day with his standard crew of six mechanics. A brake specialist costs $16 per hour, a tire changer costs $8 per hour, and an alignment mechanic costs $14 per hour. The materials cost for a day was $2,000, and overhead cost was $500. a. What is the shop's labor productivity if the retail price for each respective service is $60, $150, and $40? b. What is the multifactor productivity, if the crew consisted of two of each type mechanic? Answer: a.

= $157/hr

= 2.43

Difficulty: Moderate Keywords: labor productivity, multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

Table 1.3 The Abco Company manufactures electrical assemblies. The current process uses 10 workers and produces 200 units per hour. You are considering changing the process with new assembly methods that increase output to 300 units per hour, but will require 14 workers. Particulars are as follows:

OUTPUT (UNITS / HOUR) NUMBER OF WORKERS MATERIAL COST / HOUR

CURRENT PROCESS 200 10 $120

NEW PROCESS 300 14 $150

19) Use the information in Table 1.3. Workers are paid at a rate of $10 per hour, and overhead is charged at 140% (or 1.4 times) labor costs. Finished switches sell for $20/unit. a. Calculate the multifactor productivity for the current process. b. Calculate the multifactor productivity for the new process. c. Determine if the new process should be implemented. Answer: a.

= 11.11

= 12.35

c. The new process increases multifactor productivity and should be implemented. Difficulty: Moderate Keywords: labor productivity, multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

20) The three-person crew worked their way through the neighborhood, mowing lawns, edging, applying fertilizer and weed treatments where necessary and collecting all the clippings for use as mulch as part of their new green initiative. Their pricing scheme appears in Table 1.4 and the mix of orders and service costs appear in Table 1.5: a. What is their multifactor productivity for these orders in the prestigious Edmond Oaks neighborhood? b. Which of the service combinations provided by them is the most productive service combination from a multifactor perspective? c. What is their labor productivity for the same mix of orders? Table 1.4: Price List SERVICE Mow lawn Edge Fertilizer treatment Weed prevention treatment

Multiple services

PRICE $75 $20 $120

LABOR 1 hr .25 .25

MATERIAL $2 $1 $45

$80 5% discount times the number of services

.25

$25

Workers are paid at a rate of $10 per hour, and overhead is charged at 120% (or 1.2 times) labor costs. For a customer that gets both mowing and edging, their $95 bill would be discounted for two services times 5% for a total of 10% off the $95 straight charge for a cost of $85.50. A customer receiving three services would get a 15% discount off their service bill. Labor hours shown in Table 1.4 are total hours for the three-person crew. Table 1.5 Orders Processed SERVICE Mow lawn & edge Mow lawn, edge, and fertilize Mow lawn, edge, and weed prevention treatment Mow lawn & fertilize

# Customers 6 3 2 2

Answer: a. Multifactor Productivity Overall Total Revenue = $86 × 6 + $182.75 × 3 + $148.75 × 2 + $175.50 × 2 = $1,709.75 Labor Cost = $12.50 × 6 + $15 × 3 + $15 × 2 + $12.50 × 2 = $175 Material Cost = $3 × 6 + $48 × 3 + $28 × 2 + $47 × 2 = $312 Overhead Cost = 1.2 × ($12.50 × 6 + $15 × 3 + $15 × 2 + $12.50 × 2) = $210 Multifactor Productivity = Multifactor Productivity = 2.45 b. Multifactor Productivity by Service Mow & Edge =

= 2.8

Mow & Edge & Fertilize =

= 2.26

Mow & Edge & Weed =

= 2.44

Mow & Fertilize =

= 2.36

The package with the highest multifactor productivity is the Mow & Edge c. Overall Labor Productivity. Total Revenue = $85.59 × 6 + $182.75 × 3 + $148.75 × 2 + $175.50 × 2 = $1,709.75 Labor Cost = $12.50 × 6 + $15 × 3 + $15 × 2 + $12.50 × 2 = $175 Labor Productivity = Labor Productivity = 9.77 Difficulty: Challenging Keywords: labor productivity, multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

21) The three-person crew worked their way through the neighborhood, testing doorknobs and windows and slipping past security systems like a team of ninjas. Of course, they weren't ninjas, but a crew of brazen burglars, hoping to grab cash and other valuables to fence at the next level of their supply chain. Fortune smiles on them on this day in the prestigious Edmond Oaks neighborhood. A lawn maintenance crew is creating a tremendous racket mowing and edging lawns, which completely drowns out the sounds of breaking glass. Details of the day's haul appear in Table 1.6. a. What is the multifactor productivity? b. What is the labor productivity? Table 1.6: The Haul ITEM Krugerrand Flat screen TV $200 cash Lava lamp Rolex watch

SALES PRICE $1,500 $250 $200 $5 $180

LABOR 1 hr .25 .05 .15 .10

MATERIAL $2 $1 $45 $25 $1

Workers are paid at a flat rate of 20% of the sales price of the merchandise. Materials cost represents the cost of gasoline and surgical gloves, and overhead is 20% of the sales price of the merchandise. Answer: a. Multifactor Productivity Total Revenue = $1,500 + $250 + $200 + $5 + $180 = $2,135 Labor Cost = 20% × ($1,500 + $250 + $200 + $5 + $180) = $427 Material Cost = $2 + $1 + $45 + $25 + $1 = $74 Overhead Cost = 20% × ($1,500 + $250 + $200 + $5 + $180) = $427 Multifactor Productivity = Multifactor Productivity = 2.30 b. Labor Productivity Total Revenue = $1,500 + $250 + $200 + $5 + $180 = $2,135 Labor Cost = 20% × ($1,500 + $250 + $200 + $5 + $180) = $427 Labor Productivity = Labor Productivity = 5 Difficulty: Moderate Keywords: labor productivity, multifactor productivity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Identify the latest trends in operations management and understand how firms can address the challenges facing operations and supply chain managers in a firm.

1.7 Fourth Industrial Revolution (Industry 4.0) 1) The fourth industrial revolution that ushered in the digital age, introduced the use of computers in the production process. Answer: FALSE Difficulty: Moderate Keywords: industry 4.0, technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

2) The Internet of Things is a trend that affects operations and supply chain management in a minor way. Answer: FALSE Difficulty: Easy Keywords: technology, challenges, internet Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

3) Artificial Intelligence is a constellation of technologies that allows machines to sense, comprehend, act, and learn. Answer: TRUE Difficulty: Easy Keywords: technology, artificial intelligence Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

4) Which of the following statements about "big data" is false? A) The data must be organized and analyzed to be of any use. B) Firms use high-powered analytical models to sift through the data C) Data may be collected instantly or over a period of months. D) It is not necessary for operations managers to be involved in implementation of "big data" processes. Answer: D Difficulty: Moderate Keywords: technology, internet, data Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

5) The question of whether a manufacturer has rights to utilize data collected from a health monitoring device to improve future versions of the product is a concern of: A) privacy. B) technology. C) security. D) hardware costs. Answer: A Difficulty: Moderate Keywords: technology, internet, data Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

6) The utilization of sensor data to detect deteriorating machine parts prior to product failure is an example of which operations management application? A) product design and development B) inventory management C) preventive maintenance D) logistics Answer: C Difficulty: Moderate Keywords: technology, internet, data Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

7) Computer systems used in manufacturing to track and document the transformation of raw materials into finished goods are known as: A) manufacturing execution systems. B) distributed production networks. C) additive manufacturing systems. D) grid technology networks. Answer: A Difficulty: Moderate Keywords: industry 4.0, technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

8) Interconnected objects such as sensors that can automate the collection and exchange of data over a network are known as: A) grid technology networks. B) internet of things. C) computer aided manufacturing systems. D) distributed production networks. Answer: A Difficulty: Easy Keywords: industry 4.0, technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

9) The use of sensors that can be used to monitor how products are performing in the field and the use of digital remote interfaces that can be used to connect those products to their manufacturer is an example of which type of smart technology? A) smart customer technology B) smart product technology C) smart supply technology D) smart intranet technology Answer: B Difficulty: Easy Keywords: industry 4.0, smart technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

10) What type of barrier is the bandwidth that will be needed to support the interconnectivity of billions of devices under a smart technology model? A) privacy B) technology C) security D) organizational Answer: B Difficulty: Moderate Keywords: technology, IoT Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

11) Which of the following is not an implication of additive manufacturing for operations and supply chain management? A) increased material inputs B) simplified production C) production flexibility D) decentralized production networks Answer: A Difficulty: Moderate Keywords: additive manufacturing, 3D printing Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

12) Which is currently the greatest challenge in using additive manufacturing to produce more sophisticated, high valued parts? A) intellectual property rights B) quality assurance C) modification of processes D) workforce skills Answer: B Difficulty: Moderate Keywords: additive manufacturing, 3D printing Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

13) In order to utilize the capabilities of the internet of things, the organizational roles of ________ and ________ will have to become more aligned, although they are traditionally two separate functional areas. Answer: operations management, information technology Difficulty: Challenging Keywords: internet, technology Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

14) The technologies that build three-dimensional (3D) objects by adding layers of material such as plastic, metal, or concrete is known as ________. Answer: additive manufacturing Difficulty: Moderate Keywords: additive manufacturing, 3D printing Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

15) What are some of the concerns operations managers must address regarding using the internet of things? Cite a specific example. Answer: Examples will vary, but students will mention concerns with technology, privacy, security, or organizational roles. They may also discuss the challenges of implementing the hardware, gathering the "big data", analysis of the data, and use of the data to aid in decision-making processes. Difficulty: Moderate Keywords: technology, internet, challenges Learning Outcome: Discuss the influences of the global competitive environment on operations management AACSB: Application of Knowledge Learning Objective: Define the fourth industrial revolution (Industry 4.0) and understand how its embedded technologies and automation are transforming the practice of operations and supply chain management.

1.8 Developing Skills for Your Career 1) Understanding the concepts in this text will help you become an effective manager in any functional area of business. Answer: TRUE Difficulty: Easy Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

2) Managing supply chains does not involve processes external to the firm. Answer: FALSE Difficulty: Easy Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

3) The effective operation of a firm and its supply chain is more important than the design and implementation of its processes. Answer: FALSE Difficulty: Moderate Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

4) It is the sole responsibility of the operations function of an organization to design and operate processes that are part of a supply chain. Answer: FALSE Difficulty: Moderate Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

5) The topics of forecasting, inventory management and resource planning is associated with which part of supply chain and operations management? A) process strategy and analysis B) managing customer demand C) designing logistics networks D) statistical process control Answer: B Difficulty: Moderate Keywords: customer demand, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

6) Operations managers are involved at both the strategic and tactical levels of corporate strategy. Answer: TRUE Difficulty: Easy Keywords: strategic level, tactical level Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

7) If a retail store owner does not have a popular item in stock because he underestimated the forecasted sales for that item, he most likely has a challenge with: A) managing processes. B) managing customer demand. C) managing supply chains. D) managing people. Answer: B Difficulty: Moderate Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

8) The key decisions to eliminate activities that do not add value while improving those that do are an important part of: A) managing processes. B) managing customer demand. C) managing supply chains. D) managing people. Answer: A Difficulty: Moderate Keywords: process design, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

9) ________ are often responsible for key performance measures such as cost and quality. Answer: Operations Managers Difficulty: Moderate Keywords: process innovation, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

10) Each function of an organization is connected with operations through shared ________. Answer: processes Difficulty: Moderate Keywords: process innovation, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

11) Effective management of its processes can allow a firm to reduce its ________ and also increase ________. Answer: costs, customer satisfaction Difficulty: Moderate Keywords: process innovation, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

12) Explain the types of decisions that operations managers are involved in and how they are linked to a firm's strategy. Answer: Operations managers are involved in tactical decisions such as process improvement, performance measurement, the management and planning of projects, staffing management, inventory management, and resource scheduling. Operations manager's decisions should reflect corporate strategy. These decisions have strategic impact because they allow the firm to gain a competitive advantage. Difficulty: Moderate Keywords: strategy, innovation, supply chains Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand how to develop skills for your career using this textbook.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 2 Process Strategy and Analysis 2.1 Process Structure in Services 1) Process decisions are strategic in nature. Answer: TRUE Difficulty: Easy Keywords: process strategy Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

2) The greater the cost of equipment relative to the cost of labor, the lower is the capital intensity. Answer: FALSE Difficulty: Easy Keywords: capital intensity, process decisions Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

3) All parts of an organization, as well as external suppliers and customers across the supply chain, need to be involved to ensure that processes are providing the most value to their internal and external customers. Answer: TRUE Difficulty: Easy Keywords: supply chain process, business process Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

4) Processes, by their nature, are found only in the operations function of an organization. Answer: FALSE Difficulty: Easy Keywords: operations function, process Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

5) Customer involvement reflects the ways in which customers become part of the process and the extent of their participation. Answer: TRUE Difficulty: Moderate Keywords: customer contact, customer participation, customer involvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

6) Service providers with a line process tend to move customers, materials, or information in a fixed sequence from one operation to the next. Answer: TRUE Difficulty: Moderate Keywords: line process, service provider, standard process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

7) A moment of truth or service encounter is face-to-face interaction between the customer and a service provider. Answer: TRUE Difficulty: Easy Keywords: moment of truth, face-to-face interaction, customer, service provider Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

8) Divergence is the extent to which the process is customized with considerable latitude on how the tasks are performed. Answer: TRUE Difficulty: Moderate Keywords: divergence, customization Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

9) A front office structure features high levels of customer contact where the service provider interacts directly with the internal or external customer. Answer: TRUE Difficulty: Easy Keywords: front office process structure, customer contact, service provider interaction Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

10) Back office work is typically routine, with many steps having considerable divergence. Answer: FALSE Difficulty: Easy Keywords: back office process structure, divergence Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

11) The mix of equipment and human skills in a process determines the level of: A) process structure. B) capital intensity. C) customer involvement. D) resource flexibility. Answer: B Difficulty: Moderate Keywords: capital intensity, process decisions Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

12) Table service where food is served at a traditional sit down restaurant is an example of: A) active contact. B) hybrid office. C) passive contact. D) back office. Answer: A Difficulty: Easy Keywords: service processes, active contact Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

13) An interior designer decorates homes for a clientele that wants a one-of-a-kind living space. This service process can be described as: A) divergent. B) complex. C) specialized. D) hybrid. Answer: A Difficulty: Moderate Keywords: service processes, process divergence Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

14) The process structure that best describes a waiter's position at a restaurant would be classified as: A) front office. B) back office. C) hybrid office. D) inner office. Answer: A Difficulty: Easy Keywords: services processes, process structure, front office Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

15) A service provided delivering packages to a locker for customers to pick up at their convenience is an example of: A) front office. B) passive contact. C) active contact. D) hybrid office. Answer: B Difficulty: Easy Keywords: service processes, passive contact Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

16) An example of a process that is primarily back office is: A) a taxi driver. B) the teller at a bank. C) the payroll clerk that calculates your paycheck. D) the hostess at a restaurant. Answer: C Difficulty: Moderate Keywords: service processes, process structure, back office Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

17) Front offices typically emphasize: A) low cost operations and on-time delivery. B) top quality and customization. C) on-time delivery and standardization. D) top quality and low cost operations. Answer: B Difficulty: Easy Keywords: services processes, process structure, front office Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

18) Back offices typically emphasize: A) low cost operations and on-time delivery. B) high divergence and customization. C) on-time delivery and customization. D) high customer contact and low cost operations. Answer: A Difficulty: Easy Keywords: service processes, process structure, back office Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

19) The physical arrangement of operations (or departments) relative to each other is known as ________. Answer: layout Difficulty: Moderate Keywords: process layout, process decisions Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

20) The ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions is known as ________. Answer: resource flexibility Difficulty: Moderate Keywords: resource flexibility, process decisions Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

21) What are three principles of process strategy that should govern choices that process designers make? Provide examples of well-conceived process strategy choices to illustrate each of your three principles. Answer: The three principles discussed in the text are: 1) The key to successful process decisions is to make choices that fit the situation and that make sense together. They should not work at cross-purposes, with one process optimized at the expense of other processes. A more effective process is one that matches key process characteristics and has a close strategic fit. 2) Individual processes are the building blocks that eventually create the firm's whole supply chain. The cumulative effect on customer satisfaction and competitive advantage is huge. 3) Whether processes in the supply chain are performed internally or by outside suppliers and customers, management must pay particular attention to the interfaces between processes. Dealing with these interfaces underscores the need for cross-functional coordination. Examples of process strategy choices will vary. Difficulty: Moderate Keywords: process decisions, process strategy Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

22) What are the different dimensions of customer contact in service processes? Provide an example of a service that has high levels of customer contact and one that has very low levels of customer contact. Answer: The dimensions of customer contact are physical presence, what is processed, contact intensity, personal attention, and method of delivery. Examples will vary. Difficulty: Moderate Keywords: customer contact intensity, physical presence, personal attention, delivery method, what processed Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

23) Describe and highlight differences among the three process structures in services. Answer: The three process structures form a continuum and are front office, hybrid office, and back office. The front office structure is a process with high customer contact in which the service provider interacts directly with the customer. This process is more complex and has considerable divergence. The back office structure is a process with low customer contact in which the service provider interacts little with the customer. The work tends to be standardized and routine, with line flows from one service provider to the next with little variation. The hybrid office is a process with moderate levels of customer contact and standard services with perhaps some options available. Work flow progresses from one station to the next with some dominant paths apparent. Work is reasonably complex and some customization exists in how the process is performed. Difficulty: Moderate Keywords: service process structure, front office, back office, hybrid office Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in services and how to position a service process on the customer-contact matrix.

2.2 Process Structure in Manufacturing 1) A continuous flow process is characterized by a high degree of job customization. Answer: FALSE Difficulty: Moderate Keywords: continuous flow process, customization Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

2) A job process has the highest level of customization of the process choices. Answer: TRUE Difficulty: Moderate Keywords: job process, customization Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

3) Line processes generally have lower volumes as compared to job processes. Answer: FALSE Difficulty: Moderate Keywords: job process, line process, volume Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

4) In a line process, there is little variability in the products manufactured, and production and material handling equipment are often specialized. Answer: TRUE Difficulty: Moderate Keywords: line process, product variability, specialized equipment Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

5) Petroleum refineries typically use continuous flow processes. Answer: TRUE Difficulty: Moderate Keywords: continuous flow process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

6) The product-process matrix brings together the elements of volume, process, and quality. Answer: FALSE Difficulty: Moderate Keywords: product-process matrix, manufacturing volume, process, quality Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

7) Specialized medical equipment would usually be produced using a line process. Answer: FALSE Difficulty: Moderate Keywords: product-process matrix, line process, job process Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

8) A make-to-stock strategy involves holding items in stock for immediate delivery and is feasible for standardized products with high volumes and reasonably accurate forecasts. Answer: TRUE Difficulty: Easy Keywords: make-to-stock strategy, standardized products, volume, product forecasts Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

9) The degree of process divergence is what keeps a large batch process from being economically produced using a line process. Answer: TRUE Difficulty: Moderate Keywords: batch process, line process, divergence Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

10) A make-to-order strategy produces products to customer specifications in large volumes. Answer: FALSE Difficulty: Moderate Keywords: make-to-order strategy Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

11) The principle of postponement is modeled by the worker that has known his assignment for several weeks, but waits until the day before the product is to be delivered to begin production. Answer: FALSE Difficulty: Moderate Keywords: postponement, procrastination Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

12) Which of the following is sometimes called mass production? A) batch process and make-to-order strategy B) line process and make-to-stock strategy C) continuous flow process and assemble-to-order strategy D) job process and make-to-order strategy Answer: B Difficulty: Moderate Keywords: manufacturing processes, mass production, line, line process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

13) A job process should be preferred when: A) workforce and equipment are specialized. B) products are made to stock type. C) customization is high and volume is low. D) customization is low and volume is high. Answer: C Difficulty: Moderate Keywords: manufacturing processes, job process, customization, volume Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

14) A petroleum refinery would use which process? A) batch process B) line process C) continuous flow process D) job process Answer: C Difficulty: Moderate Keywords: manufacturing processes, continuous flow process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

15) The product-process matrix used to analyze manufacturing operations brings together the elements of: A) volume, process, and intensity. B) process, intensity, and product design. C) intensity, volume, and process. D) customization, volume, and process. Answer: D Difficulty: Moderate Keywords: manufacturing processes, product-process matrix Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

16) Which one of the following statements about process management is best? A) When customization must be high, equipment should be general purpose, and employees need to perform a broader range of duties. B) The traditional relationship between capital intensity and resource flexibility is that if one is high, so is the other. C) Creating a more capital-intensive process tends to reduce the fixed cost and raise the variable unit cost. D) Economies of scope mean that a process should be devoted to a single product or service to achieve high volumes. Answer: A Difficulty: Challenging Keywords: manufacturing processes, process management, customization Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

17) A manufacturer that produces standard products in large volumes is likely to be using a(n): A) make-to-stock strategy. B) make-to-order strategy. C) assemble-to-order strategy. D) engineer-to-order strategy. Answer: A Difficulty: Easy Keywords: production and inventory strategies, make-to-stock Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

18) The principle of postponement is employed by a producer using a(n): A) make-to-stock strategy. B) make-to-order strategy. C) assemble-to-order strategy. D) engineer-to-order strategy. Answer: C Difficulty: Moderate Keywords: production and inventory strategies, assemble-to-order Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

19) The strategy of delaying final activities in the provision of a product until the orders are received is known as ________. Answer: postponement Difficulty: Moderate Keywords: postponement, assemble-to-order Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

20) Describe the differences among make-to-order, assemble-to-order, and make-to-stock strategies from the producer's and from the customer's perspective. Answer: A make-to-order strategy produces to customer specifications in low volumes; typically using highly divergent job or batch processes that are highly flexible. This level of customization requires a great deal of planning and control by the producer; the customer receives exactly what has been requested which may literally be a one-of-a-kind item. The customer must suffer through a lead time period during which the item is being fabricated. The assemble-to-order strategy produces wide variety from relatively few assemblies in a line or batch process. The process does not require as much flexibility and since the subassemblies are standardized, the production planning and supply chain management is easier for the producer. The customer again receives exactly what is ordered (which may be precisely what was desired) and the item could be one-of-a-kind. Again, the customer must wait for the item to be produced, but this wait tends to be shorter than in a make-to-order system. The make-to-stock strategy allows the producer to manufacture standardized items in high volumes based on a forecast. Production planning and control is much simpler and inventory can be used as a buffer for variable demand. The customer's order is filled immediately and the product is far from one-of-a-kind. Difficulty: Moderate Keywords: process strategy, make-to-order, make-to-stock, assemble-to-order Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

21) List and briefly define four different basic types of manufacturing processes. Answer: The four basic process types are job process, batch process, line process, and continuous flow process. A job process creates the flexibility needed to produce a variety of products or services in significant quantities. Customization is relatively high, and volume for any one product or service is low. A batch process differs from the job process with respect to volume, variety, and quantity. The primary difference is that volumes are higher because the same or similar products or services are provided repeatedly. A line process lies between the batch and continuous processes on the continuum, volumes are high, and products or services are standardized. The continuous flow process is the extreme end of high-volume, standardized production with rigid line flows. Difficulty: Moderate Keywords: batch, job, line, continuous flow Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

22) Sketch and discuss the product-process matrix for manufacturing. Answer: The product-process matrix brings together the elements of volume, product design, and process. It synchronizes the product to be manufactured with the process. Good manufacturing design depends first on volume, so if high customization is needed, then volume is usually lower and vice versa. The vertical dimension of the product-process matrix deals with divergence and flow. Combinations that are best choices are reflected along the diagonal of the matrix.

Difficulty: Moderate Keywords: product- process matrix, manufacturing, volume, customization, divergence, line-flow Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Understand the process structure in manufacturing and how to position a manufacturing process on the product-process matrix.

2.3 Process Strategy Decisions 1) High customer involvement increases service provider productivity and makes quality measurement easier. Answer: FALSE Difficulty: Moderate Keywords: customer involvement, productivity, quality Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

2) Fixed automation is appropriate for both line and continuous flow operations. Answer: TRUE Difficulty: Moderate Keywords: fixed automation, continuous flow Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

3) The ability to reprogram machines is useful for both low-customization and high-customization processes. Answer: TRUE Difficulty: Moderate Keywords: customization, programmable automation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

4) Capital intensive automation is best suited for low volume operations. Answer: FALSE Difficulty: Moderate Keywords: automation, capital intensity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

5) High task divergence calls for lower resource flexibility. Answer: FALSE Difficulty: Moderate Keywords: resource flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

6) In a service process, capital intensity varies with volume in both front office and back office operations. Answer: TRUE Difficulty: Moderate Keywords: capital intensity, front office service, back office service Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

7) Economies of scope reflect the fact that it is more expensive to produce multiple products in combination than separately. Answer: FALSE Difficulty: Moderate Keywords: economies of scope, capital intensity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

8) Additive manufacturing capabilities, such as 3D printing, prevent firms from achieving substantial economies of scope. Answer: FALSE Difficulty: Moderate Keywords: service process, economies of scope Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

9) Which of the following statements about customer involvement is best? A) In service industries, customer contact is of minor importance. B) High task divergence and flexible process flows require more flexibility of the process's employees, facilities and equipment. C) A firm that produces standardized products often seeks customer specifications. D) When customer involvement is highly customized, a process is more likely to use a standardizedservices process rather than a customized-services process. Answer: B Difficulty: Moderate Keywords: customer involvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

10) Active customer contact and personalized attention can lower cost to the customer by: A) increasing the capital intensity. B) trading fixed costs for an equivalent variable cost. C) substituting customer efforts for those of the service provider. D) lowering the level of technology involved. Answer: C Difficulty: Moderate Keywords: customer contact, cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

Scenario 2.4 A company is considering two options for the production of a part needed downstream in the manufacturing process. Particulars are as follows: Specialized automation General automation:

Fixed Costs = $12,000 / month Fixed Costs = $4,000 / month

Variable Cost / Unit = $3 Variable Cost / Unit = $8

11) Use Scenario 2.4 to answer this question. What is the monthly break-even quantity for choosing between the two automation approaches? A) 500 units B) 800 units C) 3,200 units D) 1,600 units Answer: D Difficulty: Moderate Keywords: capital-intensive operations, automation, break even quantity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

12) Use Scenario 2.4 to answer this burning question. For a monthly volume of 1,000 units, which automation approach should be chosen? A) specialized automation B) general automation C) Either approach is acceptable, because costs are the same for either option at 3,000 units. D) Can't be determined with information given. Answer: B Difficulty: Moderate Keywords: automation, total cost, low-cost option Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

13) Use Scenario 2.4 to solve this problem. At a volume of 3,000 units, how much does the company save each month by selecting lowest cost option over the other higher cost option? A) $5,000 B) $3,000 C) $7,000 D) Can't be determined with information given. Answer: C Difficulty: Moderate Keywords: automation, total cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

Scenario 2.6 Your company is implementing a new production line for making solar panels. The company has two main alternatives in setting up the production line: either use highly automated equipment or use general-purpose equipment. Cost information for these two options is as follows: ALTERNATIVE Automated Equipment General-Purpose Equipment

FIXED COST $900,000 per year $150,000 per year

VARIABLE COST $50 per unit $100 per unit

14) Use Scenario 2.6 to answer this question. What is the break-even quantity between the two options? A) 10,000 units per year B) 15,000 units per year C) 40,000 units per year D) 60,000 units per year Answer: B Difficulty: Moderate Keywords: capital-intensive operations, general-purpose equipment, special-purpose equipment, break=even quantity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

15) Use Scenario 2.6 to answer this question. What are total costs under the Automated Equipment option for an annual quantity of 5,000 units? A) $400,000 B) $750,000 C) $1,150,000 D) $1,500,000 Answer: C Difficulty: Easy Keywords: general-purpose equipment, special-purpose equipment, total cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

16) Use Scenario 2.6 to answer this question. What are total costs under the General-Purpose Equipment option for an annual quantity of 5,000 units? A) $400,000 B) $650,000 C) $800,000 D) $950,000 Answer: B Difficulty: Easy Keywords: general-purpose equipment, special-purpose equipment, total cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

17) Use Scenario 2.6 to solve this riddle. For what range of output is the General-Purpose Equipment the low-cost option? A) 0-10,000 units per year B) 0-15,000 or more units per year C) 15,000 or more units per year D) 0-25,000 units per year Answer: B Difficulty: Moderate Keywords: general-purpose equipment, special-purpose equipment, total cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

18) Use Scenario 2.6 to answer this question. For what range of output is the Automated Equipment the low-cost option? A) 0-10,000 units per year B) 0-15,000 or more units per year C) 15,000 or more units per year D) 0-25,000 units per year Answer: C Difficulty: Moderate Keywords: general-purpose equipment, special-purpose equipment, total cost, low-cost option Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

19) Use Scenario 2.6 to solve this mystery. At an annual requirement of 20,000 units, what does the company save per year by selecting the lower-cost option? A) $150,000 B) $250,000 C) $350,000 D) $400,000 Answer: B Difficulty: Moderate Keywords: general-purpose equipment, special-purpose equipment, total cost, low-cost option Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

20) A higher level of fixed automation can be justified by: A) decreased labor productivity. B) longer cycle time. C) higher demand volumes. D) lower sales. Answer: C Difficulty: Moderate Keywords: fixed automation, volume Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

21) Which one of the following statements about flexible automation is best? A) Investment cost is lower when a transfer machine handles many operations. B) Chemical processing plants and oil refineries mainly utilize programmable automation. C) It is an automatic process that can be reprogrammed to handle various products. D) It achieves top efficiency; accommodating new products is difficult and costly. Answer: C Difficulty: Moderate Keywords: flexible automation, reprogramming Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

22) With flexible automation, the ability to reprogram instructions can be useful in: A) line flow, but not flexible flow, operations. B) flexible flow, but not line flow, operations. C) either line flow or flexible flow operations. D) situations in which top efficiency is mandatory, but only if volumes are high. Answer: C Difficulty: Moderate Keywords: flexible automation, reprogramming, line flow Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

23) Higher volume in a process is generally associated with: A) more resource flexibility. B) more capital intensity. C) greater customer involvement. D) fewer opportunities for standardization. Answer: B Difficulty: Moderate Keywords: volume, process, capital intensity Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

24) Which of the following statements regarding resource flexibility is best? A) Training is a small part of worker flexibility. B) Specialization of employees is consistent with worker flexibility. C) Worker flexibility is not a priority if the process is subject to hourly or seasonal peaks in demand. D) Resource flexibility requires employees to be able to perform a broad range of duties, and equipment usually must be more general purpose. Answer: D Difficulty: Moderate Keywords: resource flexibility, flexible workforce Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

25) Which of the following statements concerning resource flexibility is best? A) Flexible equipment is useful to companies with low production volumes and high customization. B) Investment in general-purpose equipment is warranted if the firm expects to sell more than the breakeven amount. C) Manufacturing efficiency increases with general-purpose equipment. D) Resource flexibility is crucial for line-flow processing. Answer: A Difficulty: Moderate Keywords: resource flexibility, volume, customization Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

26) Suppose that competitive priorities call for offering a wide variety of customized services. Which of the following process decisions would be more likely? A) more capital intensity B) more resource flexibility C) more process automation D) less customer involvement Answer: B Difficulty: Challenging Keywords: resource flexibility, customized service Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

27) Which statement about economies of scope is not true? A) Economies of scope are often attained through programmable automation. B) Economies of scope bring together two competitive priorities–customization and low price. C) Economies of scope reflect the ability to produce multiple products more cheaply in combination than separately. D) Economies of scope reflect low capital intensity and high resource flexibility. Answer: D Difficulty: Moderate Keywords: economies of scope, capital intensity, resource flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

28) Which of the following statements about additive manufacturing capabilities is not true? A) Changes in product design are difficult and costly to incorporate. B) It allows firms to react to a wider variety of customer demands. C) Three-dimensional (3D) printing technology is one example of additive manufacturing. D) It enables firms to achieve substantial economies of scope. Answer: A Difficulty: Moderate Keywords: service process, economies of scope Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

29) Two manufacturing processes are being considered for making a new product. Process #1 is less capital intensive, with fixed costs of $50,000 per year and variable costs of $700 per unit. Process #2 has fixed costs of $400,000 annually, with variable costs of $200 per unit. a. What is the break-even quantity for the two processes? b. If annual sales are expected to be 600 units, which process should be selected? c. If lowest overall costs per year is your overall objective, for what range of annual production quantities should you select Process #1? Process #2? d. Operations and Engineering have found a way to reduce the cost of Process #2, such that the fixed costs for this process decrease from $400,000 to $300,000 annually. All other costs remain the same (Process #1 fixed = $50,000 / year, Process #1 variable = $700 / unit, Process #2 variable = $200 / unit). What is the new break even quantity between the two processes? e. Does this change the process selection for the annual sales volume of 600 units? If so, for what range of annual production quantities should you select Process #1 and Process #2? Answer: a. $50,000 + $700(Q) = $400,000 + $ 200(Q) $500(Q) = $350,000 → Q = 700 units per year b.

Process #1: $50,000 + $700(600) = $470,000 Process #2: $400,000 + $200(600) = $520,000

Process #1 should be selected, since it will save $50,000 compared to Process #2 at an annual volume of 600 units. c. In part b, we have seen that Process #1 is the better choice at volumes below the break even quantity of 700 units per year. Therefore, Process #1 should be selected for volumes from 0 - 700 units per year; Process #2 should be selected for volumes of 700 or more units per year. d.

$50,000 + $700(Q) = $300,000 + $ 200(Q) $500(Q) = $250,000 → Q = 500 units per year

In this case, Process #1: $50,000 + $700(600) = $470,000 Process #2: $300,000 + $200(600) = $420,000

Process #2 should be selected, since it will now save $50,000 compared to Process #1 at an annual volume of 600 units. Process #1 should be selected for volumes from 0 — 500 units per year; Process #2 should be selected for volumes of 500 or more units per year. Difficulty: Moderate Keywords: general-purpose equipment, special-purpose equipment, break even quantity, total cost, low-cost option Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

30) The break-even graph shown below represents the cost structure associated with a flexible production process and one that is fixed (less flexible). Using the information displayed in the graph, determine the cost structures associated with the two alternative production methods.

Answer: The Fixed alternative has a fixed cost of $17,000. The Flexible alternative has a fixed cost of $28,000. Their point of intersection is at an output volume of 55,000 units, which results in a cost of $41,750. For the Fixed alternative, $41,750 = $17,000 + 55,000 × VC VC = ($41,750 - $17,000)/55,000 VC = $0.45 For the Flexible alternative, $41,750 = $28,000 + 55,000 × VC VC = ($41,750 - $28,000)/55,000 VC = $0.25 Difficulty: Moderate Keywords: general-purpose equipment, special-purpose equipment, break even quantity, total cost, low-cost option Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

31) An entrepreneur considers three possibilities for the production of her new product. One alternative, a job process, would have fixed costs of $22,000 and a per unit cost of $11.63. The large batch option would have a fixed cost of $54,000 and a per unit cost of $8.82. The line process would have a fixed cost of $85,000 and a per unit cost of $7.33. Graph the total cost lines and determine over what range of output each production alternative is superior. Answer: The Line alternative total cost line has the equation 85,000 + 7.33x The Large Batch alternative total cost line equation is 54,000 + 8.82x The Job alternative total cost line equation is 22,000 + 11.63x

We know that the alternative with the lowest fixed cost must initially be superior and the alternative with the lowest variable cost must ultimately be the cheapest alternative, so our answer begins at 0 output with Job and ends at infinity (or at least very large output with Line). At a volume of 11,388 the Job process becomes more expensive than the Large Batch process. 54,000 + 8.82x = 22,000 + 11.63x 32,000 = 2.81x x = 11,388 At a volume of 20,805 the Line process becomes less expensive than the Large Batch process. 85,000 + 7.33x = 54,000 + 8.82x 31,000 = 1.49x x = 20,805 The Line and Job processes' point of indifference is immaterial since the Large Batch process cost is lower than both at their intersection point. The ranges for each alternative are: Job 0 - 11,388 units Large Batch 11,388 - 20,805 units Line 20,805 - infinite demand Difficulty: Challenging Keywords: break-even quantity, total cost Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Analytical Thinking Learning Objective: Explain the major process strategy decisions and their implications for operations.

32) ________ is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions. Answer: Resource flexibility Difficulty: Moderate Keywords: resource flexibility Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

33) ________ reflects the ways in which customers become part of the process and the extent of their participation. Answer: Customer involvement Difficulty: Moderate Keywords: customer involvement, customer participation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

34) ________ is the mix of equipment and human skills in a process. Answer: Capital intensity Difficulty: Moderate Keywords: capital intensity, equipment, human skills Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

35) ________ automation produces only one type of product or part in a sequence of simple operations. Answer: Fixed Difficulty: Moderate Keywords: fixed automation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

36) ________ automation can handle various products through programmability. Answer: Flexible Difficulty: Moderate Keywords: flexible automation, programmable automation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

37) Provide examples of three different processes that rely on the customer for approximately 100% of the process; about 50%; and about 0%. What unique challenges exist for operations and supply chain managers and process designer in each one of these scenarios? Answer: Examples will vary. Some students might argue that the process designer must be more careful to error-proof the process that relies more heavily on the customer while the manager takes a greater role in a process that does not rely on the customer. The burden for training shifts from an internal to an external focus as the customer becomes a bigger part of the production process. Students should also comment on customer buy-in for the final product and the appropriateness of a limited number and type of processes for customer involvement. Difficulty: Moderate Keywords: customer involvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

38) Comment on the need for flexibility in both the workforce and capital equipment. What process types and production situations require greater flexibility? Answer: As the authors indicate, high task divergence and flexible process flows require more flexibility of the process's resources — its employees, facilities, and equipment. Employees need to perform a broad range of duties, and equipment must be general purpose. Otherwise, resource utilization will be too low for economical operations. Highly task divergent operations are required when customers have unique needs; casting these needs in the product-process matrix suggests that job processes and batch processes, both large and small, would benefit from flexibility. In the customer-contact matrix, both front office and hybrid office types would reap the benefits of greater worker and equipment flexibility. Difficulty: Moderate Keywords: resource flexibility, flexible workforce Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

39) Define economies of scope, and identify how they relate to flexible automation. Answer: Economies of scope are the ability to produce multiple products more cheaply in combination than separately. Flexible automation provides economies of scope by allowing the producer to use the same productive resource to make intermediate volumes of a range of products, resulting in a shorter payback period for the capital equipment than if it were fixed automation. Difficulty: Moderate Keywords: economies of scope, flexible automation Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Explain the major process strategy decisions and their implications for operations.

2.4 Strategic Fit 1) Back offices generally emphasize low cost operation and consistent quality. Answer: TRUE Difficulty: Easy Keywords: back office, customer contact, service, internal customer, external customer Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

2) When volume is higher, automation and capital intensity are more likely. Answer: TRUE Difficulty: Moderate Keywords: back office, line process Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

3) Which one of the following statements on the concept of focused factories is best? A) emphasizes economies of scale, rather than diseconomies of scale B) prefers larger facilities producing all of the products or services the company offers C) reduces the range of demands placed on an operation so management can concentrate on fewer tasks D) emphasizes flexibility rather than cost Answer: C Difficulty: Moderate Keywords: focused factory Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

4) One method for a factory to gain operational focus is to: A) build large enough factories to produce all products and services the company offers. B) hire more specialists and supervisors to control the operations. C) reorganize existing facilities to the plant-within-plant (PWP) approach. D) remodel stores to create the effect of many small boutiques under one roof. Answer: C Difficulty: Moderate Keywords: focus, process, plants within plants Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

5) A firm that chooses to compete based on delivery speed and variety would most likely have: A) a make-to-order production and inventory strategy. B) an assemble-to-order production and inventory strategy. C) a make-to-stock production and inventory strategy. D) an engineer-to-order production and inventory strategy. Answer: B Difficulty: Moderate Keywords: assemble-to-order, delivery speed Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

6) Which one of the following statements on the concept of gaining focus is best? A) Focused factories maximize the amount of customization. B) Small sizes of many focused factories make it difficult to compete on the basis of shorter lead times. C) Plants within plants are different operations within a facility that can have individualized competitive priorities and processes. D) Focused factories are large factories producing all the products that the company offers. Answer: C Difficulty: Moderate Keywords: focus, process, plants within plants Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

7) ________ are different operations within a facility with individualized competitive priorities, processes, and workforces under the same roof. Answer: Plants within plants Difficulty: Moderate Keywords: plants within plants, PWP Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

8) The result of a firm splitting large plants that produced all of a company's products into serval specialized smaller plants is known as ________. Answer: focused factories Difficulty: Moderate Keywords: focused factories Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Discuss how process decisions should strategically fit together.

2.5 Strategies for Change 1) Process improvement is the fundamental rethinking and radical redesign of processes to improve performance dramatically. Answer: FALSE Difficulty: Moderate Keywords: process reengineering, process improvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

2) With a dramatic flourish, the team leader tore the employee orientation guidelines into pieces. He then distributed blank pieces of paper to the team and asked them to envision the perfect orientation process without regard to how it has always been done. This team is probably engaging in process reengineering. Answer: TRUE Difficulty: Easy Keywords: process reengineering, clean-slate Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

3) More often than not, process improvement takes place whether or not a process is reengineered. Answer: TRUE Difficulty: Easy Keywords: reengineering, process improvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

4) "Improve" is the last step in the Six Sigma Process Improvement Model. Answer: FALSE Difficulty: Moderate Keywords: process improvement, Six Sigma Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

5) Process improvement teams that focus on processes that cut across departmental boundaries have the silo mentality. Answer: FALSE Difficulty: Easy Keywords: silo, improvement teams, process analysis Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

6) Which one of the following statements concerning the role of process reengineering is best? A) Reengineering is the fundamental rethinking and radical redesign of business processes. B) Reengineering efforts should focus on one functional department at a time. C) Information technology should be kept separate from reengineering initiatives. D) Reengineering requires an attitude of incremental improvement. Answer: A Difficulty: Moderate Keywords: reengineering, radical redesign, information technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

7) Which of these tools is considered a primary enabler of process reengineering? A) supply chain partners B) information technology C) logistics D) infrastructure Answer: B Difficulty: Moderate Keywords: process reengineering, information technology Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

8) A team consisting of members from each functional area affected by the process change is referred to as a(n): A) reengineering team. B) cross-functional team. C) process team. D) improvement team. Answer: B Difficulty: Moderate Keywords: cross-functional team Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Interpersonal Relations and Teamwork Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

9) Which of the following is not a step in the Six Sigma Process Improvement Model? A) define B) measure C) reengineer D) control Answer: C Difficulty: Moderate Keywords: reengineering, Six Sigma, process improvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

10) Process analysis focuses on: A) how work is actually done. B) who is responsible for the customer. C) the customer's needs. D) the number of steps in between supplier and customer. Answer: A Difficulty: Easy Keywords: process analysis Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

11) A systematic approach to process analysis includes the step: A) reengineering. B) integration. C) order fulfillment. D) define scope. Answer: D Difficulty: Moderate Keywords: define scope, process analysis, systematic approach Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

12) Performance measures such as average response times, repair times, and percent defective are referred to as: A) benchmarks. B) metrics. C) targets. D) tactics. Answer: B Difficulty: Moderate Keywords: metrics, performance measures Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

13) Widespread participation in process analysis is essential not only because of the work involved but also because: A) employees tend to neglect their regular work duties, thus no one falls too far behind. B) it builds commitment. C) no one can analyze a process by himself. D) a silo mentality should prevail and this requires large numbers of workers. Answer: B Difficulty: Moderate Keywords: process analysis, participation, commitment Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Interpersonal Relations and Teamwork Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

14) ________ is the documentation and detailed understanding of how work is performed and how it can be redesigned. Answer: Process analysis Difficulty: Moderate Keywords: process analysis Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

15) The first step of the systematic approach to process analysis is ________. Answer: identify opportunities Difficulty: Moderate Keywords: identify opportunities, process analysis Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

16) Employees who have achieved the first level of training in a Six Sigma program are known as________. Answer: Green Belts Difficulty: Moderate Keywords: Six Sigma, process improvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

17) ________ are performance measures that are established for a process and the steps within it. Answer: Metrics Difficulty: Easy Keywords: metric Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

18) The first step in the Six Sigma Process Improvement Model is ________. Answer: define Difficulty: Moderate Keywords: Six Sigma, process improvement Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

19) A(n) ________ means that a department focuses on its own tasks without understanding the role and processes of departments outside its own organizational boundaries. Answer: silo mentality Difficulty: Moderate Keywords: silo mentality Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

20) The authors list six key elements of reengineering. Pick any three and describe their contribution to the reengineering effort. Answer: The six elements are: 1. Critical processes - focus on core business processes to reengineer, leave normal processes to incremental improvement 2. Strong leadership - senior executives must actively support reengineering or the effort will fail 3. Cross-functional teams - the team must be composed of each functional area affected by the change 4. Information technology - a primary enabler; most reengineering projects design processes around information flows 5. Clean slate philosophy - discard the old way of doing things and consider the way the customer wants to deal with the company 6. Process analysis - the reengineering team must understand things about the current process, how it performs, and have a grasp on the performance metrics Difficulty: Moderate Keywords: process reengineering, redesign, rethinking Learning Outcome: Discuss operations and operations management as a competitive advantage for the organization AACSB: Application of Knowledge Learning Objective: Compare and contrast the two commonly used strategies for change, and understand a systematic way to analyze and improve processes.

2.6 Defining, Measuring, and Analyzing the Process 1) Swim lane flowcharts are most appropriate to depict the process within a single department of an organization. Answer: FALSE Difficulty: Easy Keywords: swim lane flowchart, process flow Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

2) In a swim lane flowchart, the line of visibility is used to separate the process steps in view of the customer from those hidden from view of the customer. Answer: FALSE Difficulty: Moderate Keywords: swim lane flowchart, service blueprint Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

3) A service blueprint is a flowchart of a service process that shows which of its steps has high customer contact. Answer: TRUE Difficulty: Moderate Keywords: service blueprint, service process, flowchart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

4) Time estimates for different steps in a process are useful for capacity planning and scheduling purposes. Answer: TRUE Difficulty: Easy Keywords: work measurement, time estimates Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

5) Elemental standard time data can help managers develop time standards for new work before production begins. Answer: TRUE Difficulty: Moderate Keywords: elemental standard data Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

6) The predetermined data approach eliminates the need for time studies. Answer: TRUE Difficulty: Moderate Keywords: predetermined data approach, time studies Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

7) A predetermined data approach to time standards can be completed before actual production begins. Answer: TRUE Difficulty: Moderate Keywords: predetermined data approach Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

8) Data from work sampling estimates can be used to assess a process's productivity and spot areas for process improvement. Answer: TRUE Difficulty: Moderate Keywords: work sampling, process productivity Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

9) When using work sampling, the times of day when the analyst collects the sample data should be predetermined over the length of the study. Answer: FALSE Difficulty: Moderate Keywords: work sampling, data collection Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

10) A learning curve is a line showing the relationship between processing time and the cumulative quantity of a product or service produced. Answer: TRUE Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

11) The learning rate for a process is independent of the cumulative quantity of the product or service produced. Answer: FALSE Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

12) A checklist would be an ideal data analysis tool for recording the frequency of late deliveries from a pizza store. Answer: TRUE Difficulty: Moderate Keywords: data analysis, checklist Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

13) The general principle that 20% of a company's complaints come from 80% of their customers is known as the Pareto concept. Answer: FALSE Difficulty: Moderate Keywords: Pareto chart, Pareto principle Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

14) A scatter diagram is a graphical technique that shows whether two variables may be related. Answer: TRUE Difficulty: Moderate Keywords: scatter diagram, variables Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

15) A fishbone diagram identifies which category is most frequently observed out of all the categories for which you have data. Answer: FALSE Difficulty: Moderate Keywords: fishbone diagram, cause-and-effect diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

16) A flowchart traces the flow of all except the following: A) information through a process. B) customers through a process. C) equipment through a process. D) safety regulations through a process. Answer: D Difficulty: Moderate Keywords: flowchart, information, customers, equipment Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

17) A flowchart created at the strategic level of an organization should show: A) core processes and their linkages. B) details of a process as bracketed by its scope. C) individual steps that may have been aggregated at a higher level of analysis. D) areas that are seen and unseen by the customer. Answer: A Difficulty: Moderate Keywords: flowchart, strategic decision making Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

18) Cross-functional coordination is at particular risk where: A) there is low process divergence. B) there are handoffs in the process. C) swim lane flowcharts are utilized. D) it is not possible to create a flowchart. Answer: B Difficulty: Moderate Keywords: handoff, coordination, cross functional coordination Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Interpersonal Relations and Teamwork Learning Objective: Discuss how to define, measure, and analyze processes.

19) A swim lane flowchart is an appropriate tool to use when: A) the process features only intangible outputs. B) the process involves more than one department. C) the process scope is difficult to define. D) the process has a person or group of people at a workstation or with a customer. Answer: B Difficulty: Moderate Keywords: swim lane flowchart, process definition tool Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

20) An effective tool for showing steps of a service process with a high level of customer contact is a: A) Pareto chart. B) flowchart. C) service blueprint. D) check sheet. Answer: C Difficulty: Moderate Keywords: service blueprint, customer contact, process definition tool Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

21) A process chart activity that changes, creates, or adds something is a(n): A) operation. B) transportation. C) inspection. D) delay. Answer: A Difficulty: Easy Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

22) A process chart activity that checks or verifies something but does not change it is a(n): A) operation. B) transportation. C) inspection. D) delay. Answer: C Difficulty: Easy Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

23) Which one of the following groups of activities is likely to be shown on a process chart? A) operation, inspection, delay B) operation, capital intensity, flow strategy C) transportation, material flow, physical layout D) storage, delay, personnel involved Answer: A Difficulty: Moderate Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

24) The five categories of activities (operation, transportation, inspection, delay, and storage) are used in which of the following methods of process analysis? A) multiple-activity chart B) process chart C) capital budgeting D) flow diagram Answer: B Difficulty: Moderate Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

25) A process chart activity that occurs when something is put away until a later time is a(n): A) storage. B) transportation. C) inspection. D) delay. Answer: A Difficulty: Easy Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

26) A copy editor can proof read a single manuscript in 30 minutes. Over the course of a year, the copy editor proof reads all the manuscripts for 10 research journals. Each research journals publishes 4 issues per year and there are an average of 6 manuscripts in each issue. If the copy editor is paid $30 an hour, how much is the copy editor's annual proof reading labor cost to the university? A) $2,400 B) $3,600 C) $7,200 D) $18,000 Answer: B Difficulty: Moderate Keywords: annual labor cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

27) A copy editor can proof read a single manuscript in 30 minutes. Over the course of a year, the copy editor proof reads all the manuscripts for 10 research journals. Each research journals publishes 4 issues per year and there are an average of 6 manuscripts in each issue. If the copy editor is paid $45 an hour, how much is the copy editor's annual proof reading labor cost to the university? A) $2,400 B) $4,500 C) $5,400 D) $10,800 Answer: C Difficulty: Moderate Keywords: annual labor cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

28) A copy editor can proof read a single manuscript in 45 minutes. Over the course of a year, the copy editor proof reads all the manuscripts for 8 research journals. Each research journals publishes 4 issues per year and there are an average of 5 manuscripts in each issue. If the copy editor is paid $40 an hour, how much is the copy editor's annual proof reading labor cost to the university? A) $2,400 B) $4,800 C) $7,200 D) $10,800 Answer: B Difficulty: Moderate Keywords: annual labor cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

29) Highly customized job processes and processes that are highly divergent require the use of: A) the time study method. B) the elemental standard data approach. C) the predetermined data approach. D) the work sampling method. Answer: B Difficulty: Moderate Keywords: elemental standard data Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

Scenario 2.1 A manager observes a worker assembling gift baskets and records the data displayed in the table. Time (minutes) 8 10 12

Observations 5 10 5

30) Use the information in Scenario 2.1 to answer this question. What is the average time for this job element? A) 8 minutes B) 10 minutes C) 12 minutes D) 15 minutes Answer: B Difficulty: Moderate Keywords: time study, average time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

31) Use the information in Scenario 2.1. What is the normal time for this job element if the rating factor is 75%? A) 6 minutes B) 7.5 minutes C) 10 minutes D) 13.33 minutes Answer: B Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

32) Use the information in Scenario 2.1. What is the normal time for this job element if the rating factor is 60%? A) 6 minutes B) 7.5 minutes C) 12.5 minutes D) 16.67 minutes Answer: A Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

Scenario 2.2 A manager observes a worker assembling gift baskets and records the data displayed in the table. Time (minutes) 18 20 22

Observations 10 12 15

33) Use the information in Scenario 2.2. What is the average time for this job element? A) 16.33 minutes B) 18.54 minutes C) 20.27 minutes D) 21.37 minutes Answer: C Difficulty: Moderate Keywords: time study, average time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

34) Use the information in Scenario 2.2. What is the normal time for this job element if the rating factor is 80%? A) 15.06 minutes B) 16.22 minutes C) 18.37 minutes D) 25.34 minutes Answer: B Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

35) Use the information in Scenario 2.2. What is the normal time for this job element if the rating factor is 50%? A) 8.45 minutes B) 9.74 minutes C) 10.39 minutes D) 12.55 minutes Answer: C Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

36) Garman observes a worker assembling peanut valves and records the data displayed in the table. What is the normal time for this job element if the worker is rated at 80%? Time (seconds) 20 25 30 35

Observations 10 15 12 12

A) less than 23 seconds B) greater than or equal to 23 seconds but less than 26 seconds C) greater than or equal to 26 seconds but less than 29 seconds D) greater than or equal to 29 seconds Answer: A Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

37) Keith assembles peanut valves and the recorded data is displayed in the table. What is the normal time for this job element if he is rated at 75%? Time (minutes) 2.5 3.0 3.5

Observations 15 23 27

A) greater than or equal to 3 minutes B) less than 3 minutes but greater than or equal to 2.6 minutes C) less than 2.6 minutes but greater than or equal to 2.2 minutes D) less than 2.2 minutes Answer: C Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

Scenario 2.3 A job consists of three elements. Fifteen observations for each element were timed, and the resulting data are shown in the following table. A performance rating factor (RF) has also been assigned for each element, as shown in the table. The job has an allowance of 10% of normal time.

Element #1 #2 #3

Performance Rating (%) 80 90 105

Average Element Time (in minutes) 4 6 3

38) Use the information in Scenario 2.3. What is the normal time for job element #1? A) greater than or equal to 6 minutes B) less than 6 minutes but greater than or equal to 4.5 minutes C) less than 4.5 minutes but greater than or equal to 3 minutes D) less than 3 minutes Answer: C Difficulty: Easy Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

39) Use the information in Scenario 2.3. What is the normal time for job element #2? A) greater than or equal to 6 minutes B) less than 6 minutes but greater than or equal to 4.5 minutes C) less than 4.5 minutes but greater than or equal to 3 minutes D) less than 3 minutes Answer: B Difficulty: Easy Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

40) Use the information in Scenario 2.3. What is the normal time for job element #3? A) greater than or equal to 6 minutes B) less than 6 minutes but greater than or equal to 4.5 minutes C) less than 4.5 minutes but greater than or equal to 3 minutes D) less than 3 minutes Answer: C Difficulty: Easy Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

41) Use the information in Scenario 2.3. What is the normal time for the entire job? A) greater than or equal to 12.0 minutes B) less than 12.0 minutes but greater than or equal to 10 minutes C) less than 10 minutes but greater than or equal to 8.0 minutes D) less than 8.0 minutes Answer: B Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

42) Use the information in Scenario 2.3. What is the standard time for the entire job? A) greater than or equal to 12.0 minutes B) less than 12.0 minutes but greater than or equal to 10 minutes C) less than 10 minutes but greater than or equal to 8.0 minutes D) less than 8.0 minutes Answer: A Difficulty: Moderate Keywords: time study, normal time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

Scenario 2.5 A job consists of three distinct work elements that were timed with a highly accurate Swiss watch by a trained industrial engineer. The engineer recorded ten observations listed in the following table. All recorded times are in seconds. Element 1 21 20 20 22 20 21 20 21 20 21

Element 2 10 11 12 10 11 10 12 10 11 11

Element 3 14 14 13 13 15 15 15 13 14 13

43) Use the data in Scenario 2.5 to answer this question. If the performance rating factor (RF) is 10%, what is the normal time for Element 1? A) 20.60 seconds B) 22.66 seconds C) 23.42 seconds D) 24.44 seconds Answer: B Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

44) Use the data in Scenario 2.5 to answer this question. If the rating factor is 1.10, what is the normal time for Element 2? A) 11.88 seconds B) 12.53 seconds C) 13.10 seconds D) 14.22 seconds Answer: A Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

45) Use the data in Scenario 2.5 to answer this question. If the rating factor is 1.10, what is the normal time for Element 3? A) 11.33 seconds B) 12.82 seconds C) 13.90 seconds D) 15.29 seconds Answer: D Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

46) Use the data in Scenario 2.5 to answer this question. If the rating factor is 10% for all the elements, what is the normal process time for the entire job? A) 59.27 seconds B) 82.62 seconds C) 40.63 seconds D) 49.83 seconds Answer: D Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

47) Use the data in Scenario 2.5 to answer this question. If the rating factor is 10% for all the elements and the allowance is 20% for the whole process, what is the standard process time for the job? A) 70.69 seconds B) 59.80 seconds C) 39.27 seconds D) 65.02 seconds Answer: B Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

48) A time study analyst is attempting to determine the standard time for a work element. She observes a worker performing the work element at a higher-than-average pace. How will this fact be reflected in the time standard that is eventually created? A) The frequency of the work element per cycle will be increased. B) The proportion of allowance time will be increased above 1.0. C) The performance rating factor will be set greater than 1.0. D) The normal time for the work element will be increased. Answer: C Difficulty: Challenging Keywords: performance rating factor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

49) A manager is interested in setting a time standard for a machining operation. Which one of the following is least likely to be of use? A) time-study method B) elemental standard data approach C) predetermined data approach D) work sampling method Answer: D Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

50) Which of the following is not an advantage of the predetermined data approach to work measurement? A) Standards can be set before production begins. B) New work methods can be compared without conducting a time study. C) Performance ratings are not needed to derive standards. D) The approach is particularly applicable to firms with a flexible flow strategy. Answer: D Difficulty: Moderate Keywords: predetermined data Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

51) Which work measurement technique breaks down tasks into a series of generic micromotions? A) time study method B) elemental standard data approach C) predetermined data approach D) work-sampling method Answer: C Difficulty: Moderate Keywords: micro-motion, work measurement, predetermined data Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

52) Work sampling is most often used in situations in which: A) a time standard is needed for a repetitive job. B) an estimate of the proportion of the time spent on a particular activity is needed. C) it is important to keep the sample size down. D) special training is required for the observer, and stopwatches must be used. Answer: B Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

53) A work sampling method is used to determine the proportion of the time a machine is idle. The following information was gathered on a random basis.

Day Monday Tuesday Wednesday Thursday

No. Times Machine Idle 4 2 4 2

Total No. of Observations 12 8 10 10

What is the proportion of idle time observed for this machine? A) less than or equal to 5% B) greater than 5% but less than or equal to 15% C) greater than 15% but less than or equal to 25% D) greater than 25% Answer: D Difficulty: Easy Keywords: work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

54) A work sampling method is used to determine the proportion of the time a worker is idle. The following information was gathered on a random basis.

Time 8:00 - 10:00 am 10:00 am - 12:00 pm 1:00 - 3:00 pm 3:00 - 5:00 pm

No. of Times Clerk Idle 2 3 2 1

Total No. of Observations 6 8 7 9

What is the proportion of idle time observed for this worker? A) less than or equal to 5% B) greater than 5% but less than or equal to 10% C) greater than 10% but less than or equal to 20% D) greater than 20% Answer: D Difficulty: Easy Keywords: work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

55) A work sampling method is used to determine the proportion of the time a worker is idle. The following information was gathered on a random basis.

Day Monday Tuesday Wednesday Thursday

No. of Times Clerk Idle 8 8 7 7

Total No. of Observations 26 32 28 34

56) The first unit of production takes 12 hours to produce and the learning rate is expected to be 80 percent. How long will it take to produce the fourth unit? A) less than or equal to 7.0 hours B) greater than 7.0 hours but less than or equal to 7.5 hours C) greater than 7.5 but less than or equal to 8.0 hours D) greater than 8.0 hours Answer: C Difficulty: Moderate Keywords: learning curve, learning effect, labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

57) The first unit of production takes 12 hours to produce and the learning rate is expected to be 80 percent. How long will it take to produce the sixth unit? A) less than or equal to 6.0 hours B) greater than 6.0 hours but less than or equal to 7.7 hours C) greater than 7.7 but less than or equal to 9.5 hours D) greater than 8.0 hours Answer: B Difficulty: Moderate Keywords: learning curve, learning effect, labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

58) The first unit of production takes 20 hours to produce and the learning rate is expected to be 90 percent. How long will it take to produce the fourth unit? A) less than or equal to 12.0 hours B) greater than 12.0 hours but less than or equal to 15.0 hours C) greater than 15.0 but less than or equal to 18.0 hours D) greater than 18.0 hours Answer: C Difficulty: Moderate Keywords: learning curve, learning effect, labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

59) The first unit of production takes 20 hours to produce and the learning rate is expected to be 90 percent. How long will it take to produce the eighth unit? A) less than or equal to 12.0 hours B) greater than 12.0 hours but less than or equal to 15.0 hours C) greater than 15.0 but less than or equal to 18.0 hours D) greater than 18.0 hours Answer: B Difficulty: Moderate Keywords: learning curve, learning effect, labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

60) The first unit of production takes 20 hours to produce and the learning rate is expected to be 90 percent. How long will it take to produce the twelfth unit? A) less than or equal to 11.0 hours B) greater than 11.0 hours but less than or equal to 13.0 hours C) greater than 13.0 but less than or equal to 15.0 hours D) greater than 15.0 hours Answer: C Difficulty: Moderate Keywords: learning curve, learning effect, labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

Table 2.15 An analyst notes the time that customer appointments end with a tax preparer that is assigned customers requiring only the 1040EZ form. The times indicated in the table represent the departure times of the first eight clients for one tax preparation specialist. The 1040EZ tax forms among the different customers are very similar. The tax preparer started the first return at 12:00pm. Customer # 1 2 3 4 5 6 7 8

Time 12:45 pm 1:22 pm 1:55 pm 2:26 pm 2:56 pm 3:24 pm 3:50 pm 4:15 pm

61) Which statement about Table 2.15 is best? A) Learning effects are not present because the time between successive customer departures is not always shorter than the preceding time. B) Learning effects are present, but the actual percentage reduction cannot be determined. C) Learning effects are present because in general the time between successive departures drops. D) Learning effects are present here, but the actual percentage reduction cannot be determined. Answer: C Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

62) Based on the data in Table 2.15 which value is closest to the learning rate for the tax preparer? A) 80% B) 82% C) 87% D) 92% Answer: B Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

63) Based on Table 2.15, how long should it take the tax preparer to complete the 16th return of the day? A) 16 minutes B) 19 minutes C) 21 minutes D) 24 minutes Answer: C Difficulty: Challenging Keywords: learning curve analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

64) A process troubleshooter has to decide which problem to address first with his or her cause-and-effect diagram. The data analysis tool that will help him decide which problem to tackle first is a: A) scatter diagram. B) check sheet. C) flowchart. D) Pareto chart. Answer: D Difficulty: Moderate Keywords: Pareto chart, relative problem frequency Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

65) A manager of a fiberglass molding operation suspects that the number of process failures is related to the number of total units produced of a particular product. A tool most useful in this analysis would be a: A) checklist. B) cause-and-effect diagram. C) Pareto chart. D) scatter diagram. Answer: D Difficulty: Moderate Keywords: scatter diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

66) Which one of the following techniques will help management trace customer complaints directly to the process involved? A) cause-and-effect diagram B) quality circles C) quality engineering D) specification management Answer: A Difficulty: Moderate Keywords: cause-and-effect diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

67) A restaurant manager tracks complaints from the diner satisfaction cards that are turned in at each table. The data collected from the past week's diners appear in the following table. Complaint Food taste Food temperature Order mistake Slow service Table/utensils dirty Too expensive

Frequency 27 9 5 19 47 9

Using a classic Pareto analysis, what top categories comprise 80% of the total complaints? A) Table/utensils dirty B) Table/utensils dirty, Food taste, Slow service C) Food taste, Food temperature, Order mistake, Slow service, Table/utensils dirty D) Food taste, Food temperature, Order mistake, Slow service, Too expensive Answer: B Difficulty: Moderate Keywords: Pareto analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

68) A restaurant manager tracks complaints from the diner satisfaction cards that are turned in at each table. The data collected from the past week's diners appear in the following table. Complaint Food taste Food temperature Order mistake Slow service Table/utensils dirty Too expensive

Frequency 80 9 2 16 47 4

Using a classic Pareto analysis, what bottom categories comprise about 20% of the total complaints? A) Order mistake, Too expensive, Food temperature B) Slow service, Order mistake C) Food taste, Food temperature, Slow service D) Food taste, Table/utensils dirty Answer: A Difficulty: Moderate Keywords: Pareto analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

69) A farmer that has been well-trained in the scientific method divides his acreage into several plots and plants the same variety of hay in each. He varies the amount of fertilizer applied to each plot and carefully records the yield, in bales per acre, for each of the plots. Which of these tools would be the best to help him analyze the effect of fertilizer application on hay yield? A) cause and effect diagram B) scatter diagram C) Pareto chart D) flow chart Answer: B Difficulty: Moderate Keywords: scatter diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

70) Which of the following analyses is best suited for a scatter diagram? A) A professor plots a student's exam score against the number of homework problems the student completed prior to the exam. B) A professor determines a student's letter grade based on their final course average. C) A professor determines the curve on the most recent exam by categorizing students into groups called A, B, C, etc. D) A professor studies his student evaluations and classifies complaints into broad categories such as Assign More Homework and Make Exams More Challenging. Answer: A Difficulty: Moderate Keywords: scatter diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

71) A restaurant manager tracks complaints from the diner satisfaction cards that are turned in at each table. The data collected from the past week's diners have been plotted and appear in the following graph. The number of complaints for each category is with each bar.

How was the value for the point represented by the triangle calculated? A) B) C) D) Answer: D Difficulty: Moderate Keywords: Pareto analysis Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

72) ________ is represented in a process flow chart when an outgoing arrow from one step splits into two or more arrows that lead to different boxes. Answer: Divergence Difficulty: Moderate Keywords: decision point, divergence, flow chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

73) A(n) ________ shows processing steps grouped according to which company department is responsible for performing them. Answer: swim lane flowchart Difficulty: Moderate Keywords: swim lane flowchart, flow chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

74) The ________ in a service blueprint separates which steps are in view of the customer from those that aren't. Answer: line of visibility Difficulty: Moderate Keywords: line of visibility, service blueprint Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

75) ________ is the process of creating labor standards based on the judgment of skilled observers. Answer: Work measurement Difficulty: Easy Keywords: work measurement Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

76) The time added to adjust for factors such as fatigue or equipment malfunction is called ________. Answer: allowance, allowance time Difficulty: Moderate Keywords: allowance, allowance time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

77) ________ involves estimating the proportion of time spent by people and machines on activities, based on a large number of observations. Answer: Work sampling Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

78) The ________ can be represented by a line called a learning curve. Answer: learning effect Difficulty: Moderate Keywords: learning effect, learning curve Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

79) An eighty percent learning curve means that for each doubling of output, the time required to complete the last task is ________ percent less than before. Answer: twenty Difficulty: Moderate Keywords: learning effect, learning curve Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

80) A(n) ________ is a form used to record the frequency of occurrence of certain product or service characteristics related to quality. Answer: checklist Difficulty: Moderate Keywords: checklist Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

81) A(n) ________ is a bar chart on which the factors are plotted in decreasing order of frequency along the horizontal axis. Answer: Pareto chart Difficulty: Moderate Keywords: Pareto chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

82) A(n) ________ would be a useful tool to determine the effect that the number of practice problems solved correctly has on the midterm score. Answer: scatter diagram Difficulty: Moderate Keywords: scatter diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

83) A(n) ________ is a diagram that relates a key quality problem to its potential causes. Answer: cause-and-effect diagram Difficulty: Moderate Keywords: cause-and-effect, fishbone, Ishikawa Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

84) How can flowcharts and process charts be used to study and improve operations? Include descriptions of these two tools, the types of questions that can be addressed with them, and the extent to which teams can be used. Answer: Flowcharts trace the flow of information, customers, employees, equipment, or material through a process. Process charts record all the activities performed by a person or a machine, at a workstation, with a customer, or on materials. Answers will vary. Difficulty: Moderate Keywords: flowchart, information flow, customer flow, employee flow, material flow Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

85) The sales team has just finished creating a process chart of the sales-call process. After fifteen minutes of high-fiving, they decide to tape the flowchart to the conference room wall and stand back a safe distance admiring the many symbols on the chart. You join them, and while you don't know much about sales calls, your expertise in process analysis and improvement is well-respected. What would you look for in the chart that would let you know whether their sales-call process was well-conceived? Answer: Flowcharts trace the flow of information, customers, employees, equipment, or material through a process. At a glance, you might count the number of symbols representing transportation, inspection, and delays, since these process steps are typically not value-adding. You might also check for loops in the process and determine why there is a need to recirculate the information, customers, material, or workers through some of the process steps. Were these loops added because process steps are not always performed correctly the first time? Another general flow chart element to examine is the degree of branching. Are decision points clearly indicated and is there an unambiguous method for the worker or customer to realize which branch is the most appropriate one to take as they move forward through the process? Finally, you should realize that the flowchart was constructed by a group that is probably not accustomed to flowcharting (after all, they are in sales) so you might confirm that the process that has been charted is truly an "as-is" representation of the process and not a "hoped for" or "according to policy" representation. Difficulty: Moderate Keywords: flowchart, customer flow, employee flow, process improvement Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

86) You have been hired as an external consultant to improve processes at a business. You are unfamiliar with exactly how the work is currently done but are intimately familiar with charting techniques and data analysis tools. What is a general sequence for use of these tools and why should you use them in the sequence you specify? Answer: Because you are unfamiliar with the process, you should first use a flowchart, service blueprint, or process chart. This diagram will give you a big-picture view of what is currently happening. Once you are more familiar with the organization and the departmental responsibilities, it might be helpful to re-cast this flowchart in the form of a swim lane flowchart to identify handoffs in the process flow. Flow charts in general will also provide some insight into key data collection points where workers might use checklists to collect some data. After data has been collected, elementary data analysis may be performed using a histogram, Pareto chart, and scatter diagram as appropriate. The tallest/leftmost bar on a Pareto chart can be the head of the first fishbone diagram (if the bars represent problems). Once the largest problem is solved, more data can be collected to verify that improvements in the process have taken place. Difficulty: Challenging Keywords: checklist, histogram, Pareto chart, fishbone, cause-and-effect, flowchart, service blueprint Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

87) Consider the four steps in a time study. If an analyst were to make a mistake, during which step would the impact on the standard time be the greatest? Explain your reasoning. Answer: The four steps are selecting work elements, timing the elements, determining the sample size, and setting the standard. Answers will vary as to the step that has the greatest impact on the standard time determination. If the work elements are not selected properly, then the analyst may include too many process steps, thereby inflating the standard time or too few, which would result in a standard time that is too low. A stopwatch error can also be too high or too low and might have the same impact. If the task is a 40-yard dash and the organization is an NFL team, those consequences can be disastrous. A sample size that is too small might result in some measurement error that could fall either way, but a sample that is too large would simply result in more time and effort expended collecting data than necessary. This large sample would yield a more accurate estimate than is absolutely necessary. Setting the standard improperly can again overestimate or underestimate the true standard time depending on the nature of the mathematical error. Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

88) Explain why a sampling schedule is important in a work sampling study. Answer: A sampling schedule should determine when the workers are to be observed because the observations are just snapshots of time. In addition, the observation times should be randomized to avoid biases in worker performance. Difficulty: Moderate Keywords: work sampling, schedule Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

89) Compare and contrast the method of time study to the method of work sampling. What are the strengths and limitations of each, and for which applications are they best suited? Answer: Both are direct observation methods. However, a time study observes several cycles of work elements to determine a time standard, whereas work sampling takes "snapshots" of the facility to determine the percentage of time engaged in an activity. Time studies require experienced analysts, should not be used for tasks that vary each time, and are many times found to be objectionable to workers. Work sampling does not require special training and is generally accepted by workers because it tends to examine activities of the group rather than of the individual. In addition, many work sampling studies can be conducted simultaneously. Difficulty: Challenging Keywords: time study, work sampling Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

90) A manager of a company producing computer chips knows that in the early stages of production for a new product, the expenditures exceed receipts, whereas in the latter stages, the reverse is true. Give an explanation for this phenomenon. Answer: The learning curve theory states that the direct labor costs will exceed the average in the early stages of production, whereas the reverse is true in the latter stages. Pricing is often predicted on average costs. Difficulty: Challenging Keywords: learning curves, direct labor Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

91) An industrial engineer observes a brand new process and develops time standards for several of the manual components of the production line. What are the implications of learning effects on the time standards and the line balance? What could be done to address this situation? Answer: The learning curve theory states that the labor requirement will be greater in the early stages of production and lower as workers enjoy several repetitions of their jobs. A line balance that is performed using inflated times will have increased idle time and decreased efficiency as learning effects occur. The industrial engineer can compensate for learning effects by applying a smaller performance rating factor (or allowance factor if downtime is an issue). If the industrial engineer is unsure of the workers' learning rate, the line can be balanced, and then a second study performed to rebalance it. Difficulty: Challenging Keywords: learning curves, output rate, time standard, line balance Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

92) How could a fishbone chart be used to design a new process? Answer: Also called a cause-and-effect diagram, the classic fishbone chart relates a key quality problem to its potential causes. Instead of placing a problem at the head of the fish, the process designers might place the desired process outcome at the head of the fish, e.g., "100% accuracy in order fulfillment" and then fill out the skeletal structure with elements that can help achieve this desired process outcome. Difficulty: Moderate Keywords: fishbone diagram, cause-and-effect diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Discuss how to define, measure, and analyze processes.

93) Create a flowchart that displays the proper sequential use of the major graphical tools in Chapter 2, "Process Strategy and Analysis." Include a note next to each tool that explains how the output of one tool is used as the input for the following tool. Answer: A flowchart shows a big picture view of the process. The output from this step is a view that shows appropriate points for data collection using a checklist. Once the checklist has been deployed, the data that has been collected can be analyzed by a histogram or a Pareto chart (if data can be categorized) or a scatter diagram (if coordinate data fall more naturally into continuous distributions). Finally, the tallest bar in the Pareto chart serves as the input to a fishbone (or cause-and-effect) diagram as the fishbone's head.

Difficulty: Moderate Keywords: flowchart, checklist, histogram, Pareto, scatter, fishbone, cause-and-effect Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

94) An existing insurance application process requires manual keying of three different forms by a team of data entry operators. The three forms' input times appear in the following table along with the numbers of each type of form anticipated for the coming year. A proposed refinement in the process would reduce the number of forms but make each slightly longer. This would be combined with a search of public records on the World Wide Web as necessary. These times and quantities appear in the lower half of the table. If the labor rate for the data entry operators is the same, which method is preferable?

Form Part A — Existing Method Part B — Existing Method Part C — Existing Method P art A — Proposed Method Part B — Proposed Method Web Search — Proposed Method

Time to Input (minutes) 3 3 4 4 4 2

Quantity (forms/year) 1,200,000 1,200,000 1,100,000 1,200,000 1,200,000 650,000

Answer: Annual Labor Cost = (Time to Perform Process) × (Number of Times Performed/Year) Existing Method Part A 3 minutes × 1,200,000 = 3,600,000 Part B 3 minutes × 1,200,000 = 3,600,000 Part C 4 minutes × 1,100,000 = 4,400,000 Proposed Method Part A 4 minutes × 1,200,000 = 4,800,000 Part B 4 minutes × 1,200,000 = 4,800,000 Part C (web) 2 minutes × 650,000 = 1,300,000 Total Proposed Process: 10,900,000 minutes - A savings of 700,000 minutes/year Difficulty: Moderate Keywords: annual labor cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

95) The labor time for successive units produced is plotted in the graph shown below. What is the learning percentage reflected by this graph?

Answer: The first unit takes 20 units of time and the 16th unit takes 8.19 of the same time units. From the first to the 16th unit there are four doublings of output, each with an identical reduction in percentage of time needed for the last unit. In the absence of the classic learning curve formula, a student might set up a goal seek in Excel to find the appropriate learning curve percentage or use a trial and error approach with POM for Windows. Difficulty: Challenging Keywords: learning curve Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

96) A discount store is experiencing an unacceptable number of dissatisfied customers leaving from the checkout process. Information from customer complaints about the checkout process was collected and is found in the following table. Construct a Pareto chart to identify the significant problems. Problem Type Cashier slow Price check required Line too long Cashier unfriendly

Total Problems 15 9 22 4

Answer:

Difficulty: Moderate Keywords: Pareto chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

97) Develop a fishbone diagram from the perspective of a pizza restaurateur to troubleshoot the pizza delivery process to determine why weekend pizza deliveries are usually late. Make sure your diagram includes at least four bones and ten ribs. Answer: Answers will vary, but the head of the fishbone diagram should show "late pizza delivery on the weekend" as the problem to be studied. Major bones might include materials, manpower, machinery, methods, procedures, other, policies, among others. Specific statements for ribs will provide the greatest variety but might include a lack of ingredients, mislabeled ingredients, poor handwriting, computer glitch, ovens of insufficient capacity, poorly trained employees, low staffing levels, poor delivery vehicles, and directionally-challenged drivers, among others. Difficulty: Moderate Keywords: fishbone diagram Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

98) Because a telephone customer service center has experienced several problems, it has begun to analyze the data from customer complaints. The first step was to construct the following table. Use this data to build a Pareto chart to help identify the "vital few" problems. Process Failure Person not available Incorrect information given Phone line busy Long delay Phone tree confusing People unfriendly

Total Failures 5 12 7 39 20 17

Answer:

99) The semester project came back from the copy store and to her horror, the project leader has just noticed that the left side y-axis of a key Pareto chart was cut off due to a printing error. The bar chart component uses the missing left side y-axis and the cumulative percentage line on the Pareto chart uses the right side y-axis. The project leader is pretty sure that the total number of observations in all combined categories is 200. Can you help her develop estimates of the counts for each of the five categories?

Answer: The actual counts for the five categories are: Category MC FB TF SA PB

Count 104 42 40 8 6

Some allowance should be made for alignment in reading the graph's right hand y-axis and matching up the location of the cumulative percentage markers for each category. Because the total number of observations equals 200, the percentages on the right side y-axis can be multiplied by 200 to yield estimates of the count values. Based on a rough reading: MC = 200 × 52.5 = 105 FB = 200 × (72.5 - 52.5) = 40 TF = 200 × (92.5 - 72.5) = 40 SA = 200 × (97.5 - 92.5) = 10 PB = 200 × (100 - 97.5) = 5 Difficulty: Moderate Keywords: Pareto chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

100) Develop a process chart for a manual car wash. Answer: Answers will vary, but a typical answer might look like the following process chart:

Difficulty: Challenging Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

101) Develop a process chart for one of the following: 1) Researching and writing a paper for your Operations Management class 2) Managing, developing and completing a team project for a Finance (or other) class 3) Planning for your job interview process as you approach graduation (including resume preparation, developing interview skills, researching company backgrounds, etc.) 4) Studying and developing a process improvement plan for a business or other process you are familiar with (e.g., fast food restaurant, obtaining tickets to a university-sponsored event, dry cleaners, book purchases for next term, and the like) Answer: Answers will vary, but should follow the approach used to develop the following process chart for a manual car wash. The process chart should include all value adding and non-value adding steps, and a summary of the steps and times that recap the process.

Difficulty: Moderate Keywords: process chart Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

102) A pilot work study has been conducted on a new operation with four work elements. The following times, in seconds, were obtained using a time study.

a. What is the normal time for this operation? b. If an allowance of 20 percent is used, what is the standard time for this task? Answer: Rating Work Element Factor 1 1.10 2 1.05 3 0.85

Average Time 13.0 28.0 10.0

Normal Times 14.3 29.4 8.5

a. Normal time = 14.3 + 29.4 + 8.5 = 52.2 seconds b. Standard time = (52.2)(1.20) = 62.64 seconds Difficulty: Moderate Keywords: time study, normal time, standard time Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

103) An undergraduate business student studies diligently in the library late in the term in anticipation of an outstanding performance on her final exams. She asks a friend to spy on her at random intervals to determine what percentage of time she is actually studying. Over the course of three days, her friend records the following observations:

Observation Period Monday Tuesday Wednesday

Times Studying 19 22 9

Times Not Studying 4 4 2

Observations 23 26 11

Based on this work sample, what percentage of time was the student actually studying? Answer: Total observations = 60 Number of observations student was studying = 50 % of time studying = 50 / 60 = 83.3% Difficulty: Moderate Keywords: work sampling study, work sample Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

104) A job consists of three distinct work elements that were timed with a highly accurate Swiss watch by a trained industrial engineer. The engineer recorded ten observations and assigned the performance rating that is recorded in the bottom row of the table under the corresponding work element. All recorded times are in seconds. Element 1 15 17 16 13 15 14 16 14 15 16 110

Element 2 23 25 23 26 25 23 24 25 23 22 115

Element 3 45 51 52 49 46 43 51 50 49 49 105

The allowance factor assigned is 20% for the data recorded. The rating factor for Element 1 is 10%, for Element 2 is 15%, and for Element 3 is 5%. What is the standard time for the three-element job? Answer: The average for Element 1 is 15.1 seconds; the average for Element 2 is 23.9 seconds; the average for Element 3 is 48.5 seconds. The normal time for Element 1 is 16.61 seconds; the normal time for Element 2 is 27.49 seconds; the normal time for Element 3 is 50.93 seconds. Add them all up to get 95.03 seconds and multiply by 1.20 to get a standard time for the job of 114.04 seconds. Difficulty: Moderate Keywords: time study Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Discuss how to define, measure, and analyze processes.

2.7 Redesigning and Managing Process Improvements 1) Brainstorming involves letting a group of people, knowledgeable about the process, propose ideas for change by saying whatever comes to mind. Answer: TRUE Difficulty: Easy Keywords: brainstorming, process ideas Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Interpersonal Relations and Teamwork Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

2) Brainstorming sessions can be effectively conducted on the Internet using software that allows one person to see another's ideas and build on them. Answer: TRUE Difficulty: Easy Keywords: brainstorming, Internet software Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Information Technology Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

3) The bursar's office at a large state school sends a team to the bookstore on campus to see how they handle customers and process payments. This is an example of functional benchmarking. Answer: FALSE Difficulty: Moderate Keywords: functional benchmarking, internal benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

4) All forms of benchmarking are best applied in situations where long-term continuous improvement is desired. Answer: TRUE Difficulty: Moderate Keywords: benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

5) Delta Airlines would like to competitively benchmark their on-time performance. It would be best for them to benchmark their performance against FedEx who is a leader in on-time performance. Answer: FALSE Difficulty: Moderate Keywords: competitive benchmarking, industry leader Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

6) Which of these questions is not one of the initial round questions typically used to uncover opportunities during a process redesign? A) What is being done? B) When is it being done? C) Who is doing it? D) Why are we doing it? Answer: D Difficulty: Moderate Keywords: process redesign, questioning, brainstorming Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

7) Brainstorming sessions must have: A) all participants together in the same room. B) a mechanism for evaluation of the ideas as they are surfaced. C) a means of implementing ideas as they are surfaced. D) a way for all participants to communicate. Answer: D Difficulty: Easy Keywords: brainstorming Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Interpersonal Relations and Teamwork Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

8) Xerox benchmarked its distribution system against that of L. L. Bean's. This is an example of: A) competitive benchmarking. B) internal benchmarking. C) functional benchmarking. D) disaggregate benchmarking. Answer: C Difficulty: Moderate Keywords: benchmarking, functional benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

9) Benchmarking studies must have: A) a direct competitor for comparison. B) a team composed of at least one member from each department in the organization. C) a team composed of at least one member from each department in the organization plus one customer of each process output. D) quantitative goals. Answer: D Difficulty: Moderate Keywords: benchmarking, data, quantitative goals Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

10) An accounting firm realizes it is woefully inadequate at cultivating new clients. It is allowed to observe a rival firm perform the new-client cultivation process in hopes of gleaning improved methods it can adopt. This is an example of: A) competitive benchmarking. B) functional benchmarking. C) internal benchmarking. D) generic benchmarking. Answer: A Difficulty: Moderate Keywords: benchmarking, competitive benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

11) An accounting professor realizes she is woefully inadequate at performing research. She discusses the art of research with a colleague and gains important insights that permit her to establish a research agenda. This is an example of: A) competitive benchmarking. B) functional benchmarking. C) internal benchmarking. D) generic benchmarking. Answer: C Difficulty: Moderate Keywords: benchmarking, internal Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

12) An accounting firm realizes it is woefully inadequate at cultivating new clients. It is allowed to observe a law firm perform the new-client cultivation process in hopes of gleaning improved methods it can adopt. This is an example of: A) competitive benchmarking. B) functional benchmarking. C) internal benchmarking. D) generic benchmarking. Answer: B Difficulty: Moderate Keywords: benchmarking, functional benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

13) Which of these benchmarking metrics is not suitable for a support process? A) average employee turnover rate B) total cost of payroll processes per $1,000 revenue C) the impression that applicants have as they submit applications D) number of accepted jobs as a percent of job offers Answer: C Difficulty: Easy Keywords: benchmarking metrics Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

14) When managing processes, it is vital that: A) attention is paid to competitive priorities and strategic fit. B) design teams are allowed to function creatively and set their own charter. C) design teams are not held accountable since their involvement ends once the new process rolls out. D) the organization is not satisfied unless fundamental reengineering changes are made. Answer: A Difficulty: Moderate Keywords: managing processes, competitive priorities, strategic fit Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

15) When managing processes, it is vital that: A) design teams are allowed to function creatively and set their own charter. B) the organization is not satisfied unless fundamental reengineering changes are made. C) sound project management practices are used to implement the redesigned process. D) people are redesigned at the same time the process is redesigned. Answer: C Difficulty: Moderate Keywords: managing processes, project implementation Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

16) Good process management should include: A) a mechanism for identifying what goes wrong and who is responsible. B) a method for creating self-directed work teams. C) at least half time dedicated to each employee's self-actualization. D) an infrastructure for continuous improvement. Answer: D Difficulty: Moderate Keywords: managing processes, continuous improvement Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

17) A(n) ________ is a method where a group of people, knowledgeable about the process and its disconnects, propose ideas for change in a rapid-fire manner. Answer: brainstorming session Difficulty: Moderate Keywords: brainstorming Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Interpersonal Relations and Teamwork Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

18) ________ is a continuous, systematic procedure that measures a firm's products, services, and processes against those of industry leaders. Answer: Benchmarking Difficulty: Moderate Keywords: benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

19) The bursar's office at your university decides to benchmark the collections department of a credit agency to improve their own collection rate. This is an example of ________. Answer: functional benchmarking Difficulty: Moderate Keywords: benchmarking, functional benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

20) ________ is based on comparison of processes with a direct adversary in industry. Answer: Competitive benchmarking Difficulty: Moderate Keywords: benchmarking, competitive benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

21) ________ data is probably the easiest to obtain compared to other types of benchmarking data. Answer: Internal benchmarking Difficulty: Moderate Keywords: internal, internal benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

22) ________ involves using an organizational unit with superior performance as the ideal for other departments. Answer: Internal benchmarking Difficulty: Moderate Keywords: benchmarking, internal Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

23) Provide examples for each of the three types of benchmarking. Answer: Examples will vary, but the three types are competitive, functional, and internal. Competitive benchmarking is comparison with a direct competitor; functional benchmarking is a comparison with similar functions outside the firm but not of a direct competitor; and internal benchmarking is a comparison with another department or function in the same company. Difficulty: Moderate Keywords: benchmarking, competitive, internal, functional Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

24) The authors discuss seven mistakes when managing processes, arguing that failure to manage processes is ultimately a failure to manage the business. What are any four of those mistakes? Answer: Answers will vary depending on which four mistakes are chosen. The full list of seven mistakes are: 1. Not Connecting with Strategic Issues. Is particular attention being paid to core processes, competitive priorities, impact of customer contact and volume, and strategic fit during process analysis? 2. Not Involving the Right People in the Right Way. Does process analysis closely involve the people performing the process, or those closely connected to it as internal customers and suppliers? 3. Not Giving the Design Teams and Process Analysts a Clear Charter, and then Holding Them Accountable. Does management set expectations for change and maintain pressure for results? Does it allow paralysis in process improvement efforts by requiring excessive analysis? 4. Not Being Satisfied Unless Fundamental "Reengineering" Changes are Made. Is the radical change from process reengineering the expectation? If so, the cumulative effect of many small improvements that could be made incrementally could be lost. Process management efforts should not be limited to downsizing or to reorganization only, even though jobs may be eliminated or the structure changed. It should not be limited to big technological innovation projects, even though technological change occurs often. 5. Not Considering the Impact on People. Are the changes aligned with the attitudes and skills of the people who must implement the redesigned process? It is crucial to understand and deal with the people side of process changes. 6. Not Giving Attention to Implementation. Are processes redesigned, but never implemented? A great job of flowcharting and benchmarking is of only academic interest if the proposed changes are not implemented. Sound project management practices are required. 7. Not Creating an Infrastructure for Continuous Process Improvement. Is a measurement system in place to monitor key metrics over time? Is anyone checking to see whether anticipated benefits of a redesigned process are actually being realized? Difficulty: Challenging Keywords: processes, managing processes Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

25) Suppose you have owned and operated your own package delivery business for a year. You would like to engage in competitive benchmarking to make sure your business is run as smoothly as possible. What firms and processes would you consider for benchmarking? Defend your choices of these firms and processes. What specific metrics would you focus on and why? How could the data be reliably collected at your own business? Answer: Answers will vary, but processes that might be considered are the pick up and delivery processes, sorting, billing, customer service, and many others. The student might identify some processes as being more crucial to customer satisfaction or more tightly coupled with their own corporate strategy, or perhaps processes that they feel are the most difficult to master. Metrics include the percent of on-time delivery, fraction of correct bills, profit per package, number of days delivery, fill rate of delivery vehicles, and many others. The data may be collected via information technology in the field or automatically collected as packages pass delivery checkpoints. Customer satisfaction data can be collected by comment cards or by customer service representatives staffing a calling center. Difficulty: Moderate Keywords: benchmarking, competitive benchmarking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Analytical Thinking Learning Objective: Identify the commonly used approaches for effectively improving and controlling processes.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 3 Quality and Performance 3.1 Costs of Quality 1) The investment a company makes in training employees to perform their duties and redesigning products and processes to improve them would be categorized as appraisal costs. Answer: FALSE Difficulty: Moderate Keywords: prevention cost, appraisal cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

2) Performing an acceptance sampling of a batch of manufactured parts to check for defects is an example of prevention costs. Answer: FALSE Difficulty: Moderate Keywords: appraisal cost, prevention cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

3) An example of an external failure cost would be scrap that incurred when a defective item is unfit for further processing. Answer: FALSE Difficulty: Moderate Keywords: internal failure cost, external failure cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

4) From an ethical standpoint, it is not a requirement to consider the greater societal effects of decisions that reduce the costs of quality. Answer: FALSE Difficulty: Easy Keywords: quality, ethics Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Ethical Understanding and Reasoning Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

5) Since an employee's responsibility is to move production along, it is ethical to knowingly pass defective services or products to internal or external customers when capacity is tight. Answer: FALSE Difficulty: Easy Keywords: quality, ethics Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Ethical Understanding and Reasoning Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

6) When a process fails to satisfy a customer: A) it is quite often the customer's fault. B) it is considered a defect. C) it is time to reengineer the process. D) it is usually half the customer's fault and half the company's fault. Answer: B Difficulty: Easy Keywords: process defect Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

7) Which of the following would be considered a prevention cost of quality? A) inspecting incoming raw materials B) training workers to perform their jobs C) issuing a recall of defective product before another customer is injured D) performing a 24 hour burn-in on every item produced to make sure it works before it is shipped Answer: B Difficulty: Easy Keywords: prevention cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

8) Which of the following would be considered an appraisal cost of quality? A) training workers to perform their jobs B) purchasing better tools for workers to perform their jobs C) repairing an item under the warranty D) running a functional test on each item before it is boxed for shipment Answer: D Difficulty: Moderate Keywords: appraisal cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

9) A prime example of an internal failure cost is the: A) labor cost associated with inspecting every item produced. B) labor cost associated with repairing an item returned under warranty. C) material cost of a piece of stock metal that has had too large a hole drilled in it. D) material cost of the paint applied to the case of a finished unit. Answer: C Difficulty: Moderate Keywords: internal failure cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

10) A professor, dissatisfied with a product he's purchased, bad mouths the product to his class, resulting in decreased market share (since the students believe everything he tells them). The manufacturer suffers: A) an internal failure cost. B) an external failure cost. C) a prevention cost. D) an appraisal cost. Answer: B Difficulty: Easy Keywords: internal failure cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

11) Improving quality seems to be a strategic weapon in gaining market share. However, improving quality entails allocation of resources and effort. As greater effort is expended to stop defects before they occur, which one of the following costs increases? A) prevention costs B) appraisal costs C) internal failure costs D) external failure costs Answer: A Difficulty: Easy Keywords: prevention cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

12) Which one of the following is a consequence of external failures? A) increased returns B) increased inventory costs C) increased productivity D) decreased lead time Answer: A Difficulty: Moderate Keywords: internal failure Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

13) Increasing the quality level by better products and processes may: A) allow a company to raise the price of the product. B) move a company closer to a competitive priority of price. C) reduce prevention costs. D) ensure that the trade-off between prevention costs and other costs of poor quality is worthwhile. Answer: A Difficulty: Moderate Keywords: quality level, price Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

14) Which one of the following is considered to be an appraisal cost? A) cost of quality audits B) cost of supplier programs C) cost of rework D) cost of process design Answer: A Difficulty: Moderate Keywords: appraisal cost, audit costs Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

15) Which one of the following statements is true? A) Appraisal costs decrease as quality level decreases. B) Appraisal costs increase as the variation of output increases. C) Appraisal costs increase as the variation of output decreases. D) Appraisal costs increase as quality level increases. Answer: B Difficulty: Moderate Keywords: appraisal cost, quality costs Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

16) A cost that is incurred if some aspect of a service must be performed again is called a(n): A) yield loss. B) prevention cost. C) appraisal cost. D) rework cost. Answer: D Difficulty: Moderate Keywords: rework cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

17) When errors have been made while delivering a service such that some aspect of the service must be performed again, the resultant cost is called a(n): A) warranty. B) scrap cost. C) rectification cost. D) external failure cost. Answer: C Difficulty: Moderate Keywords: internal failure cost, rectification cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

18) Which one of the following is part of prevention costs? A) the costs of quality audits B) the costs resulting from scrap C) the costs of improving process design and product design D) the costs of lawsuits from injury from use of the product Answer: C Difficulty: Challenging Keywords: prevention cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

19) Which one of the following is a potential consequence of external failures? A) longer lead times B) less rework C) more litigation costs D) lower product costs Answer: C Difficulty: Moderate Keywords: external failure Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

20) At which of the following steps will the cost of detecting product defects be the highest? A) customer B) process C) final testing D) raw material Answer: A Difficulty: Moderate Keywords: external failure Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

21) The internal failure known as ________ occurs when an item is unfit for further processing. Answer: scrap Difficulty: Moderate Keywords: scrap, yield loss Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

22) ________ is an internal cost of quality incurred when a process step must be performed again or fixed before an item can be shipped. Answer: Rework Difficulty: Easy Keywords: scrap, yield loss Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

23) ________ costs are associated with quality audits aimed at confirming that the quality system is functioning correctly. Answer: Appraisal Difficulty: Moderate Keywords: external failure cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

24) ________ costs are associated with preventing defects before they happen. Answer: Prevention Difficulty: Easy Keywords: prevention cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

25) Illustrate the differences between prevention and appraisal costs using a restaurant setting as an example. Answer: Prevention costs are associated with preventing defects before they happen. In a restaurant, this would be the expense associated with training employees how to take an order, prepare food, bus tables or in mistake-proofing systems. Appraisal costs are incurred in assessing the level of performance of the firm's processes. In a restaurant this might be inspections by managers, reviewing and acting on customer satisfaction cards, or testing prepared dishes. Difficulty: Moderate Keywords: prevention cost, appraisal cost Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

26) What is the long-term impact of unethical business practices on product and service quality? Answer: Firms that produce better quality services or products can expect to earn a premium for that higher quality. They can also expect to grow and prosper over time because of their ability to create true value for customers. Firms that engage in deception, however, undermine the ability and competence of their employees and demean their relationship with external customers. The unfortunate message these firms send to their employees, who are also their internal customers, is that management views them as being less capable of producing quality services or products than their counterparts in ethical firms. Under these conditions employees are also less likely to be motivated to put forth their best effort. The message unethical firms send to their external customers is that their product or service cannot effectively compete with that of others and so they must engage in deception in order to be profitable. Employees of firms that attempt to profit by deceiving customers are less likely to create true value for customers through product or service improvements that can enhance the customers' experience. That erodes a firm's ability to compete now and in the future. Difficulty: Moderate Keywords: dimensions of quality Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Ethical Understanding and Reasoning Learning Objective: Define the four major costs of quality and their relationship to the role of ethics in determining the overall costs of delivering products and services.

3.2 Total Quality Management and Six Sigma 1) How well a product or service serves its intended purpose at a price customers are willing to pay is the definition of the "conformance to specifications" dimension of quality. Answer: FALSE Difficulty: Easy Keywords: conformance to specifications, value Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

2) The focus of customer satisfaction under total quality management (TQM) is singularly on the external customers of the firm. Answer: FALSE Difficulty: Moderate Keywords: TQM, internal customer, external customer Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

3) Internal customers are those that have some familial relation working at the business providing the good or service. Answer: FALSE Difficulty: Easy Keywords: internal customer Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

4) Quality at the source refers to the effort to catch and correct any mistakes as they are being made by those that are making them. Answer: TRUE Difficulty: Easy Keywords: quality at the source, TQM Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

5) Assessing how well a product or service performs its intended purpose is the definition of the value dimension of quality. Answer: FALSE Difficulty: Moderate Keywords: TQM, value, fitness for use Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

6) The Six Sigma five-step approach contains the elements define, monitor, analyze, improve, and correct. Answer: FALSE Difficulty: Moderate Keywords: Six Sigma, define, measure, analyze, improve, control Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

7) Applying Six Sigma to service processes is more challenging than for manufacturing processes. Answer: TRUE Difficulty: Moderate Keywords: Six Sigma, service processes, manufacturing processes Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

8) Because Six Sigma involves the elimination of defects, it can only be applied in manufacturing processes. Answer: FALSE Difficulty: Easy Keywords: Six Sigma Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

9) The Six Sigma improvement model can be applied both to projects involving incremental improvements to processes and to projects requiring major changes. Answer: TRUE Difficulty: Moderate Keywords: Six Sigma Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

10) "Quality at the source" implies: A) less expensive raw materials. B) lower scrap. C) higher rework costs. D) more final-test inspectors. Answer: B Difficulty: Moderate Keywords: quality at the source, TQM Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

11) Which one of the following statements is a key feature of both TQM and Six Sigma? A) Quality is primarily the responsibility of all employees in the organization. B) Quality is primarily the responsibility of the quality control department. C) Quality is primarily the responsibility of the production department. D) Quality is primarily the responsibility of top management. Answer: A Difficulty: Moderate Keywords: TQM, total quality management, Six Sigma Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

12) A firm's internal program in employee involvement includes which of the following considerations? A) defining who is the customer B) supplier management C) product availability D) psychological impressions Answer: A Difficulty: Easy Keywords: TQM, total quality management, defining the customer Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

13) The TQM wheel features ________ at its center. A) incremental improvement B) customer satisfaction C) employee teams D) leadership Answer: B Difficulty: Easy Keywords: TQM wheel, customer satisfaction Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

14) As an operations manager, which definition of quality do you have the most control over? A) conformance to specifications B) support C) psychological impressions D) value Answer: A Difficulty: Moderate Keywords: quality conformance Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

15) Quality measured with reference to how well a product or service performs its intended purpose is captured by the notion of: A) conformance to specifications. B) value. C) fitness for use. D) psychological impressions. Answer: C Difficulty: Easy Keywords: quality, value Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

16) If a product initially fails to live up to the customer's expectations, which dimension of quality might salvage the sale and the company's reputation? A) psychological impressions B) fitness for use C) support D) value Answer: C Difficulty: Moderate Keywords: quality, value, support Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

17) As he entered his broker's office for the first time, the young associate professor was dazzled by its tasteful accoutrements and the offer of a double tall, split shot, skinny, hazelnut latte. He knew his lottery winnings would be safe here, thanks to his: A) broker's conformance to specifications. B) broker's fitness for use. C) broker's support. D) own psychological impressions. Answer: D Difficulty: Easy Keywords: quality, psychological impressions Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

18) Quality measured with reference to a process failure that results in the process's inability to meet implied performance standards is captured by the notion of: A) conformance to specifications. B) value. C) support. D) psychological impressions. Answer: A Difficulty: Moderate Keywords: quality, value Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

19) One of the main challenges in developing the proper culture for TQM is to: A) define the customer for each employee. B) suspend reward systems based on quantity. C) institute an equitable employee recognition program. D) get buy-in from the customer. Answer: A Difficulty: Easy Keywords: TQM culture, total quality management, defining the customer Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

20) Continuous improvement is a philosophy that: A) uses problem-solving techniques within work teams. B) ensures there are plenty of quality inspectors to find areas for improvement. C) waits until a big problem occurs, then systematically solves it. D) encourages the hiring of statistical process control specialists to reduce the need for current employees to learn statistical methods. Answer: A Difficulty: Moderate Keywords: continuous improvement, TQM Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

21) When considering the plan-do-check-act cycle for problem solving, evaluating how closely a project's results correspond to the initial goals set for the work is part of the ________ step. A) plan B) do C) check D) act Answer: C Difficulty: Moderate Keywords: continuous improvement, PDSA, plan, do, check, act Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

22) When considering the plan-do-check-act cycle for problem solving, instructing other employees in the use of the new process occurs in the ________ step. A) plan B) do C) check D) act Answer: D Difficulty: Moderate Keywords: continuous improvement, PDSA, plan, do check, act Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

23) When considering the plan-do-check-act cycle for problem solving, quantitative goals are set for process improvement in the ________ step. A) plan B) do C) check D) act Answer: A Difficulty: Moderate Keywords: continuous improvement, PDSA, plan, do, check, act Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

24) Which of these elements is not part of the Deming Wheel? A) plan B) design C) check D) act Answer: B Difficulty: Moderate Keywords: continuous improvement, PDSA, plan, do, check, act Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

25) What is one reason that Six Sigma is more difficult to apply to service processes? A) There is no manual that suggests how Six Sigma can be applied to services. B) The work product is more difficult to see. C) There is no way to measure process capability of a service product. D) The National Six Sigma Society cautions against using it for services. Answer: B Difficulty: Moderate Keywords: Six Sigma, service processes Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

26) When considering the plan-do-check-act cycle for problem solving, data collection to measure the improvements in the process occurs in the ________ step. A) plan B) do C) check D) act Answer: B Difficulty: Moderate Keywords: continuous improvement, PDSA, plan, do check, act Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

27) Which step of the Six Sigma DMAIC procedure involves identifying data sources and preparing a data collection plan? A) define B) measure C) analyze D) improve E) control Answer: B Difficulty: Moderate Keywords: Six Sigma, improvement model, DMAIC Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

28) Consumers consider five aspects when defining quality. Which one of the following is least likely to be one of these aspects? A) value B) fitness for use C) psychological impressions D) individual development Answer: D Difficulty: Moderate Keywords: quality dimensions Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

29) ________ is an approach to teamwork that moves responsibility for decisions farther down the organizational chart–to the level of the employee actually doing the job. Answer: Employee empowerment Difficulty: Moderate Keywords: TQM, total quality management, employee involvement Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

30) ________ are small groups of supervisors and employees who meet to identify, analyze, and solve production and quality problems. Answer: Problem-solving teams or quality circles Difficulty: Moderate Keywords: quality circle, employee problem solving, teams Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

31) Defects are caught and corrected where they were created under a(n) ________ philosophy. Answer: quality at the source Difficulty: Moderate Keywords: TQM, quality at the source Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

32) Continuous improvement which is the philosophy of continually seeking ways to improve processes is based on a Japanese concept called ________. Answer: kaizen Difficulty: Moderate Keywords: kaizen, continuous improvement Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

33) The customer's assessment of quality with reference to the price paid for the good or service is known as ________. Answer: value Difficulty: Moderate Keywords: value Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

34) ________ is a comprehensive and flexible system for achieving, sustaining, and maximizing business success through intensive data analysis and process management, improvement and reengineering. Answer: Six Sigma Difficulty: Moderate Keywords: Six Sigma Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

35) Full-time teachers and leaders of teams involved in Six Sigma projects are referred to as ________. Answer: black belts Difficulty: Moderate Keywords: Six Sigma, black belt Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

36) ________ refers to how well the product or service performs its intended purpose. Answer: Fitness for use Difficulty: Moderate Keywords: quality, fitness for use Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

37) What are any three dimensions of quality and which one accurately describes how you assess education? Answer: Answers will vary on the educational assessment portion of this question. The dimensions of quality mentioned by the authors include conformance to specifications, value, fitness for use, support, and psychological impressions. Difficulty: Moderate Keywords: dimensions of quality Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

38) Provide examples of the three main tenets of total quality management as applied to this operations management course. Answer: Answers will vary depending on the student's experiences in operations management. The three tenets of TQM discussed by the authors include customer satisfaction, employee involvement, and continuous improvement. Difficulty: Moderate Keywords: TQM, total quality management, customer satisfaction, employee involvement, continuous improvement Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

39) Why is employee empowerment important in a total quality management program? Answer: With TQM, everyone is expected to contribute to the overall improvement of quality. Each employee must identify his or her customers, and for many employees their internal customers may outnumber their external customers. Once customers are identified, means of satisfying those customers must be identified and acted on. Empowerment moves the responsibility farther down the organizational chart and allows employees to independently make changes in what they do in order to satisfy their customers. Difficulty: Moderate Keywords: employee empowerment Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

40) What are the steps in the Six Sigma improvement model and how do they relate to the PDSA cycle? Answer: The Six Sigma improvement model contains the steps define, measure, analyze, improve, and control. The PDSA cycle contains the steps plan, do, check, and act. Both approaches call for improvement of current processes using a management-by-data approach, i.e., experimentation followed by analysis and then a change in methods if improvement can be achieved. The PDSA cycle suggests continuous improvement; the Six Sigma improvement model has no direct statement of iteration. Once the process is improved by the Six Sigma approach, emphasis is shifted toward controlling the improved process rather than improving it further. Difficulty: Moderate Keywords: Six Sigma, PDSA Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the basic principles of total quality management (TQM) and Six Sigma.

3.3 Acceptance Sampling 1) Acceptance sampling is the application of statistics to determine if the quality of incoming materials should be accepted or rejected. Answer: TRUE Difficulty: Easy Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

2) An acceptable quality level (AQL) is determined based on the quality level desired by the consumer. Answer: TRUE Difficulty: Easy Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

3) While acceptance sampling does determine if incoming materials should be accepted or rejected, it does not limit the buyer's risk of accepting bad-quality parts or rejecting good-quality parts. Answer: FALSE Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

4) In acceptance sampling, the proportion defective that the buyer will allow in an incoming shipment is: A) the acceptable random sample (ARS). B) the upper control limit (UCL). C) the lower control limit (LCL). D) the acceptable quality level (AQL). Answer: D Difficulty: Moderate Keywords: acceptance sampling, AQL Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

5) In acceptance sampling, when the random sample passes the buyer's incoming test (low number of defects found), the next action taken is to: A) accept the entire lot of incoming materials. B) do additional testing to reduce the risk of accepting a bad-quality lot. C) place the lot on hold and wait for additional lots from this seller to be tested to assure consistent good quality. D) 100% inspect the lot because some defects were found. Answer: A Difficulty: Easy Keywords: acceptance sampling, AQL Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

6) ________ is the application of statistical techniques to determine if the quality of incoming materials should be accepted or rejected, based on the testing of a sample of parts. Answer: Acceptance sampling Difficulty: Easy Keywords: AQL, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

7) In acceptance sampling, the quality level desired by the consumer is known as ________. Answer: acceptable quality level (AQL) Difficulty: Moderate Keywords: AQL acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Understand how acceptance sampling and process performance approaches interface in a supply chain.

3.4 Statistical Process Control 1) Statistical process control (SPC) is the application of statistical techniques to determine whether a quantity of material should be accepted or rejected. Answer: FALSE Difficulty: Moderate Keywords: SPC, statistical process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

2) Common causes of variation include any variable-causing factors that can be identified and eliminated. Answer: FALSE Difficulty: Moderate Keywords: common causes of variation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

3) Assignable causes of variation are the purely random, unidentifiable sources of variation that are unavoidable with the current process. Answer: FALSE Difficulty: Moderate Keywords: assignable causes of variation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

4) On a control chart, a type I error occurs when the employee concludes that the process is out of statistical control when it is actually in control. Answer: TRUE Difficulty: Moderate Keywords: control chart, type I error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

5) On a control chart, a type II error occurs when the employee concludes that the process is in control when it is actually out of statistical control. Answer: TRUE Difficulty: Moderate Keywords: control chart, type I error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

6) Narrower limits on a control chart result in lower probability of a type I error. Answer: FALSE Difficulty: Moderate Keywords: control chart, type II error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

7) A process is monitored with a control chart. The process is correctly judged to be in-control once the results from the most recent sample are plotted. Therefore, all of the output produced at that time is good. Answer: FALSE Difficulty: Challenging Keywords: control chart, sample Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

8) A chart used for controlling the proportion of defective services or products generated by a process is the p chart. Answer: TRUE Difficulty: Moderate Keywords: p-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

9) Process variability is shown by an Answer: FALSE

chart.

Difficulty: Easy Keywords: x-bar chart, centering Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

10) The process and R-charts are developed using a sample size of 5, but the technician mistakenly looks up A2, D3, and D4 values for a sample size of 7. If these charts are put into daily use, the manufacturer will mistakenly ship more bad product than had the charts been constructed correctly. Answer: FALSE Difficulty: Moderate Keywords: x-bar, R charts, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

11) The advantage of variable measurements is that they can be quickly counted compared to attribute measurements. Answer: FALSE Difficulty: Moderate Keywords: variable measurements, attribute measurements Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

12) Which of the following would be a "common" cause of variation? A) random sources B) a machine in need of repair C) an untrained worker D) a defective raw material Answer: A Difficulty: Easy Keywords: common and random causes of variation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

13) In Statistical Process Control, ________ are used to detect defects and determine if the process has deviated from design specifications. A) flowcharts B) cause-and-effect diagrams C) process capability charts D) control charts Answer: D Difficulty: Easy Keywords: Statistical Process Control, SPC Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

14) A sampling plan is best for evaluating quality when: (1) Inspection costs are high (2) Inspection costs are low (3) Non-destructive testing is available (4) Destructive testing is required A) 1 and 3 B) 1 and 4 C) 2 and 3 D) 2 and 4 Answer: B Difficulty: Moderate Keywords: Statistical Process Control, sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

15) Which one of the following statements about quality control is true? A) Measurement by attributes is a simple yes or no decision. B) Complete inspection is used when inspection cost is high. C) Sampling inspection is used when the cost of passing a defective unit is high relative to the cost of inspection. D) Measurement by variables is often used when the quality specifications are complex. Answer: A Difficulty: Moderate Keywords: quality control, measurement of attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

16) Which one of the following statements relating to quality is true? A) Sampling procedures based on measurement by variables should be used when quality specifications are complex. B) A distribution of sample means has more variance than the process distribution itself. C) The distribution of sample means can be approximated by the normal distribution. D) Sampling is a better approach than 100 percent inspection when the cost of accepting a defective item is very high. Answer: C Difficulty: Moderate Keywords: normal distribution, mean, sample means Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

17) When should complete inspection be used? A) when inspection tests are destructive B) when inspection tasks are monotonous C) when the cost of product failure is high relative to the inspection costs D) when quality is a competitive priority Answer: C Difficulty: Moderate Keywords: complete inspection Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

18) An operator of a filling machine plotted the weights of each bag she filled for three weeks. At the same time, a quality inspector randomly took groups of five bags of the same output and plotted the average weights of the samples. The inspector's sampling distribution will: A) have greater variability than the operator's distribution. B) have less variability than the operator's distribution. C) show if the output has been produced to the operator's specifications. D) have a mean five times greater than the operator's distribution. Answer: B Difficulty: Moderate Keywords: variance, SPC Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

19) In SPC, the distribution of sample means: A) can be approximated by the normal distribution. B) will have greater variability than the process distribution. C) will always have a mean greater than the process distribution because of the sample size. D) cannot be used for control charts because the variability is understated. Answer: A Difficulty: Moderate Keywords: SPC, distribution, sample mean Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

20) The three sigma limits for a process whose distribution conforms to the normal distribution include approximately: A) 50% of the observed values, in the long run. B) 68% of the observed values, in the long run. C) 95% of the observed values in the long run. D) 99% of the observed values in the long run. Answer: D Difficulty: Moderate Keywords: SPC, distribution limits Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

21) Regarding control charts, a type II error refers to concluding that the process is: A) in control when it is not in control. B) incapable when it is capable. C) out of control when it is in control. D) capable when it is not capable. Answer: A Difficulty: Moderate Keywords: type I errors, SPC, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

22) An example of a type I error would be: A) throwing away a perfectly good banana. B) counting a student's multiple choice response correct when it is actually incorrect. C) releasing a guilty defendant. D) counting a student's multiple choice response correct when it is actually correct. Answer: A Difficulty: Moderate Keywords: type I and type II errors, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

23) An example of a type II error would be: A) counting a student's True/False response incorrect when it is actually correct. B) convicting an innocent defendant. C) eating food that you were unaware was spoiled. D) counting a student's True/False response incorrect when it is actually incorrect. Answer: C Difficulty: Moderate Keywords: type I and type II errors, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

24) Regarding control charts, changing from three-sigma limits to two-sigma limits: A) increases the probability of concluding nothing has changed, when in fact it has. B) increases the probability of searching for an assignable cause when none exists. C) decreases the probability that the process average will change. D) decreases the probability that defects will be generated by the process. Answer: B Difficulty: Moderate Keywords: SPC, sigma limits, type I and type II errors, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

25) Regarding control charts, changing from two-sigma limits to three-sigma limits: A) increases the probability of concluding nothing has changed, when in fact it has. B) increases the probability of searching for a cause when none exists. C) decreases the probability that the process average will change. D) decreases the probability that defects will be generated by the process. Answer: A Difficulty: Moderate Keywords: SPC, sigma limits Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

26) The UCL and LCL for an chart are 50 and 40 respectively. The central line is 45, and the process variability is considered to be in statistical control. The results of the next six sample means are 48, 43, 47, 41, 54, and 46. What should you do? A) Nothing; the process is in control. B) Explore the assignable causes because at least one of the sample means is outside the control limits. C) Explore the assignable causes because there is a run. D) Explore the assignable causes because there is a trend. Answer: B Difficulty: Moderate Keywords: SPC, process control, assignable causes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

27) The underlying statistical distribution for the p-chart is: A) Poisson. B) binomial C) percentage. D) normal. Answer: B Difficulty: Moderate Keywords: p-chart, binomial distribution Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

28) A fastener manufacturer is interested in monitoring the variability in the diameter of the bolts it produces. An appropriate control chart would be: A) an m-chart. B) a p-chart. C) a c-chart. D) an R-chart. Answer: D Difficulty: Moderate Keywords: SPC, process control, variability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

29) A pizza store is interested in monitoring the proportion of pizzas that are delivered late to its customers. An appropriate control chart would be: A) an chart. B) a p-chart. C) a c-chart. D) an R-chart. Answer: B Difficulty: Moderate Keywords: SPC, control chart, p-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

30) A company is interested in monitoring the number of scratches on Plexiglass panels. The appropriate control chart to use would be: A) an chart. B) a p-chart. C) a c-chart. D) an R-chart. Answer: C Difficulty: Challenging Keywords: process control, SPC, defects Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

31) Which alternative will increase the probability of detecting a shift in the process average? A) increasing the control limit spread B) taking smaller samples C) taking smaller samples more frequently D) taking larger samples more frequently Answer: D Difficulty: Moderate Keywords: SPC, process control, sample Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

32) Four samples of size 5 were taken from a process. A range chart was developed that had LCLR = 0 and UCLR = 5.50. Similarly, an average chart was developed using the measurements from the five samples, with LCL = 25.0 and UCL = 40.0. The ranges for each of the five samples were 3.75, 2.42, 4.75, 2.04, and 5.80, respectively. The values of the sample average for each sample were 29.5, 27.3, 27.4, 26.1, and 28.9, respectively. What can you tell management from this analysis? A) The process average is out of control. B) The process variability is out of control. C) Both the process variability and the process average are out of control. D) We cannot tell if the process variability or the process average is out of control. Answer: B Difficulty: Moderate Keywords: SPC, process control, process variability, process average Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

33) Historically, the average time to serve customers at a restaurant fast food window has been 4 minutes and the standard deviation has been 0.75 minutes. Management would like to specify the control limits for an chart with a size of sample n=8 and a normal deviate of 3 standard deviations from the mean. The LCL for the chart would be: A) less than 2. B) greater than 2 but less than or equal to 3. C) greater than 3 but less than or equal to 4. D) greater than 4. Answer: A Difficulty: Moderate Keywords: SPC, lower control limit, x-bar chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

34) Historically, the average time to serve customers at a restaurant fast food window has been 4 minutes and the standard deviation has been 0.75 minutes. Management would like to specify the control limits for an chart with a size of sample n=8 and a normal deviate of 3 standard deviations from the mean. The UCL for the chart would be: A) less than 3. B) greater than 3 but less than or equal to 4. C) greater than 4 but less than or equal to 5. D) greater than 5. Answer: D Difficulty: Moderate Keywords: SPC, lower control limit, x-bar chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

35) Historically, the average time to serve customers at a restaurant fast food window has been 4 minutes and the standard deviation has been 0.75 minutes. Management would like to specify the control limits for an chart with a size of sample n=8 and a normal deviate of 3 standard deviations from the mean. Suppose the average service time from the next 6 samples yielded the following result: 3.2, 2.1, 5.6, 4.8, 3.9, 5.5 minutes. What conclusion can be drawn? A) Assuming the process variability is in control, the process average is also in statistical control. B) Assuming the process average is in control, the process average is out of statistical control. C) The sample size should be increased. D) No conclusion can be drawn because there is insufficient data. Answer: A Difficulty: Moderate Keywords: SPC, process control, process variability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

Table 3.1 Factors for Calculating Three-Sigma Limits for the

Size of Sample (n) 2 3 4 5 6 7 8 9 10

Chart and R-Chart

Factor for UCL Factor for and LCL for LCL for x-bar-Charts R-Charts A2 D3

Factor for UCL for R-Charts D4

1.880 1.023 0.729 0.577 0.483 0.419 0.373 0.337 0.308

3.267 2.575 2.282 2.115 2.004 1.924 1.864 1.816 1.777

0 0 0 0 0 0.076 0.136 0.184 0.223

Source: 1950 ASTM Manual on Quality Control of Materials, copyright American Society for Testing Materials. Reprinted with permission. 36) Thermostats are subjected to rigorous testing before they are shipped to air conditioning technicians around the world. Results from the last five samples are shown in the table. Calculate control limits for a chart that will monitor performance to target. The correct control limits as (LCL,UCL) are: Unit # 1 2 3 4 5

Sample 1 73.5 71.3 70.0 71.1 70.8

Sample 2 70.8 71.0 72.6 70.6 70.7

Sample 3 72.2 73.1 71.9 70.3 70.7

Sample 4 73.6 72.7 72.4 74.2 73.5

Sample 5 71.0 72.2 73.3 73.6 71.1

A) (70.46, 73.39). B) (68.94,74.89). C) (69.71,74.14). D) (69.80,74.05). Answer: A Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

37) Thermostats are subjected to rigorous testing before they are shipped to air conditioning technicians around the world. Results from the last five samples are shown in the table. Calculate control limits for a chart that will monitor process consistency. The correct control limits as (LCL,UCL) are: Unit # 1 2 3 4 5

Sample 1 73.5 71.3 70.0 71.1 70.8

Sample 2 70.8 71.0 72.6 70.6 70.7

Sample 3 72.2 73.1 71.9 70.3 70.7

Sample 4 73.6 72.7 72.4 74.2 73.5

Sample 5 71.0 72.2 73.3 73.6 71.1

A) (-5.37,5.37). B) (0.00,5.37). C) (0.00,6.03). D) (0.00,6.12). Answer: B Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

38) Thermostats are subjected to rigorous testing before they are shipped to air conditioning technicians around the world. Results from the last five samples are shown in the table. Create control charts that will fully monitor the process and indicate the result of X-bar and R-chart analysis. Unit # 1 2 3 4 5

Sample 1 73.5 71.3 70.0 71.1 70.8

Sample 2 70.8 71.0 72.6 70.6 70.7

Sample 3 72.2 73.1 71.9 70.3 70.7

Sample 4 73.6 72.7 72.4 74.2 73.5

Sample 5 71.0 72.2 73.3 73.6 71.1

A) x bar and r chart are both out of control B) x bar chart is in control but r chart is out of control C) x bar chart is out of control but r chart is in control D) x bar and r chart are both in control Answer: D Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

39) Construct a 3-sigma R-chart for the length in centimeters of a part from the following table. What is the upper control limit of your R-chart? Sample # Observation 1 1 0.486 2 0.499 3 0.496 4 0.495 5 0.472 6 0.473 7 0.495 8 0.525 9 0.497 10 0.495

Observation 2 0.499 0.506 0.5 0.506 0.502 0.495 0.512 0.501 0.501 0.505

Observation 3 0.493 0.516 0.515 0.483 0.526 0.507 0.49 0.498 0.517 0.516

Observation 4 0.511 0.494 0.488 0.487 0.469 0.493 0.471 0.474 0.506 0.511

A) .032 B) 0.51 C) 0.73 D) 2.28 Answer: C Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

40) Construct a 3-sigma x-bar chart for the length in centimeters of a part from the following table. What is the upper control limit? Sample # Observation 1 1 0.486 2 0.499 3 0.496 4 0.495 5 0.472 6 0.473 7 0.495 8 0.525 9 0.497 10 0.495

Observation 2 0.499 0.506 0.5 0.506 0.502 0.495 0.512 0.501 0.501 0.505

Observation 3 0.493 0.516 0.515 0.483 0.526 0.507 0.49 0.498 0.517 0.516

Observation 4 0.511 0.494 0.488 0.487 0.469 0.493 0.471 0.474 0.506 0.511

A) 0.522 B) 0.509 C) 0.496 D) 0.475 Answer: A Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

41) Construct 3-sigma X-bar and R-charts using the data in the table. What conclusions can you draw about the state of control for this process? Sample # Observation 1 1 0.486 2 0.499 3 0.496 4 0.495 5 0.472 6 0.473 7 0.495 8 0.525 9 0.497 10 0.495

Observation 2 0.499 0.506 0.5 0.506 0.502 0.495 0.512 0.501 0.501 0.505

Observation 3 0.493 0.516 0.515 0.483 0.526 0.507 0.49 0.498 0.517 0.516

Observation 4 0.511 0.494 0.488 0.487 0.469 0.493 0.471 0.474 0.506 0.511

A) X-bar chart is out of control but the R-chart is in control B) the X-bar chart is out of control and the R-chart is also out of control C) the X-bar chart and the R-chart are both in control D) the X-bar chart is in control but the R-chart is out of control Answer: C Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

42) The defect rate for a product has historically been about 2.0%. What are the upper and lower control chart limits if you wish to use a sample size of 100 and 3-sigma limits? All answers are in (LCL,UCL) format. A) (0.00, 0.048) B) (0.00, 0.062) C) (0.00, 0.059) D) (0.00, 0.067) Answer: B Difficulty: Moderate Keywords: SPC, p-chart, c-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

43) The defect rate for a product has historically been about 8.0%. What is the upper control chart limit if you wish to use a sample size of 100 and 3-sigma limits? A) 0.161 B) 0.112 C) 0.142 D) 0.172 Answer: A Difficulty: Moderate Keywords: SPC, p-chart, c-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

44) The defect rate for a product has historically been about 2%. What is the upper control chart limit if you wish to use a sample size of 50 and 3-sigma limits? A) 0.116 B) 0.063 C) 0.079 D) 0.041 Answer: C Difficulty: Moderate Keywords: SPC, p-chart, c-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

45) The consultant suspiciously eyed the c-chart that Chickenverks used to monitor the number of broken eggs in each 100 egg carton. "You know you really should be using a p-chart," the consultant commented with an air of superiority. "What's the difference between a p-chart and a c-chart in this application?" the long time Chickenverks employee asked with an obvious edge to his voice. "Well," the consultant replied, "the difference is: A) the width of the three sigma limits for the c-chart is 100 times greater than those of the p-chart." B) the three-sigma p-chart will catch problems earlier than the three sigma c-chart." C) the three-sigma c-chart will catch problems earlier than the three sigma p-chart." D) well, OK, you got me. The charts will look and behave the same for all practical purposes." Answer: D Difficulty: Moderate Keywords: SPC, attributes, p-chart, c-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

46) Historically, the average proportion of defective widgets produced by a manufacturer has been 0.09. Samples of 75 each are taken. Construct a p-chart using z = 3. What is the value of UCL? A) less than or equal to 0.050 B) greater than 0.050 but less than or equal to 0.10 C) greater than 0.10 but less than or equal to 0.15 D) greater than 0.15 Answer: D Difficulty: Moderate Keywords: SPC, upper control limit, p-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

47) Historically, the average proportion of defective widgets produced by a manufacturer has been 0.09. Samples of 75 each are taken. Construct a p-chart using z = 3. What is the value of LCL? A) less than or equal to 0.010 B) greater than 0.010 but less than or equal to 0.020 C) greater than 0.020 but less than or equal to 0.030 D) greater than 0.030 Answer: A Difficulty: Moderate Keywords: SPC, upper control limit, p-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

Table 3.2 Sample Number 1 2 3 4 5

Number Defective 1 4 2 4 0

48) Samples of 100 checks each were taken at a bank from an encoding machine (which records the amount of a check) over a five-day period. Details are summarized in Table 3.2. If the bank were to use the average proportion defective from these five samples as the central line for a process control chart, what would be the central line? A) less than or equal to 0.01 B) greater than 0.01 but less than or equal to 0.02 C) greater than 0.02 but less than or equal to 0.03 D) greater than 0.03 Answer: C Difficulty: Moderate Keywords: SPC, process control, center line, p-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

49) Use the information from Table 3.2. What is the upper control limit (UCL) if the bank were to use z = 2 and a sample size of 100? A) less than or equal to 0.02 B) greater than 0.02 but less than or equal to 0.04 C) greater than 0.04 but less than or equal to 0.06 D) greater than 0.06 Answer: C Difficulty: Moderate Keywords: SPC, upper control limit, p-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

50) Four samples of 100 each were taken from an assembly line, with the following results: Sample Number 1 2 3 4

Number Defective 6 12 2 8

Using the historical average as the central line of the chart, which one of the following is the limit for an attributes control chart with z = 2? A) UCL > 0.1 and LCL > 0.03 B) UCL > 0.1 and LCL < 0.03 C) UCL < 0.1 and LCL > 0.03 D) UCL < 0.1 and LCL < 0.03 Answer: B Difficulty: Moderate Keywords: SPC, control limit, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

Table 3.3 The manager of Champion Cooling Company has recently implemented a statistical process control method. The accompanying table shows the recorded temperatures of five different samples of walk-in coolers that were produced in the previous month. Sample 1 Unit 1 104.0 Unit 2 106.4 Unit 3 101.8 Unit 4 105.6 Unit 5 100.6

Sample 2 100.1 104.4 103.6 101.4 100.7

Sample 3 101.1 100.4 103.0 101.0 104.9

Sample 4 102.0 105.9 104.6 102.1 107.0

Sample 5 102.7 105.4 106.1 102.5 102.0

51) Using the data in Table 3.3, what is the value of the center line for the chart that monitors performance to target? A) 3.9 B) 102.0 C) 103.2 D) 103.7 Answer: C Difficulty: Moderate Keywords: SPC, center line, variables, control chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

52) Use the information in Table 3.3. The first point plotted on the x-bar chart has a value of: A) 104.3. B) 103.7. C) 102.0. D) 103.2. Answer: B Difficulty: Moderate Keywords: SPC, control chart, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

53) Use the information in Table 3.3. The upper control limit for the x-bar chart with three sigma limits is: A) 105.9. B) 103.7. C) 103.2. D) 102.3. Answer: A Difficulty: Challenging Keywords: SPC, UCL, control chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

54) Use the information in Table 3.3. The center line of the R-chart is: A) 4.4. B) 3.9. C) 4.8. D) 5.9. Answer: C Difficulty: Moderate Keywords: SPC, R-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

55) Use the data in Table 3.3. What would be the best chart to construct to monitor how consistent the production process is? A) p-chart B) c-chart C) x-bar chart D) R-chart Answer: D Difficulty: Moderate Keywords: SPC, R-chart, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

56) If an x-bar chart is constructed using the data in Table 3.3, what conclusion can be reached? A) The process is in control. B) The process is out of control. C) The process is capable. D) The process is both capable and in control. Answer: A Difficulty: Moderate Keywords: SPC, variables, x-bar chart, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

57) A hotel tracks the number of complaints per month. When the process is in control, there is an average of 35 complaints per month. Assume that a 2-sigma control limit is used. What is the lower control limit? A) less than or equal to 15 B) more than 15 but less than or equal to 20 C) more than 20 but less than or equal to 25 D) more than 25 Answer: C Difficulty: Moderate Keywords: SPC, control limit, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

58) A hotel tracks the number of complaints per month. When the process is in control, there is an average of 35 complaints per month. Assume that a 2-sigma control limit is used. What is the upper control limit? A) less than or equal to 35 B) more than 35 but less than or equal to 45 C) more than 45 but less than or equal to 55 D) more than 55 Answer: C Difficulty: Moderate Keywords: SPC, control limit, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

59) A hotel tracks the number of complaints per month. When the process is in control, there is an average of 35 complaints per month. Assume that a 2-sigma control limit is used. The next four months have 33, 27, 29, and 43 complaints. What should management do? A) Look for assignable causes because the process is in control. B) Look for assignable causes because the process is out of control. C) Look for common causes because the process is out of control. D) Do nothing; the process is in control. Answer: D Difficulty: Moderate Keywords: SPC, control limit, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

60) ________ of variation are the purely random, unidentifiable sources of variation that are unavoidable with the current process. Answer: Common causes Difficulty: Moderate Keywords: common causes of variation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

61) ________ of variation include any variation-causing factors that can be identified and eliminated. Answer: Assignable causes Difficulty: Moderate Keywords: assignable causes of variation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

62) A(n) ________ specifies the sample size, the time between successive samples, and decision rules that determine when action should be taken. Answer: sampling plan Difficulty: Moderate Keywords: sampling, sampling plan, sample Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

63) Jerry watched in awe as Warren went to 2 sigma limits from the company-mandated 3 sigma limits, thereby increasing the likelihood of a type ________ error. Answer: I Difficulty: Moderate Keywords: type I error limits Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

64) The poultry farmer was aghast when the grocery store revealed their new weapon in the war on poor quality. They planned to use a(n) ________ to monitor the rotten eggs found in the cartons of farm fresh free range eggs that he supplied. The poultry farmer was well-versed in quality and knew their choice to be the right one; nevertheless he was upset about this level of scrutiny and what he perceived as a lack of trust. Answer: p-chart or c-chart Difficulty: Moderate Keywords: attributes, p-chart, c-chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

65) When is it advantageous to use sampling rather than complete inspection? Answer: Sampling is advantageous when testing is destructive or when the cost of inspection is high relative to the cost of passing a defect. Difficulty: Moderate Keywords: sampling, inspection Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

66) What is the relationship between type I and type II errors and the width of the upper and lower control limits on SPC charts? Propose a mechanism for determining SPC chart limit widths based upon the financial consequences of type I and type II errors. Answer: Type I and type II errors move in opposite directions, that is, as the chance of a type I error increases, the chance of a type II error decreases. As the width of SPC control limits increases, the chance of a type I error decreases (and the chance of a type II error increases). The width of control limits might be balanced based upon the cost incurred from false positives and false negatives in the course of monitoring the process. The cost associated with a type I error, sometimes called producer's risk, is that a process that is actually in control is stopped and effort is spent troubleshooting the process. The process might be adjusted, suppliers contacted, etc., all in the name of fixing a problem that in actuality, doesn't exist. The direct financial impact is the labor cost of troubleshooting and the lost productive capacity. The cost associated with a type II error, sometimes called a consumer's risk, is that defective product will reach the hands of a consumer and fail, potentially resulting in warranty repair or replacement, negative word of mouth from a dissatisfied customer, and litigation. Depending on the product, these costs could be substantial. A producer might choose to balance the costs with a calculation similar to expected monetary value. A producer might choose to lower the EMV of the type II costs to something they could pay out (or have insurance for). Difficulty: Challenging Keywords: SPC, control charts, Type I errors, Type II errors Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

67) The UCL and LCL for an chart are 100 ounces and 95 ounces, respectively. The sample size is 5. The inspector looks at the very next unit and finds that it is 108 ounces. What can you conclude? Why? Answer: Nothing yet. The weight of an individual unit is not relevant for the chart. You must compare the average of a sample, which will balance the high and low observations. Difficulty: Moderate Keywords: SPC, process control, x-bar chart Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

68) Discuss the situations under which each of the following charts would be best chart, p-chart, and cchart. Answer: The chart is used to observe the mean of the process. It uses variable-type measurements. The p-chart uses a yes-no type of classification—typically "defective or not defective." It uses attributetype variables. It is beneficial when it is difficult to use a variable type of measurement. The c-chart is used for situations in which a product can have more than one defect per unit. Difficulty: Moderate Keywords: SPC, x-bar chart, p-chart, c-chart, variables, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

69) Hassan was the company plotter. Give him any data set and he could plot a graph that was not only accurate, but also aesthetically pleasing. One afternoon he took some attribute data and plotted it as a pchart. When Saba, his supervisor, saw the plot he insisted it be discarded and in its place a c-chart should be constructed. Hassan made the c-chart and noticed that when he placed the two charts one on top of the other, the lines created by the data points were exactly the same shape. Has our plotting colleague made a mistake? If not, why should there be these two types of charts when the data generate identical lines? Answer: The p-chart uses a yes-no type of classification—typically "defective or not defective." This yes/no, two-valued data is binomially distributed, and one way to consider the "p" in p-chart is the proportion defective. The c-chart is used for situations in which a product can have more than one defect per unit. The "c" in c-chart is therefore the count of defects in an item. This data is governed by the Poisson distribution. It is natural that the two plots would display the same shape; the binomial distribution is a special case of the Poisson distribution. The p-chart allows the user to work with a variable sample size, either by averaging samples sizes or dealing with specific sample sizes on a point by point basis. The c-chart requires a constant sample size. For a constant sample size and attribute data, the two charts should arrive at the same conclusion of either in or out of control and can be superposed. Difficulty: Challenging Keywords: SPC, p-chart, c-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

70) How does SPC help companies implement continuous improvement programs? Answer: The feedback from out-of-control signals from control charts should be used to eliminate assignable-cause variation from the process. By using SPC over a long time period, the quality of the process should improve. Difficulty: Moderate Keywords: SPC, control charts, continuous improvement Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

71) Thermostats are subjected to rigorous testing before they are shipped to air conditioning technicians around the world. Results from the last five samples are shown in the table. Is the process under control? Unit # 1 2 3 4 5

Sample 1 73.5 71.3 70.0 71.1 70.8

Answer:

Sample 2 70.8 71.0 72.6 70.6 70.7

Sample 3 72.2 73.1 71.9 70.3 70.7

LCL =

Sample 5 71.0 72.2 73.3 73.6 71.1

= 71.93

= UCL

Sample 4 73.6 72.7 72.4 74.2 73.5

= 2.54

+ A2 - A2

= 71.93 + 0.577 × 2.54 = 73.394 = 71.93 - 0.577 × 2.54 = 70.462

UCLR = D4

= 2.115 × 2.54 = 5.372

LCLR = D3

= 0.0 × 2.54 = 0.0

R-chart is in control

x-bar chart is in control

Difficulty: Moderate Keywords: SPC, control charts, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

72) Construct a 3-sigma

and R-chart for the length in centimeters of a part from the following table.

Sample # Observation 1 1 0.486 2 0.499 3 0.496 4 0.495 5 0.472 6 0.473 7 0.495 8 0.525 9 0.497 10 0.495

Observation 2 0.499 0.506 0.5 0.506 0.502 0.495 0.512 0.501 0.501 0.505

Observation 3 0.493 0.516 0.515 0.483 0.526 0.507 0.49 0.498 0.517 0.516

Observation 4 0.511 0.494 0.488 0.487 0.469 0.493 0.471 0.474 0.506 0.511

Answer: = .4981, = .0321 Control limits for R-chart: UCL = D4

= 2.282(.0321) = .073

LCL = D3

= 0(.0321) = 0.00

Control limits for

chart:

UCL, LCL =

= .4981 ± .729(.0321) = .522, .475

± A2

The process is in control. Difficulty: Moderate Keywords: SPC, control charts, control limits Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

73) The management of a line that fills cereal boxes wants the box filled at 32.2 ounces. When the process is in control, the standard deviation is .1 ounces. a. Construct the upper and lower control limits for a 3-sigma x-bar chart using a sample size of five. b. The results from the last 10 samples follow. Is the process in control?

Answer: x-bar = 32.2, σ = .1 Control limits for chart: UCL, LCL =

± 3σ = 32.2 ± 3(.1) = 32.5, 31.9

The process is in control. Difficulty: Moderate Keywords: SPC, control charts, control limits, variables Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

74) The defect rate for a product has historically been about 2.0%. What are the upper and lower control chart limits if you wish to use a sample size of 100 and 3-sigma limits? Answer: UCLp =

LCLp =

+ zσp = 0.02 +

- zσp = 0.02 -

= 0.062

= -0.022 → 0

Difficulty: Moderate Keywords: SPC, control charts, control limits, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

75) The quality control technician grew weary of measuring pistons that came off the line, so he decided to make a fixture that would tell him whether the piston fell within product specifications. The fixture had two holes, one the exact width of the upper specification (24 cm) and one slightly smaller than the lower specification (21 cm). If the piston fit through the smaller hole, it would be too small and therefore rejected. If the piston didn't fit through the larger hole, it was too large and would be rejected. Just to test his idea, he used the traditional measurement system and his new system on the next eight samples. The data and the two charts he constructed are shown below. Why aren't the plotted points forming similar shapes between the two graphs? Evaluate the advantages and disadvantages of his proposed system. Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Sample 6 Sample 7 Sample 8 Sample 9 Sample 10

29.5 22.9 25.9 25.3 24.7 28.4 21.9 26.9 25.5 23.9

23 20.1 23.6 23.2 25.1 29.7 23.5 21.1 27.6 28.6

20.9 23.7 23 29.8 20.6 27.1 24.9 28.1 26.3 21.7

24.9 26.9 24.3 22.3 23 23.7 24.2 20.2 27.2 20.6

Answer: The points don't form similar shapes due to the nature of the data generating functions. The xbar chart is from a process that creates a continuous random variable stream. The c-chart takes the same data and converts it to attribute data that can generate signals (errors) for being either too high or too low. The judgments made by the go/no-go gauge are accurate and this approach is often faster than taking a continuous measurement and meticulously recording the observations. The speed comes at the expense of information about the process. With the c-chart, an observer can tell that defects are being produced, almost three per sample, but there is no way to tell if the output is consistently too large, too small, or a mix of the two. The x-bar chart will provide information as to the direction of the production error, thereby providing process troubleshooting with some focus. Difficulty: Challenging Keywords: SPC, control charts, control limits, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

76) Samples of size 4 were taken from a process that had a target of 25 ounces with upper and lower specification limits of 30 ounces and 20 ounces respectively. Create the appropriate control charts and determine whether the process is in control. Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Sample 6 Sample 7 Sample 8 Sample 9 Sample 10

29.5 22.9 25.9 25.3 24.7 28.4 21.9 26.9 25.5 23.9

23.0 22 23.6 23.2 25.1 29.7 23.5 26.2 27.6 28.6

22.0 23.7 23.0 29.8 24.5 27.1 24.9 28.1 26.3 21.7

24.9 26.9 24.3 22.3 23.0 23.7 24.2 20.2 27.2 20.6

Answer: This is variables data, so x-bar and R charts are the appropriate control charts for this process. The overall process average is 25, with a standard deviation of 2.406 The chart calculations are summarized in this table:

Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Sample 6 Sample 7 Sample 8 Sample 9 Sample 10

X bar 24.85 23.88 24.20 25.15 24.33 27.23 23.63 25.35 26.65 24.895

CenterX 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00

UCLx 28.70 28.70 28.70 28.70 28.70 28.70 28.70 28.70 28.70 28.70

LCLx 21.30 21.30 21.30 21.30 21.30 21.30 21.30 21.30 21.30 21.30

Range 7.50 4.90 2.90 7.50 2.10 6.00 3.00 7.90 2.10 8.00

Rbar 5.08 5.08 5.08 5.08 5.08 5.08 5.08 5.08 5.08 5.08

UCLr 11.59 11.59 11.59 11.59 11.59 11.59 11.59 11.59 11.59 11.59

Both charts reflect a process that is in control.

LCLr 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Difficulty: Challenging Keywords: SPC, control charts, control limits, process capability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

77) A process with a target of 25 was used to generate the following data points. Is the process properly centered? Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Sample 6 Sample 7 Sample 8 Sample 9 Sample 10

29.5 22.9 25.9 25.3 24.7 28.4 21.9 26.9 25.5 23.9

23 20.1 23.6 23.2 25.1 29.7 23.5 21.1 27.6 28.6

20.9 23.7 23 29.8 20.6 27.1 24.9 28.1 26.3 21.7

24.9 26.9 24.3 22.3 23 23.7 24.2 20.2 27.2 20.6

Answer: The sample means and ranges are contained in this table: X bar 24.6 23.4 24.2 25.2 23.4 27.2 23.6 24.1 26.7 23.7

Range 8.6 6.8 2.9 7.5 4.5 6 3 7.9 2.1 8

The overall average is 24.6, and the average range is 5.73., so the process is not centered. Using a value of 0.729 for the A2 lookup from Table 5.1 yields: UCL = 24.6 + 0.729*5.73 = 28.8 LCL = 24.6 - .729*5.73 = 20.4

The chart is in control. Difficulty: Challenging Keywords: SPC, control charts, control limits, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

78) A professor records the number of students who complain each week throughout the semester. If the class size is forty students, what are 3-sigma control limits for this class? Construct a control chart and interpret the data. Week number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Complaints 5 2 7 1 3 2 8 1 3 5 4 6 3 1 4

Answer:

σp =

= .09167 =

= .045625

UCLp =

+ zσp = 0.09167 + 3

= 0.2285

LCLp =

- zσp = 0.09167 - 3

= -0.0452 → 0

The process is in control. Difficulty: Moderate Keywords: SPC, control charts, p-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

79) A bank randomly looks at loan applications and checks them for errors. Ten applications and the number of errors identified on the applications are found in the following table. When the process is working correctly, the average number of errors found is 2. Construct a c-chart to determine if the process is in control. Application number 1 2 3 4 5 6 7 8 9 10

Number of errors 3 0 1 0 3 2 4 4 1 1

Answer: UCLc = LCLc =

= 1.90 - 3

= 1.90 + 3

= 6.04

= -2.24 → 0

The process is in control. Difficulty: Moderate Keywords: SPC, control charts, c-chart, attributes Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Describe how to construct process control charts and use them to determine whether a process is out of statistical control.

3.5 Process Capability 1) Process capability determines whether a process is capable of producing the product or services that customers demand. Answer: TRUE Difficulty: Easy Keywords: process capability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

2) Process capability can be addressed when: A) assignable causes are present. B) a process is in statistical control. C) a process is in statistical control but assignable causes are present. D) the nominal value equals the tolerance regardless of assignable causes. Answer: B Difficulty: Moderate Keywords: process capability, process control Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

3) The manager at a pizza store has a target value of 20 minutes for the delivery of pizzas. The delivery team consistently averages 19.8 minutes with a standard deviation of 0.5 minutes. Based on customer feedback, the manager has established upper specification limit of 22 minutes and a lower specification limit of 18 minutes for pizza deliveries. Which statement concerning this process is true? A) The process capability ratio is 1.46. B) The process capability index is 1.33. C) The process is in control. D) None of these is true. Answer: D Difficulty: Moderate Keywords: process capability ratio, process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

4) The manager at a pizza store has a target value of 20 minutes for the delivery of pizzas. The delivery team consistently averages 19.8 minutes with a standard deviation of 0.5 minutes. Based on customer feedback, the manager has established upper specification limit of 22 minutes and a lower specification limit of 18 minutes for pizza deliveries. What is the process capability index? A) 1.20 B) 1.33 C) 1.46 D) 1.66 Answer: A Difficulty: Moderate Keywords: process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

5) The upper and lower specification limits for the thickness of a component are 2.5 inches and 2 inches respectively, with a process target of 2.25 inches. The process standard deviation is 0.1 inches and the process average is 2.3 inches. What is the process capability index? A) 1.00 B) 1.25 C) 1.50 D) 1.75 Answer: A Difficulty: Moderate Keywords: process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

6) The upper and lower specification limits for the thickness of a component are 2.5 inches and 2 inches respectively, with a process target of 2.25 inches. The process standard deviation is 0.1 inches and the process average is 2.3 inches. Is the process capable of meeting four-sigma performance standards? A) Yes B) No C) It can if the standard deviation of the process is increased D) Not enough information to determine Answer: B Difficulty: Moderate Keywords: process capability index, four-sigma performance Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

7) MKS Inc., produces meter sticks that have a target length of 100 centimeters with upper and lower specification limits of 100.05 and 99.95 centimeters respectively. Their existing process produces meter sticks with an average length of 99.97 centimeters and a standard deviation of 0.015 centimeters. What is their process capability index? A) 0.44 B) 0.83 C) 1.26 D) 1.78 Answer: A Difficulty: Moderate Keywords: process capability ratio, process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

8) MKS Inc., produces meter sticks that have a target length of 100 centimeters with upper and lower specification limits of 100.05 and 99.95 centimeters respectively. They are considering the purchase of a new machine that can hold a process output average exactly to target with a standard deviation of 0.02. Which would their process capability index be if they splurged and purchased the new machine? A) 0.44 B) 0.83 C) 1.26 D) 1.78 Answer: B Difficulty: Moderate Keywords: process capability ratio, process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

9) MKS Inc., produces meter sticks that have a target length of 100 centimeters with upper and lower specification limits of 100.05 and 99.95 centimeters respectively. Their existing process produces meter sticks with an average length of 100.00 centimeters and a standard deviation of 0.015 centimeters. What is their current process capability index? A) 0.44 B) 0.83 C) 1.11 D) 1.26 Answer: C Difficulty: Moderate Keywords: process capability ratio, process capability index Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

10) A laser eye surgery process has tolerances of plus or minus .001 inches. What does the process standard deviation need to be in order for this process to have a capability ratio of 1.33? A) 0.025 inches B) 0.0015 inches C) 0.015 inches D) 0.00025 inches Answer: D Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

11) A laser surgery process has tolerances of plus or minus .01 inches. What does the process standard deviation need to be in order for this process to have a capability ratio of 1.00? A) 0.02 inches B) 0.0033 inches C) 0.002 inches D) 0.033 inches Answer: B Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

12) A manufacturer embarking on a Six Sigma program sets the goal of having true Six Sigma capability for all processes by the end of the month. If their current process capability index on a key metric is less than 2.0 and the process capability ratio is 1.0, what must happen with the process standard deviation? A) The process standard deviation must be doubled. B) The process standard deviation must be reduced by a factor of six. C) The process standard deviation must be cut in half. D) The process tolerances should be doubled. Answer: C Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

13) A manufacturer embarking on a Six Sigma program sets the goal of having true Six Sigma capability for all processes by the end of the month. If their current process capability index on a key metric is less than 2.0 and the process capability ratio is 1.5, what must happen with the process standard deviation? A) The process standard deviation must be reduced by 25%. B) The process standard deviation must be reduced by 33%. C) The process standard deviation must be reduced by 50%. D) The process standard deviation must be reduced by 67%. Answer: A Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

14) A manufacturer embarking on a Six Sigma program sets the goal of having true Six Sigma capability for all processes by the end of the month. If their current process capability index on a key metric is less than 2.0 and the process capability ratio is 1.70, what must happen with the process standard deviation? A) The process standard deviation must be reduced by 50%. B) The process standard deviation must be reduced by 33%. C) The process standard deviation must be reduced by 25%. D) The process standard deviation must be reduced by 15%. Answer: D Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

15) A manufacturer embarking on a Six Sigma program sets the goal of having true Six Sigma capability for all processes by the end of the month. If their current process capability index on a key metric is less than 2.0 and the process capability ratio is 1.25, what must happen with the process standard deviation? A) The process standard deviation must be reduced by about 25%. B) The process standard deviation must be reduced by about 37%. C) The process standard deviation must be reduced by about 50%. D) The process standard deviation must be reduced by about 67%. Answer: B Difficulty: Moderate Keywords: process capability ratio, process standard deviation Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

16) A firm targeting five-sigma quality will use a process capability ratio of ________ as their goal. Answer: 1.67 Difficulty: Moderate Keywords: process capability, Six Sigma Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

17) What is the difference between the Cp and Cpk measures? Provide an example of a situation in which a process might perform well on one measure but poorly on the other. Answer: The process capability ratio, Cp, is the tolerance width of the process divided by the natural spread of the data generated by that process. The process capability index, Cpk, measures the potential for a process to generate defective outputs relative to either upper or lower specifications. A process that has a narrow spread but is off center (target) by either too high or too low could perform well when analyzed with the Cp measure but poorly using the Cpk measure. Difficulty: Moderate Keywords: Cp, Cpk, process capability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

18) The upper and lower specification limits for a component are 3.98 and 4.02 inches, respectively. The process standard deviation is .004, and the process average is 4.005 inches. Is this process capable of achieving four-sigma performance (the four-sigma performance target value is 1.33)? Answer: First calculate the process capability index: Cpk = Minimum of

= [2.08, 1.25] = 1.25

The process capability index of 1.25 indicates that the process is not currently capable of four-sigma performance. However, this does not tell us if the issue is with process variability or centering. The process capability ratio is then calculated to check process variability: Cp =

= 1.67

A process capability ratio of 1.67 indicates that four-sigma performance can be met with regard to variability. Work must be done on the process to improve centering in order to achieve four-sigma process performance. With its current center of 4.005, it is not capable of meeting the specifications. Difficulty: Moderate Keywords: process capability, Cp, Cpk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

19) MKS Inc., produces meter sticks that have a target length of 100 centimeters with upper and lower specification limits of 100.05 and 99.95 centimeters respectively. Their existing process produces meter sticks with an average length of 99.97 centimeters and a standard deviation of 0.015 centimeters. They are considering the purchase of a new machine that can hold a process output average exactly to target with a standard deviation of 0.02. Which machine will provide a better process capability index? Answer: Existing Process: Cpk = Minimum of

= Minimum of =

= [1.78, 0.44] = 0.44

New Process: Cpk = Minimum of

= Minimum of

= [0.83, 0.83] = 0.83

The New Process is more capable than the existing process. Difficulty: Moderate Keywords: process, capability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

20) A manufacturer enjoys both a Cpk and a CP = 2.0. How high does the process mean have to drift (in number of standard deviations) away from target in order to result in a 1% chance of making a product out of specification? Illustrate this situation (both before shift and after shift) with a diagram. Answer: Initially the process has a Cpk and a CP = 2.0, and the natural spread of the data is well within the upper and lower specification limits.

The process shifts an amount (delta) so it now has a new mean that is equal to the original mean plus delta as shown in equation 1.

μ2 = μ1 + δ

USL = μ2 + 2.33σ

μ2 = USL - 2.33σ

= 2.33

USL - μ1 = 6σ

USL = 6σ + μ1

8. 9. 10.

6σ + μ1 = μ2 + 2.33σ = μ1 + δ + 2.33σ 6σ = δ + 2.33σ 3.66σ = δ

Equation 2 illustrates a z-score that will produce 99% of output within the upper specification limit and 1% of output outside the upper specification limit. The value 2.326 is found in the standard normal table in the appendix. Equations 3 and 4 show a rearrangement of terms in equation 2. Equation 5 demonstrates the original situation with a CP = 2.0, focusing on the upper half of the equation in the manner of a CPK calculation. Equations 6 and 7 rearrange terms from equation 5 and equation 8 relates equations 7 and 3 by virtue of their equality to the USL, and then substitutes the results from equation 1. Equation 9 shows the collection of terms, dropping the original mean since it is added to both sides of equation 8. Finally, equation 10 shows that a process mean shift up of 3.673 standard deviations will result in 1% defective output produced. Difficulty: Challenging Keywords: process capability Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Explain how to determine whether a process is capable of producing a service or product to specifications.

3.6 International Quality Documentation Standards and Awards 1) ISO 9001:2015 standards provide strict guidelines for how products are to be produced. Answer: FALSE Difficulty: Moderate Keywords: ISO 9001:2015 Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

2) The ISO 9001:2015 considers a company's business results but Baldrige Performance Excellence Program does not. Answer: FALSE Difficulty: Moderate Keywords: Baldrige, ISO 9001:2015 Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

3) Financial and market results are one consideration of the Baldrige Performance Excellence Program. Answer: TRUE Difficulty: Moderate Keywords: Baldrige, results Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

4) Achievement of results is given the most weight among the Baldrige Performance Excellence Program. Answer: TRUE Difficulty: Moderate Keywords: Baldrige, business results Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

5) Certification in ISO 9001:2015 requires that a manufacturer produce products at the highest quality standard for their industry. Answer: FALSE Difficulty: Moderate Keywords: ISO 9001:2015 standards, documentation Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

6) The ISO 9001:2015 standard: A) emphasizes corporate leadership as a means of determining who receives the award. B) has the greatest number of points awarded for business results. C) is awarded by the U.S. government each year. D) addresses quality system documentation. Answer: D Difficulty: Moderate Keywords: ISO 9001:2015, standards, documentation Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

7) The Baldrige Performance Excellence Program: A) involves a rigorous review process that often helps the companies define what quality means to them, regardless of the outcome. B) focuses on large manufacturing companies because of the impact they have on the economy. C) is a set of standards governing the requirements for documentation of a quality program. D) was devised by the International Organization for Standardization for companies doing business in Europe. Answer: A Difficulty: Moderate Keywords: MBNQA, Baldrige Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

8) The Baldrige Performance Excellence Program: A) focuses on large manufacturing companies because of the impact they have on the economy. B) involves seven major criteria that are built on the base of customer satisfaction. C) is a set of standards governing the requirements for documentation of a quality program. D) was devised by the International Organization for Standardization for companies doing business in Europe. Answer: B Difficulty: Moderate Keywords: MBNQA, Baldrige, customer satisfaction Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

9) Among the seven criteria in the Baldrige Performance Excellence Program, which has the greatest weight in scoring? A) Leadership B) Customer Focus C) Operations Focus D) Results Answer: D Difficulty: Moderate Keywords: MBNQA, Baldrige, customer satisfaction Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

10) The Baldrige Performance Excellence Program is administered by: A) NASA. B) NIST. C) NORAD. D) NOOB. Answer: B Difficulty: Easy Keywords: MBNQA, Baldrige, customer satisfaction Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

11) ________ is the international standard governing documentation of a quality program. Answer: ISO 9001:2015 Difficulty: Moderate Keywords: ISO 9001:2015, international standard, quality documentation Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

12) The ________ section of the Baldrige Performance Excellence Program has the greatest emphasis. Answer: business results Difficulty: Challenging Keywords: Baldrige award, business results Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

13) Explain the difference between the Baldrige Performance Excellence Program and ISO 9001:2015. Answer: The Baldrige Performance Excellence Program is a U.S. award that promotes, recognizes, and publicizes quality strategies and achievement. ISO 9001:2015, on the other hand, is an international set of standards for documenting quality procedures. Organizations are certified to the ISO 9001:2015 standards by external examiners. Difficulty: Moderate Keywords: Baldrige, ISO 9001:2015 Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

14) What are the benefits of ISO certification? Answer: ISO certification bestows significant external and internal benefits. The external benefits come from the potential sales advantage that companies in compliance have. Companies looking for a supplier will more likely select a company that has demonstrated compliance with ISO documentation standards, all other factors being equal. Consequently, more and more firms are seeking certification to gain a competitive advantage. Internal benefits can be substantial. Registered companies report an average of 48 percent increased profitability and 76 percent improvement in marketing. The British Standards Institute, a leading third-party auditor, estimates that most ISO 9000-registered companies experience a 10 percent reduction in the cost of producing a product because of the quality improvements they make while striving to meet the documentation requirements. Certification in ISO 9001:2015 requires a company to analyze and document its procedures, which is necessary in any event for implementing continuous improvement, employee involvement, and similar programs. The guidelines and requirements of the ISO documentation standards provide companies with a jump-start in pursuing TQM programs. Difficulty: Moderate Keywords: Baldrige, ISO 9001:2015 Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Describe International Quality Documentation Standards and the Baldridge Performance Excellence Program.

3.7 Systems Approach to Total Quality Management 1) Employee involvement is one of the four pillars of TQM. Answer: TRUE Difficulty: Easy Keywords: total quality management, employee involvement Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

2) The focus of total quality management is always on the needs of the customer. Answer: TRUE Difficulty: Easy Keywords: total quality management, customer focus Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

3) As long as there is employee involvement, senior management leadership is not necessary for successful TQM. Answer: FALSE Difficulty: Easy Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

4) Most companies fall short in achieving their quality objectives due to a failure of managing processes. Answer: FALSE Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

5) Training employees on how to utilize a statistical quality tool would be an example of the intersection between employee involvement and analytical process thinking. Answer: TRUE Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

6) A quality-focused CEO who promotes a culture of quality is an example of which of the four TQM pillars? A) Management Commitment and Leadership B) Continuous Improvement C) Employee Involvement D) Analytical Process Thinking Answer: A Difficulty: Easy Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

7) Rejecting product materials due to poor quality of the samples would be an example of which TQM pillar? A) Management Commitment and Leadership B) Continuous Improvement C) Employee Involvement D) Analytical Process Thinking Answer: D Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

8) Management by fact is required for which of the following intersections within the TQM systems approach? A) Management Commitment and Leadership and Continuous Improvement B) Continuous Improvement and Employee Involvement C) Employee involvement and Analytical Process Thinking D) Analytical Process Thinking and Management Commitment and Leadership Answer: D Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

9) Training employees on how to utilize a statistical quality tool would be an example of the intersection between ________ and ________ pillars of the TQM systems approach. Answer: employee involvement, analytical process thinking Difficulty: Moderate Keywords: total quality management, employee involvement, analytical process thinking Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

10) ________ of employees to do their jobs with decision-making autonomy is required for the intersection between employee involvement and continuous improvement. Answer: Empowerment Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

11) The TQM pillar of ________ involves the use of tools such as process control and process capability. Answer: Analytical Process Thinking Difficulty: Easy Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

12) Describe the systems approach for total quality management by outlining the four pillars of TQM and discussing challenges organizations face in implementing this approach. Answer: Answers will vary but should address the challenges of establishing the cultural changes throughout, and at all levels of, the entire firm. The four pillars of the systems approach of TQM as outlined in the chapter are continuous improvement, employee involvement, management commitment and leadership, and analytical process thinking. Ineffectively managing the intersections between the four pillars are why most companies fail to achieve quality objectives. Attempting to adopt some of the pillars without perspective of this overlap or relatedness within the system will not achieve a true culture of quality. It's also crucial to have consistency of purpose, thinking, and action that reinforce the culture of long-term quality. Difficulty: Moderate Keywords: total quality management Learning Outcome: Discuss the total cost of quality and compare the common methods of managing quality AACSB: Application of Knowledge Learning Objective: Understand the systems approach to total quality management.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 4 Lean Systems 4.1 Continuous Improvement Using a Lean Systems Approach 1) The just-in-time (JIT) philosophy is the belief that cutting inventory and removing non-value-added activities in operations can eliminate waste. Answer: TRUE Difficulty: Easy Keywords: JIT, just-in-time, value added, inventory, non-value-added Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

2) Muda is the Japanese term for continuous improvement. Answer: FALSE Difficulty: Easy Keywords: lean systems, inventory, types of waste Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

3) In a lean system, large inventories are not considered a type of waste, because they prevent operator wait times. Answer: FALSE Difficulty: Easy Keywords: lean systems, wait times, types of waste Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

4) In a lean system, an item that is manufactured before it is needed is not considered waste, because it helps keep material flowing through the system. Answer: FALSE Difficulty: Moderate Keywords: lean systems, types of waste, overproduction Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

5) In manufacturing systems, one way to achieve continuous improvement can be to maintain low inventories, and periodically cut safety stocks almost to zero. Answer: TRUE Difficulty: Moderate Keywords: lean systems, manufacturing systems, value added Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

6) Using the water and rocks metaphor to identify excess inventory and resulting problems, the rocks represent excess inventory and the water represents the hidden problems. Answer: FALSE Difficulty: Moderate Keywords: lean systems, types of waste, inventory, water and rock metaphor Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

7) In lean systems, unbalanced workstations can result in equipment operators standing by idly waiting. Answer: TRUE Difficulty: Moderate Keywords: lean systems, types of waste, inventory, overproduction, waiting Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

8) Long production runs, poor material flows, and processes that are not tightly linked to one another can cause over 90% of a product's lead time to be spent waiting. Answer: TRUE Difficulty: Moderate Keywords: lean systems, types of waste, long production runs, material flow, overproduction, waiting Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

9) The just-in-time (JIT) system is a(n): A) management system of people and procedures to fulfill all delivery deadlines. B) production system of small-lot manufacturing to reduce work-in-process inventory. C) materials management system for removing all inventories. D) integrated system of managing resources, information, and decision processes to eliminate waste. Answer: D Difficulty: Moderate Keywords: JIT, just-in-time, integrated system, waste elimination Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

10) Regarding the Eight Types of Waste that must be eliminated to implement lean systems, excessive movement and material handling of product between processes is part of which general waste category? A) Motion B) Transportation C) Inappropriate Processing D) Underutilization of Employees Answer: B Difficulty: Moderate Keywords: types of waste, transportation Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

11) Regarding the Eight Types of Waste that must be eliminated to implement lean systems, using expensive high precision equipment when a simpler machine would suffice is part of which general waste category? A) Motion B) Overproduction C) Inappropriate Processing D) Defects Answer: C Difficulty: Easy Keywords: types of waste, inappropriate processing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

12) Which of the following statements is true with regard to the eight types of waste that must be eliminated to implement lean systems? A) Jobs with excessive motion should be redesigned. B) Work-in-process inventory is the direct result of underutilization of employees. C) Manufacturing an item before it is needed helps an organization detect and reduce defects. D) Product damage and deterioration result from using expensive high precision equipment. Answer: A Difficulty: Moderate Keywords: types of waste, motion Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

13) Regarding the Eight Types of Waste that must be eliminated to implement lean systems, manufacturing an item before it is needed is part of which general waste category? A) Inappropriate Processing B) Waiting C) Inventory D) Overproduction Answer: D Difficulty: Easy Keywords: types of waste, overproduction Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

14) Continuous improvement with lean systems: A) involves navigating a ship over treacherous rocks. B) requires periodically increasing lot sizes or workforce levels to uncover problems. C) entails systematically stressing the system and focusing on problem areas. D) focuses exclusively on internal operations without addressing relationships with customers and suppliers. Answer: C Difficulty: Moderate Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

15) Excessive movement and material handling of product between processes is one of the eight types of wastes known as: A) overproduction. B) transportation. C) motion. D) waiting. Answer: B Difficulty: Moderate Keywords: types of waste, transportation Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

16) ________ is the philosophy that waste can be eliminated by cutting unnecessary inventory and removing non-value-adding activities in operations. Answer: Just-in-time, JIT Difficulty: Easy Keywords: JIT, just-in-time, waste elimination, inventory, non-value-adding activities Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

17) The Japanese term for continuous improvement in quality and productivity is ________. Answer: Kaizen Difficulty: Moderate Keywords: Kaizen, continuous improvement Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

18) Manufacturing an item before it is needed, making it difficult to detect defects and creating excessive lead times and inventory is one of the eight types of wastes known as ________. Answer: overproduction Difficulty: Moderate Keywords: types of waste, overproduction Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

19) List and briefly define the eight types of waste (or muda) that often occur in firms which must be eliminated in implementing lean systems. Answer: Refer to Table 6.1 in the text. 1. Overproduction Manufacturing an item before it is needed, making it difficult to detect defects and creating excessive lead times and inventory. 2. Inappropriate Processing Using expensive high-precision equipment when simpler machines would suffice. It leads to overutilization of expensive capital assets. Investment in smaller flexible equipment, immaculately maintained older machines, and combining process steps where appropriate reduce the waste associated with inappropriate processing. 3. Waiting Operator loss of time due to previous processes being delayed due to issues such as quality, lack of parts, or changeover. Operators will stand idly by or perform tasks at a speed that makes it appear they have work to complete. 4. Transportation Excessive movement and material handling of product between processes, which can cause damage and deterioration of product quality without adding any significant customer value. 5. Motion Unnecessary effort related to the ergonomics of bending, stretching, reaching, lifting, and walking. Jobs with excessive motion should be redesigned. 6. Inventory Excess inventory hides problems on the shop floor, consumes space, increases lead times, and inhibits communication. Work-in-process inventory is a direct result of overproduction and waiting. 7. Defects Quality defects result in rework and scrap and add wasteful costs to the system in the form of lost capacity, rescheduling effort, increased inspection, and loss of customer goodwill. 8. Underutilization of Employees Failure of the firm to learn from and capitalize on its employees' knowledge and creativity impedes long-term efforts to eliminate waste. Difficulty: Challenging Keywords: muda, waste, eight types of waste Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Describe how lean systems can facilitate the continuous improvement of processes.

4.2 Strategic Characteristics of Lean Systems 1) Just-in-time (JIT) systems need supplies to be shipped more infrequently. Answer: FALSE Difficulty: Moderate Keywords: JIT, just-in-time, supplier relationship Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

2) Just-in-time (JIT) systems need to be supported by a larger supplier base. Answer: FALSE Difficulty: Moderate Keywords: JIT, just-in-time, supplier relationship Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

3) In lean systems, the need for single-digit setups is driven by the desire for larger lot sizes. Answer: FALSE Difficulty: Moderate Keywords: lean systems, small lot sizes, single-digit setup Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

4) In the push method of workflow, customer demand activates the production of a good or service. Answer: FALSE Difficulty: Moderate Keywords: push , pull method of work flows Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

5) The push method of workflow involves using forecasts of demand and producing the item before the customer orders it. Answer: TRUE Difficulty: Moderate Keywords: pus method of work flow, standardized items Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

6) Just-in-time (JIT) systems rely on inspectors to inspect quality into the product. Answer: FALSE Difficulty: Easy Keywords: JIT, just-in-time, quality Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

7) Quality at the source is a philosophy whereby defects are caught and corrected where they are created. Answer: TRUE Difficulty: Easy Keywords: lean systems, quality at the source Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

8) Inspecting and fixing quality problems or defects after the completion of a manufacturing batch is called jidoka. Answer: FALSE Difficulty: Moderate Keywords: jidoka, quality at the source Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

9) A power cord that can be plugged in only one way is an example of a poka-yoke. Answer: TRUE Difficulty: Moderate Keywords: poka-yoke, mistake-proofing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

10) Takt time is the cycle time needed to match the rate of production to the rate of sales. Answer: TRUE Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

11) Takt time is the cycle time needed to match the rate of consumption to the forecasted demand. Answer: FALSE Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

12) A firm that averages sales of 384 units for every 480-minute shift it runs has a takt time of 60 seconds. Answer: FALSE Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

13) Heijunka is the leveling of production load by both volume and product mix. Answer: TRUE Difficulty: Moderate Keywords: heijunka Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

14) Mixed-model assembly is a type of assembly that produces a mix of models in large lot sizes. Answer: FALSE Difficulty: Moderate Keywords: mixed model assembly, small lot size Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

15) Productivity tends to decrease with the use of standardized because of the repetitive nature of the worker task. Answer: FALSE Difficulty: Moderate Keywords: productivity, standardized components, standardized work method Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

16) Five S practices can enable workers to visually see everything differently, prioritize tasks, and achieve a greater degree of focus. Answer: TRUE Difficulty: Moderate Keywords: 5S, five S Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

17) Five S practices are relevant for application only in manufacturing settings like a production shopfloor. Answer: FALSE Difficulty: Easy Keywords: 5S, five S Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

18) Preventive maintenance is typically given very low priority in just-in-time systems. Answer: FALSE Difficulty: Easy Keywords: preventive maintenance, JIT, just-in-time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

19) One tactic of Total Preventive Maintenance (TPM) is to designate a special maintenance team for the routine maintenance and upkeep of equipment. Answer: FALSE Difficulty: Moderate Keywords: Total Preventive Maintenance (TPM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

20) While lean systems work very well for manufacturing systems, they cannot be applied to service systems. Answer: FALSE Difficulty: Easy Keywords: lean systems, manufacturing systems, service systems Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

21) Toyota sets up all of its operations as experiments and teaches employees at all levels how to use the trial and error method of problem solving. Answer: FALSE Difficulty: Easy Keywords: Toyota production system, scientific method Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

22) In the Toyota Production System, when a work station needs more material, it is obvious to both the worker and the supplier that material is needed. Further, the amount needed must be understood as well as the delivery time for replenishment. Answer: TRUE Difficulty: Easy Keywords: TPS, Toyota Production System, customer-supplier connection Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

23) In the Toyota Production System, services and goods are pushed to the next available person or machine to maintain smooth, rapid flow. Answer: FALSE Difficulty: Moderate Keywords: Toyota production system, pathway Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

24) Lean systems try to: A) produce a product in anticipation of demand. B) maximize the value added by each of its activities. C) organize production in large lots to minimize the number of setups. D) reduce the labor content in all processes. Answer: B Difficulty: Moderate Keywords: lean system, value added Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

25) Companies using lean systems generally have: A) many suppliers to ensure that material shortages never occur. B) suppliers that are located nearby to decrease delivery lead time. C) suppliers that are willing to accept short-term contracts. D) suppliers who are low-cost producers. Answer: B Difficulty: Moderate Keywords: supplier Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

26) Lean systems maintain inventory in small lot sizes because small lot sizes: A) increase pipeline inventory, allowing the organization to buffer against demand uncertainties. B) increase the quality level of the product. C) enable schedules to use machine capacities more efficiently. D) increase manufacturing lead time because of the increase in waiting time. Answer: C Difficulty: Moderate Keywords: lot size Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

27) The goal of single-digit setups is to have a setup time: A) of less than one shift. B) of less than one hour. C) of less than 30 minutes. D) of less than 10 minutes. Answer: D Difficulty: Easy Keywords: single-digit setup Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

28) The lean system concept will not work without the proper environment. Which one of the following characteristics is most common to firms that have successfully implemented a lean system? A) uniform assembly schedules B) specialized workforce C) high rates of machine failures D) longer setup times Answer: A Difficulty: Moderate Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

29) There are many requirements for the successful implementation of the lean system of production. Which one of the following is not such a requirement? A) uniform assembly schedule B) short setup time C) low machine failure and low defects D) substantial natural resources Answer: D Difficulty: Moderate Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

30) Using customer demand to activate production of an item or service is called: A) the andon method. B) the pull method. C) the jidoka method. D) the push method. Answer: B Difficulty: Moderate Keywords: lean system, pull method Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

31) A method of workflow in which customer demand activates the production of a good or service is called: A) the andon method. B) the pull method. C) the jidoka method. D) the push method. Answer: B Difficulty: Moderate Keywords: lean system, pull method Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

32) Automatically stopping the process when something is wrong and then fixing the problems on the line itself as they occur is known as: A) andon. B) muda. C) jidoka. D) poka-yoke. Answer: C Difficulty: Moderate Keywords: lean system, jidoka Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

33) Designing shipping boxes to be packed only in a certain way to minimize damage and eliminate all chances of mistakes is an example of: A) andon. B) muda. C) jidoka. D) poka-yoke. Answer: D Difficulty: Moderate Keywords: poka-yoke, mistake-proofing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

34) Items to be assembled that fit together only the proper way are an example of: A) andon. B) jidoka. C) poka-yoke. D) muda. Answer: C Difficulty: Moderate Keywords: poka-yoke, mistake-proofing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

35) In lean systems, if a defective product is found, which of the following is generally not done? A) The production line is stopped. B) The defective unit is passed on to the next workstation. C) The defective unit is returned to the worker responsible for creating the defect. D) The production line is made aware of the problem without necessarily stopping the line. Answer: B Difficulty: Moderate Keywords: lean systems, quality at the source Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

36) The takt time of a process is defined as: A) the cycle time needed to match the rate of production to the rate of consumption. B) the total time required to move an item through a process. C) the time required to change a machine to run a new model. D) the lead time necessary to notify maintenance that a problem has occurred in an operation. Answer: A Difficulty: Moderate Keywords: lean system, takt time, production rate, consumption rate Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

37) The production of 384 units during a 480-minute work shift results in a takt time of: A) 30 seconds. B) 45 seconds. C) 60 seconds. D) 75 seconds. Answer: D Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

38) A takt time of 120 seconds generates a process output of: A) 40 units per hour. B) 30 units per hour. C) 60 units per hour. D) 90 units per hour. Answer: B Difficulty: Moderate Keywords: takt time, process output Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

39) The production of 100 units during a 480-minute work shift results in a takt time of: A) 150 seconds. B) 192 seconds. C) 288 seconds. D) 360 seconds. Answer: C Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

40) A manufacturer regularly makes 3 product types — type A, type B and type C. Previously, they used to run a production batch each of 500 As, 300 Bs and 100 Cs every month but now they run a production batch of 5 As, 3 Bs, and 1 C every half day with the use of: A) single-digit setups. B) andon lights. C) mixed-model assembly. D) push method. Answer: C Difficulty: Moderate Keywords: lean system, mixed-model assembly Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

41) Lean systems use the standardization of components because standardization: A) decreases the demand for each component. B) increases repeatability. C) increases lot sizes more easily. D) decreases repeatability. Answer: B Difficulty: Moderate Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

42) Weeding out unnecessary items, neatly arranging what's left, and cleaning the work area are components of: A) a Kanban system. B) a constraint management system. C) mixed-model assembly. D) a 5S program. Answer: D Difficulty: Easy Keywords: 5S, five S Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

43) Creating discipline to perform the other four S practices, describes which 5S element? A) Sort B) Sustain C) Shine D) Standardize Answer: B Difficulty: Moderate Keywords: 5S, five S Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

44) Which of the following statements about the Toyota Production System is best? A) Toyota has built a learning organization over the course of 50 years. B) The key to success for Toyota is the set of tools and procedures readily apparent on a plant tour. C) The four principles that form the basis to TPS are impossible to replicate. D) Toyota has 23 manufacturing plants in North America alone. Answer: A Difficulty: Moderate Keywords: principle, TPS, Toyota Production System Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

45) The four bolts that hold the passenger seat in a pickup truck are tightened in a clockwise order beginning with the front right bolt, in 24 seconds. This production factoid illustrates which of the following principles of the Toyota Production System? A) All work must be specified as to content. B) Every customer-supplier connection must be direct and unambiguous. C) The pathway for every service and product must be direct. D) Any improvements to the system must be made in accordance with the scientific method. Answer: A Difficulty: Moderate Keywords: principle, TPS, Toyota Production System Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

46) The rack at my assembly station that holds rear view mirrors is empty, so a runner wheels it away and replaces it with a new rack, fully populated with rear view mirrors. This production factoid illustrates which of the following principles of the Toyota Production System? A) All work must be specified as to content. B) Every customer-supplier connection must be direct and unambiguous. C) The pathway for every service and product must be direct. D) Any improvements to the system must be made in accordance with the scientific method. Answer: B Difficulty: Moderate Keywords: principle, TPS, Toyota Production System Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

47) Management at Pepman has decided to switch from a push system to a pull system of manufacturing. They are a large repetitive manufacturer of bicycles. Which one of the following is most likely to occur? A) The cycle time will increase, resulting in higher inventory levels. B) The space required will increase due to the increase in the number of units that require rework. C) The decrease in WIP inventory levels will reduce the space requirements. D) The workers at any given process will produce units before they are needed by the subsequent process. Answer: C Difficulty: Moderate Keywords: push system, pull system, WIP inventory Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

48) ________ refers to a form of supplier partnership that places a supplier representative, who is empowered to plan and schedule the replenishment of materials from the supplier, in the customer's plant on a full-time basis. Answer: JIT II Difficulty: Moderate Keywords: JIT II, in-plant representative, material replenishment Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

49) A(n) ________ is a group of activities needed to readjust a process between successive lots of items. Answer: setup or changeover Difficulty: Moderate Keywords: setup, changeover Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

50) ________ refers to the goal of having a setup time of fewer than 10 minutes. Answer: Single-digit setup Difficulty: Moderate Keywords: single-digit setup Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

51) The ________ method of workflow involves using demand forecasts to produce an item in anticipation of a customer order. Answer: push Difficulty: Easy Keywords: production, push method of workflow Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

52) Automatically stopping the process when something is wrong and then fixing the problems on the line itself as they occur is called ________. Answer: jidoka Difficulty: Moderate Keywords: jidoka Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

53) ________ refers to mistake-proofing methods aimed at designing fail-safe systems that minimize human error. Answer: Poka-yoke Difficulty: Moderate Keywords: poka-yoke, mistake-proofing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

54) A lean system's ________ refers to the cycle time needed to match the rate of production to the rate of sales or consumption. Answer: takt time Difficulty: Moderate Keywords: takt time, production rate, consumption rate Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

55) ________ is the leveling of production load by both volume and product mix. Answer: Heijunka Difficulty: Moderate Keywords: heijunka, production leveling Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

56) A(n) ________ assembly line produces a mix of models in smaller lots. Answer: mixed-model Difficulty: Moderate Keywords: mixed-model assembly, small lot size Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

57) ________ is a methodology consisting of five workplace practices that are conducive to visual controls and lean production. Answer: Five S, 5S Difficulty: Easy Keywords: five S, 5S Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

58) The list of five S practices includes ________, ________, ________, ________ and ________. Answer: sort, straighten, shine, standardize, sustain Difficulty: Moderate Keywords: five S, 5S, sort, straighten, shine, standardize, sustain Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

59) ________ practices include early testing of machine parts that may need to be replaced and making workers responsible for routine minor maintenance of their own equipment. Answer: Total Preventive Maintenance, TPM Difficulty: Moderate Keywords: Total Preventive Maintenance (TPM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

60) The philosophy whereby defects are caught and corrected where they are created is known as ________. Answer: quality at the source Difficulty: Moderate Keywords: quality at the source Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

61) The pathway for every service and product in the Toyota Production System must be ________ and ________. Answer: simple, direct Difficulty: Moderate Keywords: TPS, Toyota Production System, pathway Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

62) In the Toyota Production System, all work must be completely specified as to ________, ________, ________ and ________. Answer: content, sequence, timing, outcome Difficulty: Challenging Keywords: TPS, Toyota Production System, work, content, sequence, timing, outcome Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

63) What are the supply chain implications of the lean system emphasis on close supplier ties? Answer: Close supplier ties lead to partnerships with a relatively few number of suppliers in close geographic locations. It helps firms get frequent supplier shipments, have short lead time, on-time scheduled arrival of goods of high quality, with deliveries as often as several times per day. Close cooperation leads to better inventory planning and scheduled deliveries that improve both customer and supplier profit margins. Sometimes, a JIT II system is used with the supplier having a representative in the customer's plant, and this representative is then empowered to plan and schedule the replenishment of materials from the supplier. Difficulty: Challenging Keywords: supply chain, lean system, close supplier ties Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

64) What are the supply chain implications of the lean system emphasis on small lot sizes? Answer: Small lot sizes reduce average inventory levels (relative to large lots) throughout the entire supply chain. Small lots also pass through the system more quickly, because they do not keep materials waiting. Defective items are discovered more quickly, and shorter delays result from correcting a problem with a smaller lot. In addition, they help achieve a uniform workload and prevent overproduction. One disadvantage of small lots is that they increase the frequency of setups, so lean systems direct a great deal of attention to reducing setup times. Often, an objective of single-digit setups is established, which represents the firm's goal to have setup times of less than 10 minutes. Difficulty: Challenging Keywords: supply chain, lean system, small lot size Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

65) What is the difference between the "push" and "pull" methods of material flow? Which method does lean systems use? Answer: With the pull method, customer demand (an order) activates the production of the goods or services. The production system does not anticipate the need for more product until indicated by a customer order. The push method begins with a production schedule and customer demand is assumed (or hoped for). Lean system processes use the pull method of production. Difficulty: Moderate Keywords: push method, pull method, production, material flow, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

66) What are some of the approaches used to achieve the high quality levels associated with lean systems? Answer: Quality at the source is one principle approach that is used—this is the philosophy that defects are caught and corrected where they are created. Other ways of building in quality include automatically stopping a process when something is wrong and then fixing the problem on the line itself as they occur (called jidoka), and using mistake-proofing methods to design fail-safe systems that minimize human error (called poka-yoke). Difficulty: Moderate Keywords: quality, quality at the source, jidoka, poka-yoke Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

67) Explain the meaning of the term takt time, and use a numerical example to illustrate. Answer: Takt time is the cycle time needed to match the rate of production to the rate of sales or consumption. Numerical examples may vary, but one might be as follows: Units are sold at a rate of 240 per day. A plant running one shift (480 minutes) per day would establish a takt time of 2 minutes per unit, or 120 seconds per unit (480 minutes ÷ 240 units). All manufacturing steps in the process would be planned to complete their work within the 2-minute takt time. Difficulty: Moderate Keywords: takt time, production rate, consumption rate, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

68) With respect to lean systems, what is the advantage of standardized components? Answer: Standardization tends to increase the repeatability of tasks, which in turn enables a higher degree of efficiency in production. Difficulty: Moderate Keywords: lean system, standardized components, repeatability, production efficiency Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

69) List and briefly define the 5S Practices that serve as an enabler and essential foundation of lean systems. Answer: Refer to Table 6.2, page 215 in the text. Difficulty: Moderate Keywords: five S, 5S, sort, straighten, shine, standardize, sustain Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

70) What are the four underlying principles of the Toyota Production System? Answer: The four underlying principles are: (1) all work must be completely specified as to content, sequence, timing and outcome; (2) every customer—supplier connection must be direct, unambiguously specifying the people involved, the form and quantity of goods and services, the way requests are made by customers, and the expected time in which the requests will be met; (3) the pathway for every product and service must be simple and direct; and (4) any improvement to the system must be made in accordance with the scientific method, under the guidance of a teacher, and at the lowest possible level. Difficulty: Moderate Keywords: TPS, Toyota Production System, principles Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

71) Briefly discuss the House of Toyota, including its origin and key points. Answer: The House of Toyota is a graphic presentation of all the essential elements of lean systems that make the Toyota Production System (TPS) work well. It was originally used by Toyota to define TPS to its employees and suppliers. Its roof represents the primary goals of high quality, low cost, waste elimination, and short lead times. The roof is supported by the twin pillars of JIT and jidoka, which stand on a base of operational stability that comes from leveraging a number of lean concepts. For additional details refer to Figure 6.3, page 217 in the text. Difficulty: Moderate Keywords: House of Toyota, lean system, essential elements Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

72) An item sells at a rate of 240 units per day. If a plant works one shift per day (480 minutes), what takt time is required for the plant to meet this demand? Answer: 480 minutes per day ÷ 240 units = 2.0 minutes per unit, or 120 seconds per unit Difficulty: Easy Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

73) A plant's manufacturing process has a takt time of 90 seconds per unit. This results in a process output of how many units per hour? Answer: 60 minutes per hour × 60 seconds per minute = 3,600 seconds per hour 3,600 seconds per hour ÷ 90 seconds per unit = 40 units per hour output Difficulty: Moderate Keywords: takt time, process output Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

74) An item is used in Process B at a rate of 150 units per day. Process A works one shift per day (480 minutes) and supplies Process B's requirements. What takt time is required in Process A to meet Process B's demand? Answer: 480 minutes per day ÷ 150 units = 3.2 minutes per unit, or 192 seconds per unit Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

75) What is the output for a process that has a takt time of 1.25 minutes per unit? Answer: 60 minutes per hour ÷ 1.25 minutes per unit = 48 units per hour output Difficulty: Moderate Keywords: takt time, process output Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

76) An item sells at a rate of 600 units per day. If a plant works two shifts per day (480 minutes each shift), what takt time is required for the plant to meet this demand? Answer: 480 minutes per shift × 2 shifts = 960 minutes per day 960 minutes per day ÷ 600 units = 1.6 minutes per unit, or 96 seconds per unit Difficulty: Moderate Keywords: takt time Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

77) A plant's manufacturing process has a takt time of 72 seconds per unit. This results in a process output of how many units per hour? Answer: 60 minutes per hour × 60 seconds per minute = 3,600 seconds per hour 3,600 seconds per hour ÷ 72 seconds per unit = 50 units per hour output Difficulty: Moderate Keywords: takt time, process output Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Identify the strategic supply chain and process characteristics of lean systems.

4.3 Designing Lean System Layouts 1) One benefit of a lean system is that it reduces space requirements. Answer: TRUE Difficulty: Easy Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

2) Options for achieving line-flow layouts in a lean system include assigning a worker to operate each machine in a line and creating cells to produce different product groups called varied product families. Answer: FALSE Difficulty: Moderate Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

3) An OWMM arrangement reduces labor requirements but increases inventory. Answer: FALSE Difficulty: Moderate Keywords: line flow, one-worker, multiple-machine, OWMM, labor requirements, inventory Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

4) Group technology is an option for achieving job shop layouts in high volume processes. Answer: FALSE Difficulty: Moderate Keywords: group technology, cells, parts families Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

5) Combining parts or products with similar characteristics into families and setting machines aside for their production is known as: A) the one-worker, multiple machines (OWMM) method of production. B) the standardized component method of manufacturing. C) group technology. D) the flexible workforce approach to manufacturing. Answer: C Difficulty: Moderate Keywords: group technology, GT Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

6) A commonly used arrangement for a one-worker, multiple-machines (OWMM) cell is a(n) ________ layout. Answer: U-shaped Difficulty: Moderate Keywords: one-worker, multiple-machines (OWMM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

7) ________ is the combining of parts or products with similar characteristics into families and setting aside groups of machines for their production. Answer: Group technology (GT) Difficulty: Moderate Keywords: group technology, GT Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

8) What is group technology and what advantages are accrued from its use? Answer: The theory is to group parts or products into families and set aside groups of machines for their production. By dedicating these groups of machines to specific part families, the overall setup time between parts is minimized, part routings are less complicated, shorter, and therefore faster, and material handling is minimized. Other less tangible benefits may also be realized; for example, it is typically easier to track down the status of an order if the expeditor knows the cell where it should be produced. Inventory levels may also be lower and learning effects may reduce overall production time. Difficulty: Moderate Keywords: group technology, GT, product family, part family, cell, machine groups Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

9) How can group technology be used in a service setting? Provide an example and describe two advantages of using this principle in a service setting. Answer: The theory behind group technology is to group parts or products into families and set aside groups of machines for their production. In a service setting, the parts are customers and the groups of machines may be customer service representatives or could be machines. Examples will vary, but in a university setting, student advising is most likely done using group technology principles, e.g., students are assigned to an advisor based on their major rather than alphabetically. This means that the advisor can develop intimate knowledge of a few majors rather than the virtually impossible task of understanding the quirks of all majors and departments at a university. Many businesses parse their customer bases into commercial and residential groups as well. Difficulty: Moderate Keywords: group technology, GT, product family, part family, cell, machine groups Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

10) Explain how a line-flow strategy can be used to reduce or eliminate setups. Answer: If line-flow volumes are high enough, a product layout can be used that eliminates setup requirements entirely. Another tactic, the one-worker-multiple-machines (OWMM) approach, can also be used to reduce or eliminate setups by having one person operate several machines simultaneously to achieve line-flow without requiring the machine to be changed over. In low volume processes, line-flow can be achieved through group technology (GT). This technique groups parts or products with similar characteristics into families and sets aside groups of machines for their production. The goal is to group products with similar processing requirements and minimize changeover or setup. Difficulty: Challenging Keywords: line flow strategy, setup time, one-worker, multiple-machines, OWMM, group technology, GT Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the differences between one-worker, multiple-machine (OWMM) and group technology (GT) approaches to lean system layouts.

4.4 The Kanban System 1) A Kanban is a Japanese term for a production supervisor who is responsible for controlling the flow of production in many just-in-time systems. Answer: FALSE Difficulty: Easy Keywords: Kanban card Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

2) In a Kanban system, the preceding processes can produce parts without a Kanban card if the worker is standing by idle. Answer: FALSE Difficulty: Moderate Keywords: Kanban system, Kanban card Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

3) Some Kanban systems are set up without Kanban cards, and use the material containers or open spaces in a work area to withdraw materials. Answer: TRUE Difficulty: Moderate Keywords: Kanban system, container system, containerless system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

4) As the average processing time per container of parts increases, fewer containers are needed in a Kanban system. Answer: FALSE Difficulty: Moderate Keywords: Kanban system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

5) A Kanban system is an important mechanism for lean system management. Which one of the following statements regarding the operation of a Kanban system is best? A) A typical Kanban used in the JIT system includes information such as item number, unit price, competitor's product name, and its price. B) A Kanban can be used to set the order quantity but not the inventory level. C) A Kanban and a container move as a pair once production begins at the fabrication process. D) An empty container can be exchanged for a full container at the storage location even though no Kanban is on the full container. Answer: C Difficulty: Moderate Keywords: Kanban system, container, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

6) An important mechanism for lean systems is a Kanban system. Which one of the following statements correctly describes the behavior of a two-card Kanban system? A) A withdrawal Kanban is issued to authorize production in the fabrication process. B) A production-ordering Kanban authorizes the assembly process to remove the materials from the storage location. C) The fabrication process produces certain units defined by the lot size and pushes them down to the assembly process. D) Containers must never be removed from the storage location without an authorizing withdrawal Kanban. Answer: D Difficulty: Moderate Keywords: Kanban system, container, withdrawal Kanban, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

7) Which one of the following statements regarding the Toyota production system is best? A) It is particularly well suited for making irregularly used parts and customized "specials." B) It is a "push system," with orders pushed out in anticipation of future requirements. C) Each container has either a withdrawal or production-ordering Kanban. D) It does not use poka yoke or 5S practices. Answer: C Difficulty: Moderate Keywords: lean system, Kanban system, withdrawal Kanban, production-ordering Kanban Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

Case 4.1 The Arco Appliance Company uses a Kanban system to make flanges that are a component used in several of their products. The waiting time for a container of the flanges during production is 0.40 day; average processing time is 0.25 day per container. Each container holds 100 flanges. The company uses 1,500 flanges a day in the production of its products. 8) The company has a safety stock requirement of 10% of the authorized inventory for flanges. Using the information in Case 4.1., calculate the number of Kanban containers needed for the flanges. A) four or fewer B) between four and eight C) between eight and eleven D) eleven or more Answer: C Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

9) Use the information in Case 4.1. How many Kanban containers would be required if the safety stock is 15% of the authorized inventory? A) four or fewer B) between four and eight C) between eight and eleven D) eleven or more Answer: D Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

Case 4.2 The Jewel Golf Club Company, which recently began using a Kanban system, has had problems with high inventory levels of one of the handle grips used to make several versions of its clubs. Daily demand for the grip is 3,000 units, average waiting time during production is 0.20 day, processing time is 0.10 day per container, and a container holds 150 grips. 10) Use the information in Case 4.2. How many Kanban containers would Jewel require if a 5% policy variable is used? A) three or fewer B) four or five C) six or seven D) eight or more Answer: C Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

11) Use the information in Case 4.2. Suppose the processing time per container increased and Jewel continued to use a 5% policy variable. In that case, the number of containers required would: A) increase. B) decrease. C) remain the same. D) not enough information to determine. Answer: A Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

12) Which of the following actions would decrease the number of containers in use in a Kanban system? A) using smaller containers for holding the parts B) increased demand for the part held by the container C) faster processing time for the part held by the container D) increased waiting time for the container Answer: C Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

13) A(n) ________ is a card used to control the flow of production through a factory. Answer: Kanban Difficulty: Easy Keywords: Kanban system, card, signal, production flow Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

14) A(n) ________ is based on both a withdrawal card and a production-order card, to control inventory quantities more closely. Answer: two-card Kanban system Difficulty: Moderate Keywords: Kanban system, two-card Kanban system, withdrawal card, production-order card Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

15) In a(n) ________ system based on other Kanban signals, an empty space signals a need to fill it. Answer: containerless Difficulty: Moderate Keywords: Kanban system, containerless system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

16) What are the general operating rules for a single-card kanban system? Answer: The operating rules for the single-card system are simple and are designed to facilitate the flow of materials while maintaining control of inventory levels. 1. Each container must have a card. 2. The assembly line always withdraws materials from the fabrication cell. The fabrication cell never pushes parts to the assembly line because, sooner or later, parts will be supplied that are not yet needed for production. 3. Containers of parts must never be removed from a storage area without a kanban first being posted on the receiving post. 4. The containers should always contain the same number of good parts. The use of nonstandard containers or irregularly filled containers disrupts the production flow of the assembly line. 5. Only nondefective parts should be passed along to the assembly line to make the best use of materials and worker's time. This rule reinforces the notion of building quality at the source, which is an important characteristic of lean systems. 6. Total production should not exceed the total amount authorized on the kanbans in the system. Difficulty: Moderate Keywords: Kanban system, single card Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

17) How does Toyota's two-card kanban system work? Answer: Toyota uses a two-card system, based on a withdrawal card and a production-order card, to control inventory quantities more closely. The withdrawal card specifies the item and the quantity the user of the item should withdraw from the producer of the item, as well as the stocking locations for both the user and the producer. The production-order card specifies the item and the quantity to be produced, the materials required and where to find them, and where to store the finished item. Materials cannot be withdrawn without a withdrawal card, and production cannot begin without a production-order card. The cards are attached to containers when production commences. By manipulating the number of withdrawal and production cards in play at any time, management can control the flow of materials in the production system. Difficulty: Moderate Keywords: Kanban system, two-card Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

18) When determining the number of kanban containers, discuss the impact of alpha, the policy variable, on the total amount of inventory in the system. If alpha is set equal to zero, is system inventory zero? What would be required to achieve a system-wide inventory of zero? Answer: The policy variable alpha adds safety stock to cover for unexpected circumstances, for example a quality issue or delays in supply. Even if alpha is zero, there is still inventory in the system as dictated by the average demand during lead time DDLT. The DDLT is calculated by multiplying the daily demand for parts by the sum of the average container travel time plus the average container process time. One unappealing way for system-wide inventory of zero would be for demand to drop to zero. Another way for system-wide inventory to be close to zero would be for a manufacturer to have very large capacity and fast processing. Such capacity and speed would be prohibitively expensive for processing tangible goods. Difficulty: Challenging Keywords: Kanban system, number of kanban containers, safety stock Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

19) Jones Electric Motors uses a Kanban system to make motors for several garage door companies in the southeastern United States. The daily demand for motor housings used in manufacturing is 100 units. The average waiting time for a container of parts is 0.2 day. The processing time for a container of housings is 0.1 day, and a container holds 5 housings. If Jones wishes to use a 10% policy variable, how many containers are needed? Answer: k =

= 6.6 → 7 containers

Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

20) Happiness, Inc. uses a Kanban system. The daily demand for the most critical part, the Smylie, is 400 units over an eight-hour production period. The average waiting time for a container of Smylies is 30 minutes. The processing time for a container filled with Smylies is 6 minutes, and a container holds 5 units. If the company wishes to use a 5% policy variable, how many containers are needed? Answer: k =

= 6.3 → 7 containers

21) Degan's Salad Dressings uses a Kanban system. The daily demand for corrugated boxes used in packaging its dressings is 300 boxes. The average waiting time for a container of boxes is 0.25 day. The processing time for a container of boxes is 0.1 day, and a container holds 10 boxes. If Burdell wishes to use a 10% policy variable, how many containers are needed? Answer: k =

= 11.55 → 12 containers

22) Champion Cooling Company uses a kanban system at their two locations in the Oklahoma City Metroplex. The daily demand for fans is 2,000 at each location and management insists on using the same alpha level (0.1) at both locations. Location Reno uses containers that hold 20 items and takes 0.04 of a day to process a container. It takes 0.07 of a day to get a container filled and for it to wait during its cycle. Location Western uses containers that hold 24 items and takes 0.02 of a day to process a container. It takes 0.08 of a day to get a container filled and for it to wait during its cycle. Which location has the higher level of inventory? Assume that both locations round up to the next highest integer number of containers. Answer: kReno = [

= 12.1 → 12

WIPReno = 20 × 13 = 260 kWestern =

= 9.16 → 9

WIPWestern = 24 × 10 = 240 Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

23) Champion Cooling Company uses a kanban system at their location in the Oklahoma City Metroplex. The daily demand for fans is 2,000 and management insists on using an alpha level of 0.1. They use containers that hold 20 items and takes 0.04 of a day to process. It takes 0.07 of a day to get a container filled and for it to wait during its cycle. How many containers should they use? If they use the nearest integer value number of containers, what is the actual system alpha? Answer: k = 12 =

= 12.1 → 12 containers

240 = 2,000 (.04 + .07)(1 + α) = .11(1 + α) =1+α 1.

-1=α =α

Difficulty: Challenging Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

24) Champion Cooling Company uses a kanban system at their location in the Oklahoma City Metroplex. The daily demand for fans is 2,000 and management insists on using an alpha level of 0.1. They use containers that hold 24 items and takes 0.02 of a day to process. It takes 0.08 of a day to get a container filled and for it to wait during its cycle. How many containers should they use? If they use the nearest integer value number of containers, what is the actual system alpha? Answer: K = 9=

= 9.16 → 9 containers

= =

24 × 9 = 2,000(.02 + .08)(1 + α) = .10(1 + α) =1+α 1.08 - 1 = α 0.08 = α Difficulty: Challenging Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

25) Burdell Salad Dressings uses a Kanban system. The daily demand for corrugated boxes used in packaging its dressings is 300 boxes. The average waiting time for a container of boxes is 0.25 day. The processing time for a container of boxes is 0.1 day, and a container holds 10 boxes. If Burdell wishes to use a 5% policy variable, what is the level of work in process inventory in their plant? Answer: k =

= 11.025 → 12 containers

WIP = 10 × 12 = 120 units Assuming they round up, their WIP is 120 units. If they round down, they would have 110 units of WIP. Difficulty: Moderate Keywords: Kanban system, number of containers Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

26) The Peeps factory can be described as a three step process consisting of Mixing, Forming, and Packaging. Peeps are made in batches of 1,000 and have a daily demand of 75,000 units during what the plant manager likes to call "the Peep season." Mixing has a cycle time of .02 seconds with a setup time of 30 seconds; Forming has a setup time of 24 seconds and a cycle time of .03 seconds, and Packaging has a setup time of 15 seconds with a cycle time of .04 seconds. Each process step is handled by one operator, who is available for 8 hours a day. What is the process bottleneck if each process step is assumed to have 100% uptime? Answer: Per Unit Processing = CT + Setup Per Unit Processing = .02 + .03 = .05 Capacity =

= 576,000 Units at Mixing

Per Unit Processing = CT + Setup Per Unit Processing = .03 + .024 = .054 Capacity =

= 533,333 Units at Forming

Per Unit Processing = CT + Setup Per Unit Processing = .04 + .015 = .055 Capacity =

= 523,636 Units at Packaging

Difficulty: Challenging Keywords: bottleneck, VSM, value stream mapping Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand Kanban systems for creating a production schedule in a lean system.

4.5 Value Stream Mapping 1) Use of value stream mapping requires construction of a current state drawing, a future state drawing, and an implementation plan. Answer: TRUE Difficulty: Easy Keywords: value stream mapping, current state drawing, future state drawing, implementation plan Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

2) The value stream mapping tool often requires completion of the future state drawing before the current state drawing, to help managers see the future state goals and more easily identify problems with the current state of the process. Answer: FALSE Difficulty: Moderate Keywords: value stream mapping, current state drawing, future state drawing Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

3) It is a common practice to represent multiple product families on a single value stream map for ease of comparison. Answer: FALSE Difficulty: Moderate Keywords: value stream mapping, product family Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

4) Often in value stream mapping, analysts must rely on process information from shop floor workers rather than direct observation in an effort to quickly develop a work plan and accelerate implementing the improved process. Answer: FALSE Difficulty: Moderate Keywords: value stream mapping, process information, direct observation Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

5) The theory of constraints accepts existing system bottlenecks and works to maximize throughput given these constraints, while value stream mapping endeavors to understand how existing processes can be altered to eliminate bottlenecks and other wasteful activities. Answer: TRUE Difficulty: Moderate Keywords: theory of constraints, value stream mapping Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

6) A work plan and implementation will immediately follow the drawing a current state value stream map, which can then help determine the future value stream map. Answer: FALSE Difficulty: Moderate Keywords: value stream mapping, steps Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

Scenario 4.1 El Gran Raton, the producers of the finest carpincho wallets in all of Argentina, examined their production process in the form of a value stream map, displayed below.

7) Use Scenario 4.1 to determine the total production lead time for carpincho wallets. A) 14 days 585 seconds B) 14 days C) 14 days minus 585 seconds D) 585 seconds Answer: B Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

8) Use Scenario 4.1 to determine the total processing time for carpincho wallets. A) 14 days 585 seconds B) 14 days C) 14 days minus 585 seconds D) 585 seconds Answer: D Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

9) In Scenario 4.1, what is the significance of the two jagged arrows leading from the box labeled Production Control to the boxes labeled Supplier and Customer? A) the arrows represent flows of information B) the arrows represent flows of money C) the arrows represent the flows of materials D) the arrows represent the passage of time Answer: A Difficulty: Easy Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

10) Scenario 4.1 shows a value stream map with the picture separated into a top and bottom halves, each encircled by a dashed line. The bottom half of the picture could best be described as representing the: A) flow of information. B) flow of money. C) flow of material. D) flow of power. Answer: C Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

11) In Scenario 4.1, what does the triangle between Process A and Process B represent? A) WIP B) takt C) OWMM D) kanban Answer: A Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

12) Use the data in Scenario 4.1 to calculate the per unit processing time for Process A if El Gran Raton decides to run a batch size of 360 units. The per unit time is: A) 310 seconds. B) 46.67 seconds. C) 340 seconds. D) 696.67 seconds. Answer: A Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

13) With a batch size of 360 units, which process step in Scenario 4.1 is the bottleneck? A) Process A B) Process B C) Process C D) the market Answer: C Difficulty: Easy Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

14) Using the data in Scenario 4.1, with a batch size of 200 units, what is the per unit processing time for Process B? A) 12 seconds B) 48 seconds C) 120 seconds D) 150 seconds Answer: B Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

15) With a batch size of 200 units, what is the capacity of process C as shown in Scenario 4.1? A) 100.3 units per day B) 72.58 units per day C) 112.7 units per day D) 53.9 units per day Answer: B Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

16) Use the data in Scenario 4.1 to determine the batch size necessary to restrict overall process capacity to 60 units per day. A) below 100 units B) 100 to 125 units C) 125 to 150 units D) above 150 units Answer: A Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

17) ________ is a qualitative lean tool for eliminating waste that involves current state and future state drawings, and an implementation plan. Answer: Value stream mapping (VSM) Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

18) Value stream maps consist of a(n) ________, a(n) ________, and a(n) ________. Answer: current state drawing, future state drawing, implementation plan Difficulty: Moderate Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

19) Briefly outline the steps to be followed in evaluating and improving a process using value stream mapping. Answer: VSM analysts begin by selecting a product family for which the mapping will be done. This is followed by drawing a current state map of the existing production situation, and gathering and including all pertinent information on material and information flows (cycle times, scrap rates, machine uptime, batch sizes, etc.). Once the current state map is completed, the analysts use lean systems principles (e.g., load leveling, pull scheduling, Kanban systems) to create a future state map with more streamlined product flows. In this step, sources of waste are highlighted, and means for eliminating them are identified. Finally, an implementation plan for achieving the future state is developed, which then becomes the blueprint for implementing and fine tuning a lean system. The process does not stop here, but provides continuous improvement opportunities as a new future state map is drawn after the lean system has been further improved. Difficulty: Moderate Keywords: VSM, value stream mapping, product families, current state drawing, future state drawing, implementation plan Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

20) Choose a simple, common process and create a value stream map containing the current state, plus a realistic future state, and implementation plan. Answer: Answers will vary. See the outline below for steps to be followed and information to be included. VSM analysts begin by selecting a product family for which the mapping will be done. This is followed by drawing a current state map of the existing production situation, and gathering and including all pertinent information on material and information flows (cycle times, scrap rates, machine uptime, batch sizes, etc.). Once the current state map is completed, the analysts use lean systems principles (e.g., load leveling, pull scheduling, Kanban systems) to create a future state map with more streamlined product flows. In this step, sources of waste are highlighted, and means for eliminating them are identified. Finally an implementation plan for achieving the future state is developed, which then becomes the blueprint for implementing and fine tuning a lean system. The process does not stop here, but provides continuous improvement opportunities as a new future state map is drawn after the lean system has been further improved. Difficulty: Moderate Keywords: VSM, value stream mapping, product families, current state drawing, future state drawing, implementation plan Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Understand value stream mapping and its role in waste reduction.

Scenario 4.2 El Gran Raton, the producers of the finest carpincho wallets in all of Argentina, examined their production process in the form of a value stream map, displayed below.

21) Use the value stream map to conduct a complete analysis of the carpincho wallet production process. Calculate all raw material and WIP lead times and determine overall process capacity assuming El Gran Raton uses a batch size of 300 units. If a single carpincho wallet were ordered today, how long before it would reach the back pocket of the delighted customer if his order is but one of an average of 2,230 orders (all for a single wallet) during an average 5 day work week. *Assume that the days indicated on the lead time ladder are based on a different batch size and not applicable to the 300 unit batch currently in use.*

Answer: Using a batch size of 300 units, the capacity of Process A is calculated as: 60 minute setup * 60 seconds/minute = 3,600 second setup 3,600 seconds/300 units per batch = 12 seconds per unit Per unit processing time = 300 seconds + 12 seconds = 312 seconds The capacity of Process A is 27,000 seconds per day/312 seconds per unit = 86.5 units per day Process B is 47 seconds per unit with a capacity of 574.4 units per day and Process C is 348 seconds per unit with a capacity of 77.58 units per day Process C is always the bottleneck regardless of batch size. WIP times are calculated as 2,230 units/week divided by 5 days per week equals 446 units/day Pre Process A: 1,783 units/446 units per day = 4 days Between A and B: 1,202 units/446 units per day = 2.69 days Between B and C: 733 units/446 units per day = 1.64 days C to Shipping: 593 units/446 units per day = 1.32 days Adding up these production times and delays yields: 5.94 days + 300 seconds + 4 days + 45 seconds + 2.44 days + 300 seconds + 1.97 days = 14.37 days and 645 seconds, or 14.394 days, based on a 27,000 second day A carpincho is more commonly known as a capybara in the U.S. Difficulty: Challenging Keywords: value stream mapping (VSM) Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Analytical Thinking Learning Objective: Understand value stream mapping and its role in waste reduction.

4.6 Operational Benefits and Implementation Issues 1) One big advantage of lean systems is that they can usually be put in place without any major changes to existing layouts. Answer: FALSE Difficulty: Easy Keywords: lean system, line-flow layout Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

2) Lean systems require large batch sizes to gain economies of scale. Answer: FALSE Difficulty: Easy Keywords: lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

3) The shipments of raw materials and components must be reliable for successful implementation of lean systems. Answer: TRUE Difficulty: Easy Keywords: lean system, purchasing and logistics Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

4) Implementing a lean system: A) has the advantage that workers have less stress because of the routine, repetitive work they perform. B) typically relieves the workers and first-line supervisors from activities such as scheduling, expediting, and productivity improvements. C) requires an examination of the reward system to make sure it is consistent with the JIT philosophy. D) involves the reorganization of material flows to that of a flexible flow. Answer: C Difficulty: Moderate Keywords: JIT, just-in-time philosophy, reward system, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

5) Which of the following is a process consideration in the implementation of a lean system? A) Firms might have to change existing layouts. B) Workstations typically will have to be moved farther apart. C) A contract with strict job classifications will have to be adopted. D) Plant access by rail will become necessary. Answer: A Difficulty: Moderate Keywords: implementation, lean system, layout Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

6) Which one of the following is an advantage of lean systems? A) Lean systems reduce equipment needs by using larger lot sizes. B) Lean systems can be implemented in any production environment. C) Lean systems result in a decrease in safety stock and work-in-process inventory. D) Lean systems result in an increase in manufacturing lead times. Answer: C Difficulty: Moderate Keywords: lean system, WIP inventory, safety stock Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

7) When implementing a lean system: A) managers can mitigate some of the effects of worker stress by judiciously using safety stocks and emphasizing material flows rather than worker pace. B) management should base the reward system on production volume. C) the plant layout is the only environmental characteristic that need not be analyzed. D) it is critical to develop a master production schedule that changes frequently as forecasts change. Answer: A Difficulty: Moderate Keywords: lean system, worker stress, safety stock, material flow, worker pace Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

8) The final assembly schedule in a lean system: A) should be developed for each product independent of the process requirements for the other products. B) strives to create a uniform flow at the work centers in the plant. C) avoids the use of small lot sizes because they create many production orders and cause confusion. D) allows daily changes in demand levels, regardless of size, to be incorporated immediately into the work center schedules. Answer: B Difficulty: Moderate Keywords: assembly schedule, uniform flow, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

9) If the inventory advantages of a lean system are to be realized, ________ lot sizes must be used. Answer: small Difficulty: Moderate Keywords: scheduling, assembly setup, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

10) With lean systems, ________are needed so that production lines can be balanced. Answer: stable schedules Difficulty: Moderate Keywords: lean system, implementation, schedule stability Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

11) Describe the process considerations organizations must evaluate when implementing a lean system. Answer: Answers will vary, but process considerations will include the following areas: 1. Schedule stability: daily production schedules in high-volume, make-to-stock environments, must be stable for extended periods so production lines can be balanced. 2. Setups: small lot sizes must be used for inventory advantages, and setup times must be significantly reduced to save costs, which can be difficult for some firms to achieve. 3. Purchasing and logistics: frequent, small, and reliable shipments must be arranged to realize large inventory savings and to ensure materials are available. It's also important to note that firms may have to change existing layouts, which can be costly. Difficulty: Moderate Keywords: lean system, implementation, process design Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

12) What are the organizational issues companies must address before implementing a lean system? Answer: The organizational issues faced by companies include the human cost of lean systems (tends to create stress in workers), cooperation and trust (changes activities of workers and the relationships between them), and changing reward systems and labor classification. Difficulty: Moderate Keywords: lean system, human cost, cooperation, trust, reward system, labor classification Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

13) What is schedule stability and why is it important in a lean system? Answer: Schedule stability refers to the realization of production planning. Once the plan and necessary production levels are established, they are held as constant as possible and as true to the plan as practical. Such stability is necessary so that all resources can be put to their best use, i.e., production lines can be balanced and employees can be assigned to tasks that keep them working in appropriate roles. Difficulty: Moderate Keywords: JIT, just-in-time, assembly schedule, lean system Learning Outcome: Describe the advantages and disadvantages of various production strategies such as lean, Theory of Constraints, JIT, and Six Sigma AACSB: Application of Knowledge Learning Objective: Explain the implementation issues associated with the application of lean systems.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 5 Capacity Planning 5.1 Planning Long-Term Capacity 1) Input measures of capacity are generally used for low-volume flexible processes. Answer: TRUE Difficulty: Easy Keywords: capacity, input measures Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

2) Capacity being the maximum rate of output of a process can be expressed solely by only output measures. Answer: FALSE Difficulty: Moderate Keywords: capacity, input measures, output measures Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

3) Input measures of capacity are inherently more accurate than output measures of capacity. Answer: FALSE Difficulty: Moderate Keywords: input measures, output measures, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

4) Utilization is the degree to which equipment, space, or labor is currently being used. Answer: TRUE Difficulty: Easy Keywords: utilization, equipment used, space used, labor used Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

5) One reason economies of scale drive down cost is the spreading of fixed costs over a larger volume. Answer: TRUE Difficulty: Moderate Keywords: economies of scale, fixed cost Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

6) Output measures of capacity are best utilized for high volume processes such as car manufacturing. Answer: TRUE Difficulty: Easy Keywords: capacity, output measures Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

7) Long-term capacity plans deal with: A) investments in new facilities. B) workforce size. C) inventories. D) overtime budgets. Answer: A Difficulty: Moderate Keywords: long-term capacity, new facilities Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

8) Long-term capacity decisions that confront managers include all of the following except: A) capital equipment. B) additional land. C) buildings. D) workforce size. Answer: D Difficulty: Moderate Keywords: long-term capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

9) Regarding the measurement of capacity, when a firm provides a relatively small number of standardized products and services: A) capacity cannot be determined reliably. B) input measures are typically used. C) output measures are typically used. D) utilization becomes equal to capacity. Answer: C Difficulty: Moderate Keywords: output measure, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

10) Short-term capacity decisions that confront managers include all of the following except: A) identification of bottlenecks. B) capacity timing and sizing strategies. C) managing constraints in a line process. D) product mix decisions. Answer: B Difficulty: Moderate Keywords: short-term, long-term capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

11) Input measures include such metrics as: A) the number of customers served per hour. B) the number of trucks produced per day. C) the number of machine hours available. D) the number of bills processed in a week. Answer: C Difficulty: Moderate Keywords: input measure, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

12) The degree to which equipment, space, or labor is being used is commonly referred to as: A) capacity. B) output. C) utilization. D) cushion. Answer: C Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

13) A restaurant has a maximum capacity to serve 60 customers at any given point of time. However, over extended periods in a day, all tables are occupied and the restaurant staff are able to reconfigure the layout to regularly serve 70 customers with many customers still queuing up to get inside the restaurant. What is the utilization of the restaurant? A) 85.71% B) 100% C) 116.67% D) 60 customers Answer: C Difficulty: Easy Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

14) A restaurant has a maximum capacity to serve 50 customers at any given point of time. However, over extended periods in a day, all tables are occupied and the restaurant staff are able to reconfigure the layout to regularly serve 60 customers with many customers still queuing up to get inside the restaurant. What is the utilization of the restaurant? A) 83.33% B) 120% C) 100% D) 60 customers Answer: B Difficulty: Easy Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

15) The test bank author abandoned his teaching duties when he was in the zone working on a test bank. Normally scheduled to teach nine hours per week during the semester, he generally made his way to one three hour class a week, one where his students could propose devious problems that were sure to confound generations of test takers. What is the test bank author's utilization for his teaching duties? A) three hours B) nine hours C) 33% D) 300% Answer: C Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

16) The local branch of a bank is staffed by 4 tellers and is capable of serving 150 customers during their branch opening hours from 10 am to 4 pm. However, over the past month, due to higher than expected staff absenteeism and breakdown of some computers, the bank branch has been able to serve an average of only 100 customers per day . What is the utilization of the bank branch? A) 100 customers/ day B) 150 customers/day C) 66.67% D) 150% Answer: C Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

17) The local branch of a bank is staffed by 4 tellers and is capable of serving 150 customers during their branch opening hours from 10 am to 4 pm. However, over the past month, due to higher than expected staff absenteeism and breakdown of some computers, the bank branch has been able to serve an average of only 100 customers per day . What is the capacity of the bank branch? A) 100 customers/ day B) 150 customers/day C) 66.67% D) 150% Answer: B Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

18) The transition from economies of scale to diseconomies of scale: A) is more likely to occur in a service operation. B) is more likely to occur in a manufacturing operation. C) is more likely to occur when utilization is low. D) contains the point at which average unit costs are at their lowest. Answer: D Difficulty: Moderate Keywords: economies of scale, diseconomies of scale Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

19) ________ is the maximum rate of output for a process. Answer: Capacity Difficulty: Easy Keywords: capacity, maximum rate of output Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

20) Capacity decisions should be linked closely to ________ and ________ throughout the organization. Answer: processes, supply chains Difficulty: Moderate Keywords: capacity decision, strategy, process, supply chains Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

21) ________ is the degree to which equipment, space, or labor is currently being used. Answer: Utilization Difficulty: Easy Keywords: utilization, use of equipment, space, labor Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

22) The ________ concept states that the average unit cost of a service or good can be reduced by increasing its output rate. Answer: economies of scale Difficulty: Easy Keywords: economies of scale Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

23) ________ occurs when the average cost per unit increases as the facility's size increases. Answer: Diseconomies of scale Difficulty: Moderate Keywords: diseconomies of scale Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

24) Define utilization and give a service process example of it. Answer: Utilization is expressed as a percent and is the degree to which equipment, space, or labor is currently being used. Examples will vary. Difficulty: Easy Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

25) Discuss the relationship between setup time and utilization. Answer: Setup time is the time required to adjust a process when switching from making one product to another and is unproductive time in the sense that no product is being built during the setup. Utilization is the ratio of the average output rate to the maximum capacity. As output rate increases, the resource is more productive and utilization rises. Setups enable output but do not create it, so the faster a setup can be performed, the more of the total time is productive, thus increasing utilization. Difficulty: Moderate Keywords: setup time, utilization Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

26) Give four principal reasons economies of scale can occur when output increases. Provide examples of each for a service firm. Answer: The four reasons are spreading fixed costs, reducing construction costs, cutting costs of purchased materials, and finding process advantages. Examples will vary, but spreading fixed costs might include managers' salaries, rent, and utilities applied to a larger output volume. In construction, the costs of architect's fees, permits, rental of construction equipment, and land might be the same regardless of the size of the store front under consideration. Higher volume of purchased materials might allow the purchasing firm to take advantage of price breaks or delivery scheduling. Finally, process advantages could include more efficient technology, like card readers at gas pumps, RFID for inventory tags, etc. Difficulty: Moderate Keywords: economies of scale, output Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

27) Lucy's Pancake House, a no-frills diner along a major interstate, has discovered that if precious employee time is not wasted on frivolous duties such as cleaning work surfaces, properly storing ingredients, and pest control, they can achieve an average output rate of 25 customers per hour. If the diner was designed to accommodate a maximum of 30 customers per hour, what is the utilization? Answer: Utilization = Utilization =

× 100%

× 100% = 83.3%

Difficulty: Easy Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

28) The seven-person maintenance function at a hospital performs both preventive and corrective maintenance on hundreds of items each month. All the workers are scheduled for 40 hours per week and there are four weeks in a month. It is the goal of the maintenance department to achieve 90% utilization with a mix of two-thirds preventive maintenance and one-third corrective maintenance. How many hours each month are spent performing corrective maintenance if they achieve their 90% utilization and correct/preventive mix targets? Answer: Utilization = Utilization =

× 100% × 100% = 90% ×

Corrective Hours = 30% × 7 × 40 × 4 Corrective Hours = 336 hours Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

29) The seven-person maintenance function at a hospital performs both preventive and corrective maintenance on hundreds of items each month. All the workers are scheduled for 40 hours per week and there are four weeks in a month. It is the goal of the maintenance department to achieve 90% utilization with a mix of two-thirds preventive maintenance and one-third corrective maintenance. How many hours each month are spent performing preventive maintenance if they achieve their 90% utilization and correct/preventive mix targets? Answer: Utilization = Utilization =

× 100% × 100% = 90% ×

Preventive Hours = 60% × 7 × 40 × 4 Preventive Hours = 672 hours Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Define long-term capacity and its relationship with economies and diseconomies of scale.

5.2 Capacity Timing and Sizing Strategies 1) A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in demand or temporary loss of production capacity. Answer: FALSE Difficulty: Moderate Keywords: capacity cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

2) Larger capacity cushions are particularly vital for front office processes where customers expect fast service times. Answer: TRUE Difficulty: Moderate Keywords: capacity cushion, variation in demand, fast service times Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

3) A larger capacity cushion may be preferred if a process is highly capital intensive. Answer: FALSE Difficulty: Moderate Keywords: capacity cushion, capital intensity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

4) A larger capacity cushion can help firms uncover process inefficiencies, so they can find ways to correct them. Answer: FALSE Difficulty: Moderate Keywords: capacity cushion, process inefficiencies Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

5) Capacity cushions may be lowered if companies smooth the output rate by raising prices when inventory is low and decreasing prices when it is high. Answer: TRUE Difficulty: Moderate Keywords: capacity cushion, output rate, changes in pricing, inventory levels Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

6) An expansionist capacity strategy involves large, infrequent jumps in capacity, where a wait-and-see strategy involves smaller, more frequent jumps. Answer: TRUE Difficulty: Moderate Keywords: expansionist strategy, wait-and-see strategy, size and timing of capacity increases Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

7) A wait-and-see capacity strategy minimizes the chances of lost sales due to insufficient capacity. Answer: FALSE Difficulty: Moderate Keywords: expansionist strategy, lost sales, insufficient capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

8) A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy and announcing a large capacity expansion. Answer: TRUE Difficulty: Moderate Keywords: expansionist strategy, capacity expansion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

9) An expansionist capacity, which stays ahead of demand, minimizes the chances of sales lost to insufficient capacity. Answer: TRUE Difficulty: Moderate Keywords: wait-and-see, expansionist strategy, demand forecasts Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

10) Large, infrequent jumps in capacity are characteristic of companies that: A) have an expansionist strategy. B) have a wait-and-see strategy. C) have low utilization. D) have high utilization. Answer: A Difficulty: Moderate Keywords: expansionist capacity strategy Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

11) Which one of the following factors usually motivates a smaller capacity cushion? A) unevenly distributed demands B) high capital intensity C) high penalty costs for overtime usage D) requests for quick customer services Answer: B Difficulty: Moderate Keywords: capacity cushion, capital intensity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

12) Which one of the following factors usually calls for a larger capacity cushion? A) uncertain demand B) high capital intensity C) more reliable equipment D) high worker flexibility Answer: A Difficulty: Moderate Keywords: capacity cushion, demand variability Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

13) Which one of the following statements about capacity cushions is best? A) Companies with flexible flow processes tend to have small capacity cushions. B) Companies with high capital costs tend to have large capacity cushions. C) Companies that have considerable customization tend to have larger capacity cushions. D) Constant demand rates require larger-capacity cushions. Answer: C Difficulty: Moderate Keywords: capacity cushion, customization Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

14) In an expansionist strategy, if the demand is increasing and the time between increments increases, the size of the increments must: A) increase. B) decrease. C) remain unchanged. D) increase or decrease depending on competitor actions. Answer: A Difficulty: Moderate Keywords: demand increase, time between capacity increments Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

15) If a system is well balanced, which one of the following changes usually calls for a larger capacity cushion? A) higher capital intensity B) higher worker flexibility C) requests for fast delivery times D) higher inventories Answer: C Difficulty: Moderate Keywords: balanced system, cushion capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

16) A restaurant has a capacity of serve 150 customers during the dinner time from 5 to 9 pm. In a typical evening, the restaurant serves an average of 120 customers. What is the restaurant's capacity cushion? A) 20% B) 25% C) 50% D) 67% Answer: A Difficulty: Moderate Keywords: capacity cushion, utilization Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

17) A restaurant has a capacity of serve 150 customers during the dinner time from 5 to 9 pm. In a typical evening, the restaurant serves an average of 135 customers. What is the restaurant's capacity cushion? A) 5% B) 10% C) 15% D) 35% Answer: B Difficulty: Moderate Keywords: capacity cushion, utilization Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

18) An expansionist capacity strategy: A) lags behind demand. B) reduces the risk of overexpansion based on overly optimistic demand forecasts. C) can preempt expansion by competitors by announcing a large capacity expansion. D) meets capacity shortfalls with overtime, temporary workers, subcontracting, and stockouts. Answer: C Difficulty: Moderate Keywords: capacity cushion, capacity expansion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

19) A wait-and-see capacity strategy: A) involves small, frequent jumps in capacity. B) minimizes the chance of lost sales due to insufficient capacity. C) can result in economies of scale and a fast rate of learning, yielding reduced manufacturing costs. D) stays ahead of demand. Answer: A Difficulty: Moderate Keywords: capacity cushion, capacity jumps Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

20) ________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in demand or temporary losses of production capacity. Answer: Capacity cushion Difficulty: Moderate Keywords: capacity cushion, reserve capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

21) If demand is increasing, and you also prefer to increase the time between capacity increments, then the size of increments should ________. Answer: increase Difficulty: Moderate Keywords: demand increase, time between capacity increments Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

22) What factors should be considered when selecting the appropriate capacity cushion? How does the choice of capacity cushion relate to other decisions in operations management? To other functional areas? Answer: The appropriate size of the capacity cushion varies by industry. Large cushions are necessary when future demand is uncertain, resource flexibility is low, product mix changes, uncertainty exists regarding suppliers, and employee absenteeism and penalty costs for overtime and subcontracting exist. Small-capacity cushions reduce costs and expose problems in the system. Capacity cushions are linked to competitive priorities, quality management, capital intensity, resource flexibility, inventory, scheduling, and location. Obviously, many of these decisions cut across functional boundaries. Difficulty: Challenging Keywords: capacity cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

23) Define each of the following capacity strategies: expansionist, wait-and-see, and follow-the-leader. Answer: Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller and more frequent jumps. Follow-the-leader means to expand when others do. Difficulty: Moderate Keywords: capacity strategy, expansionist, wait-and-see, follow-the-leader Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

24) Depict the expansionist strategy graphically as a plot of capacity against time and discuss the benefits of adopting this strategy. Answer:

The expansionist means large, infrequent jumps in capacity. Several factors favor the expansionist strategy. Expansion can result in economies of scale and a faster rate of learning, thus helping a firm reduce its costs and compete on price. This strategy might increase the firm's market share or act as a form of preemptive marketing. By making a large capacity expansion or announcing that one is imminent, the firm can preempt the expansion of other firms. These other firms must sacrifice some of their market share or risk burdening the industry with overcapacity. To be successful, however, the preempting firm must have the credibility to convince the competition that it will carry out its plans and must signal its plans before the competition can act. Difficulty: Moderate Keywords: capacity strategy, expansionist Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

25) What is a capacity cushion? Provide examples of capacity cushions in a university setting and an automotive producer. Answer: The term capacity cushion refers to the amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity. It measures the amount by which the average utilization (in terms of total capacity) falls below 100%. Examples will vary, but in the academic milieu may include adjunct faculty, off-campus apartments, and online sections of a class. In the automotive setting cushions could include parts inventory, subcontractors, and excess/idled equipment. Difficulty: Moderate Keywords: capacity cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Understand the main differences between the expansionist and wait-and-see capacity timing and sizing strategies.

5.3 A Systematic Approach to Long-Term Capacity Decisions 1) A process's capacity requirement states the future process capacity needed to meet projected customer demands, without making any allowances for the desired capacity cushion. Answer: FALSE Difficulty: Moderate Keywords: capacity requirement, customer demand, capacity cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

2) A planning horizon is defined as the set of consecutive time periods considered for planning purposes. Answer: TRUE Difficulty: Moderate Keywords: time horizon Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

3) Output measures are appropriate for estimating capacity requirements for high-volume processes with little product variety or process divergence. Answer: TRUE Difficulty: Moderate Keywords: input measures, capacity requirements, product variety, process divergence Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

4) Kristen made a batch of chocolate chip cookie dough and then had to clean the utensils and mixing bowl before she made a batch of oatmeal raisin cookie dough. The time spent cleaning the bowl and utensils is an example of setup time. Answer: TRUE Difficulty: Easy Keywords: setup time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

5) Input measures are appropriate for estimating capacity requirements when the product or service mix is changing or significant learning effects are expected. Answer: TRUE Difficulty: Moderate Keywords: input measures, capacity requirements, product variety, process divergence Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

6) The capacity requirement for a year's output is inversely proportional to the processing hours required to cover the yearly demand. Answer: FALSE Difficulty: Moderate Keywords: capacity requirement, processing hours Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

7) Cash flow is the difference between the flows of funds into and out of an organization over a period of time. Answer: TRUE Difficulty: Easy Keywords: cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

8) When a firm makes a long-term capacity decision, selecting the base case alternative means doing nothing and losing orders from any demand that exceeds current capacity, or incurring costs due to excess capacity. Answer: TRUE Difficulty: Moderate Keywords: base case alternative, capacity decisions, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

9) The time required to change a machine from making one product or service to the next is called: A) cycle time. B) setup time. C) queue time. D) hold time. Answer: B Difficulty: Easy Keywords: setup time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

10) A well-educated operations manager used the capacity requirements equation to determine the number of crackerbox welders to purchase for the shop, given the standard time per unit, hours available per machine, among other relevant parameters. He studied the answer, 12.6, and concluded that: A) he had made a mistake, since it isn't possible to purchase a fractional welder. B) he needed to decrease his desired capacity cushion to bring him up to an even thirteen welders. C) he should buy twelve welders and spend 50% more time per part to reach the 12.6 figure. D) he should buy twelve welders and use all of them at 5% overtime to achieve the necessary output. Answer: D Difficulty: Moderate Keywords: capacity, cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

11) A well-educated operations manager used the capacity requirements equation to determine the number of crackerbox welders to purchase for the shop, given the standard time per unit, hours available per machine, among other relevant parameters. He studied the answer, 2.2, and concluded that: A) he had made a mistake, since it isn't possible to purchase a fractional welder. B) he needed to decrease his desired capacity cushion to bring him up to exactly three welders. C) he should buy two welders and authorize 10% overtime to reach the 2.2 figure. D) he should buy two welders and reduce the time per part by 10% to reduce the capacity need to two welders. Answer: C Difficulty: Moderate Keywords: capacity, cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

12) The single milling machine at Stout Manufacturing was severely overloaded last year. The plant operates eight hours per day, five days per week, and 50 weeks per year. Management prefers a capacity cushion of 15 percent. Two major types of products are routed through the milling machine. The annual demand for product A is 3,000 units and 2,000 units for product B. The batch size for A is 20 units and 40 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 hours/unit for B. The standard setup time for product A is 2 hours and 8 hours for product B. How many new milling machines are required if Stout does not resort to any short-term capacity options? A) no new machines B) 1 or 2 new machines C) 3 or 4 new machines D) more than 4 new machines Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

Table 5.1 A manufacturer produces two types of products: Product Type A and Product Type B. The demand forecasts, batch size, and time standards for manufacturing each product type is as follows:

Demand forecast (units/yr) Batch size (units/batch) Processing time (minutes/unit) Setup time (hours/batch)

Product Type A 4,000 200 30 5

Product Type B 2,000 50 45 3

Both products are produced on the same machine, called Mark I. 13) Using Table 5.1, what is the total number of hours required of Mark I equipment for the next year? A) 3500 hours B) 3720 hours C) 4000 hours D) 5200 hours Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

14) Use the information in Table 5.1. The company works 300 days per year and operates one shift covering 8 hours. If a 10 percent capacity cushion is maintained, how many hours of capacity can the company expect from each of its Mark I machines after deducting the desired capacity cushion? A) 2160 hours B) 2400 hours C) 2640 hours D) 3000 hours Answer: A Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

15) Use the information in Table 5.1. How many Mark I machines are required to meet the manufacturer's yearly production requirements? A) fewer than 2 machines B) more than 2 but fewer than or equal to 4 machines C) more than 4 but fewer than or equal to 6 machines D) more than 6 machines Answer: A Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

16) A standard work year is 2,080 hours at the Luther Mill and it takes about 2 hours to fill a customer order. The manager at the mill is always concerned about employee idle time, so he aims for a capacity cushion of two percent. Last year saw 15,000 customer orders at the mill and the manager has a new Mercedes in mind as a company car, so he hopes that there is an increase of 10% in customer orders for next year. How many workers will the manager need to have at the mill next year? A) 10 B) 13 C) 16 D) 19 Answer: C Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

17) A standard work year is 2,000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order. The manager at the mill is always concerned about employee idle time, so he aims for a capacity cushion of two percent. Last year saw 15,000 customer orders at the mill and the manager has a new John Deere in mind as a company car, so he hopes that there is an increase of 15% in customer orders for next year. How many workers will the manager need to have at the mill next year? A) 10 B) 13 C) 16 D) 19 Answer: B Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

18) A standard work year is 2,000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order. Last year saw 15,000 customer orders at the mill and the manager has a new John Deere in mind as a company car, so he hopes that there is an increase of 15% in customer orders for next year. If the manager hires fourteen workers, what is the capacity cushion? A) 7.6% B) 8.2% C) 6.9% D) 8.8% Answer: A Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

19) A standard work year is 2,000 hours at the Luther Mill and it takes about an hour and a half to fill a customer order. Last year saw 25,000 customer orders at the mill and the manager has a rebuilt Ford 9N in mind as a company car, so he hopes that there is an increase of 2% in customer orders for next year. If the manager hires twenty workers, what is the capacity cushion? A) 3.8% B) 3.1% C) 5.1% D) 4.3% Answer: A Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

20) The Southeast Manufacturing Company is producing two types of products: A and B. Demand forecasts for next year and other production-related information are provided in the following table:

Demand forecast (units/yr) Batch size (units/batch) Processing time (hr/unit) Setup time (hr/batch)

Product A 4,000 80 2.5 18

Product B 12,000 150 2.0 24

Both of these products are produced at the same workstation, called the Automatic Lathe. Currently, the company has 12 automatic lathes, and financial constraints prevent any expansion for the next year. It works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion. Which one of the following alternatives will allow next year's demand to be fully covered? A) Do nothing. B) Increase the capacity cushion to 30 percent. C) Increase the batch size of product B to 300 units. D) Decrease the capacity cushion by 1 percent. Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

21) The lock box department at Bank 21 handles the processing of monthly loan payments to the bank, monthly and quarterly premium payments to a local insurance company, and bill payments for 85 of the bank's largest commercial customers. The payments are processed by machine operators, with one operator per machine. An operator can process one payment in 0.25 minute. Setup times are negligible in this situation. A capacity cushion of 20 percent is needed for the operation. The average monthly (not annual) volume of payments processed through the department currently is 400,000. However, it is expected to increase by 20 percent. The department operates eight hours per shift, two shifts per day, 260 days per year. How many machines (not operators) are needed to satisfy the new total processing volume? (Round up to the next whole integer.) A) fewer than 7 B) 7 C) 8 D) more than 8 Answer: C Difficulty: Challenging Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

22) A company's production facility, consisting of two identical machines, currently caters only to product A. The annual demand for the product is 4,000 units. Management has now decided to introduce another product, B, which uses the same facilities as that of product A. Product B has an annual demand of 2,000 units. In view of the uncertainties involved in producing two products, management desires to have an overall 10 percent capacity cushion. Given the following additional information, how many more machines are required? (Assume 8 hours/shift, 2 shifts/day, 250 days/year, and that no overtime is allowed).

A) No additional machines are necessary. B) One additional machine is necessary. C) Two additional machines are necessary. D) More than two additional machines are necessary. Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

23) The Northern Manufacturing Company is producing products A and B, using the same machine called MASAC27A. Demand forecasts for next year and other production-related information are provided in the following table.

Demand forecast (units/yr) Batch size (units/batch) Processing time (hr/unit) Setup time (hr/batch)

Product A 4,000 80 2.5 16

Product B 12,000 150 2.0 12

The company works 250 days per year and operates 2 shifts each day, each shift covering 8 hours. If 25 percent of capacity cushion is maintained throughout the year, how many machines (MASAC27A) does the company need next year to meet the demand? (Round your answer up to the next whole machine.) A) fewer than 11 machines B) 11 machines C) 12 machines D) more than 12 machines Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, select alternative Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

24) George P. Burdell owns a hot tub store that is experiencing significant growth. Burdell is trying to decide whether to expand the store's capacity, which currently is at $750,000 in sales per quarter. He is thinking about expanding to the $850,000 level. The before-tax profit from additional sales is 20 percent. Sales are seasonal, with peaks in the spring and summer quarters. Forecasts of capacity requirements, expressed in ($000) sales per quarter, for next year (year 2) are: Quarter 1 2 3 4

($000) 720 800 890 690

Demand in year 3 and beyond is expected to exceed $850,000 per quarter. Burdell is considering expansion at the end of the fourth quarter of this year (year 1). How much would before-tax profits in year 2 increase because of this expansion? A) less than $28,000 B) more than $28,000 but less than $32,000 C) more than $32,000 but less than $36,000 D) more than $36,000 Answer: D Difficulty: Moderate Keywords: capacity requirement, before-tax profit Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

25) Just Like Mom's restaurant has the opportunity to expand their dining area that would increase their annual revenue from $500,000 currently to $650,000. The expansion is projected to cost $50,000. Just Like Mom's experiences a 15 percent pre-tax profit margin. Using the following information, what is the increase in total pre-tax cash flow (summed up from year 1 to year 6 after accounting for the initial investment) that would be enjoyed because of the expansion? Year 1 2 3 4 5 6

Annual Revenues $525,000 $550,000 $575,000 $600,000 $625,000 $650,000

A) less than or equal to $20,000 B) greater than $20,000 but less than or equal to $25,000 C) greater than $25,000 but less than or equal to $30,000 D) greater than $30,000 Answer: C Difficulty: Moderate Keywords: capacity requirement, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

26) Just Like Mom's restaurant has the opportunity to expand their dining area that would increase their annual revenue from $500,000 currently to $650,000. The expansion is projected to cost $50,000. Just Like Mom's experiences a 15 percent pre-tax profit margin. Using the following information, what is the NPV of the incremental pre-tax cash flow (summed up from year 1 to year 6 after accounting for the initial investment). Use a discount rate of 10% for the NPV computation. Year 1 2 3 4 5 6

Annual Revenues $525,000 $550,000 $575,000 $600,000 $625,000 $650,000

A) less than or equal to $2,000 B) greater than $2,000 but less than or equal to $5,000 C) greater than $5,000 but less than or equal to $10,000 D) greater than $10,000 Answer: A Difficulty: Moderate Keywords: capacity requirement, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

27) The management of a pizza store is experiencing significant growth. Hence, they are trying to decide whether to expand its capacity, which currently is $35,000 in sales per quarter. Sales are seasonal. Forecasts of capacity requirements, expressed in sales per quarter for the next year are as follows: Quarter 1 2 3 4

($000) 40 45 42.5 37.5

The management is considering expanding capacity to the $42,500 level in sales per quarter. The pre-tax profit margin from additional sales is 10 percent. How much would pre-tax profits increase next year because of this expansion? A) less than $1,500 B) more than $1,500 but less than $2,000 C) more than $2,000 but less than $2,500 D) $2,500 or more Answer: D Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

Scenario 5.5 The T. H. King Company has introduced a new product line that requires two work centers, A and B for manufacture. Work Center A has a current capacity of 10,000 units per year, and Work Center B is capable of 12,500 units per year. This year (year 0), sales of the new product line are expected to reach 10,000 units. Growth is projected at an additional 1,000 units each year through year 5. Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period. Two alternatives are being considered: 1) Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year, at a total cost for both Work Centers of $200,000; 2) Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a cost of $100,000, then expanding both Work Centers to 15,000 units per year at the end of year 3, at an additional cost at that time of $200,000. The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. 28) Use the information in Scenario 5.5. What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next five years? A) negative pre-tax cash flow B) more than $0 but less than $40,000 C) more than $40,000 but less than $80,000 D) more than $80,000 Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

29) Use the information in Scenario 5.5. What is the pre-tax cash flow (net present value) for alternative #2 compared to the base case of doing nothing for the next five years? A) negative pre-tax cash flow B) more than $0 but less than $40,000 C) more than $40,000 but less than $80,000 D) more than $80,000 Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

30) Use the information in Scenario 5.5. What action, if any, should the King Company take? A) Do nothing—neither alternative provides a positive net present value after five years. B) Select Alternative #1. C) Select alternative #2. D) Either alternative may be selected, since the positive net present values are the same after five years. Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

Scenario 5.6 Burdell Labs is a diagnostic laboratory that does various tests (blood tests, urine tests, etc.) for doctors' offices in the Indianapolis area. Test specimens are picked up at the doctors' offices and are transported to the testing facility, with uniform arrivals throughout the day. All tests go through two testing centers in the testing facility, Test Center A and Test Center B. A has a current capacity of 1,000 units per week, and B is capable of 1,500 units per week. The facility operates 50 weeks per year. This year (year 0), test volumes are expected to reach 1,000 units per week. Growth per week is projected at an additional 200 units through year 5 (i.e., 1,200 per week in year #1, 1,400 per week in year #2, etc.). Pre-tax profits are expected to be $5 per test throughout the 5-year planning period. Two alternatives are being considered: 1) Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week, at a total cost for both Test Centers of $300,000; 2) Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of $100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional cost at that time of $250,000. Burdell Labs will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. 31) Use the information in Scenario 5.6. What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next five years? A) negative pre-tax cash flow B) more than $0 but less than $80,000 C) more than $80,000 but less than $160,000 D) more than $160,000 Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

32) Use the information in Scenario 5.6. What is the pre-tax cash flow (net present value) for alternative #2 compared to the base case of doing nothing for the next five years? A) negative pre-tax cash flow B) more than $0 but less than $80,000 C) more than $80,000 but less than $160,000 D) more than $160,000 Answer: D Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

33) Use the information in Scenario 5.6. What action, if any, should the Burdell Labs take? A) Do nothing—neither alternative provides a positive net present value after five years. B) Select Alternative #1. C) Select alternative #2. D) Either alternative may be selected, since the positive net present values are the same after five years. Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

Scenario 5.7 The Acme Battery Manufacturing Company has a rapidly growing product line that requires two work centers, X and Y for manufacture. Work Center X has a current capacity of 30,000 units per year, and Work Center Y is capable of 50,000 units per year. This year (year 0), sales of the product line are expected to reach 80,000 units. Growth is projected at an additional 20,000 units each year through year 3. Pre-tax profits are expected to be $10 per unit throughout the 3-year planning period. Two alternatives are being considered: 1) Expand both Work Centers X and Y at the end of year 0 to a capacity of 60,000 units per year each, at a total cost for both Work Centers of $500,000; 2) Expand Work Center X at the end of year 0 to 50,000 units per year, matching Work Center Y, at a cost of $300,000, then expanding both Work Centers to 70,000 units per year each at the end of year 2, at an additional cost at that time of $350,000. The Sharp Company will not consider projects that don't show a 3rd year positive net present value using a discount rate of 10%. 34) Use the information in Scenario 5.7. What is the net present value (NPV) of the pre-tax cash flow for alternative #1 compared to the base case of doing nothing for the next three years? A) negative pre-tax cash flow B) more than $0 but less than $150,000 C) more than $150,000 but less than $300,000 D) more than $300,000 Answer: D Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

35) Use the information in Scenario 5.7. What is the net present value (NPV) of the pre-tax cash flow for alternative #2 compared to the base case of doing nothing for the next three years? A) negative pre-tax cash flow B) more than $0 but less than $150,000 C) more than $150,000 but less than $300,000 D) more than $300,000 Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

36) Use the information in Scenario 5.7. What action, if any, should the Acme Company take? A) Do nothing—neither alternative provides a positive net present value after three years. B) Select Alternative #1. C) Select alternative #2. D) Either alternative may be selected, since the positive net present values are the same after three years. Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

Scenario 5.8 The Summerville Vitamin Company manufactures bottles of animal-shaped chewable vitamins for children. This product line requires two work centers, tablet manufacturing and packaging. The tablet manufacturing work center has a current capacity of 140,000 bottles per month, and packaging is capable of 100,000 units per month. This year (year 0), monthly sales of the product line are expected to reach 100,000 units. Growth per month is projected at an additional 25,000 units through year 4 (i.e., 125,000 per month in year #1, 150,000 per month in year #2, etc.). Pre-tax profits are expected to be $5 per unit throughout the 4-year planning period. Two alternatives are being considered: 1) Expand both tablet manufacturing and packaging at the end of year 0 to a capacity of 200,000 units per month, at a total cost for both work centers of $2,250,000; 2) Expand packaging at the end of year 0 to 140,000 units per year, matching tablet manufacturing, at a cost of $1,200,000, then expanding both work centers to 200,000 units per month at the end of year 2, at an additional cost at that time of $1,400,000. Summerville will not consider projects that don't show a 4th year positive net present value using a discount rate of 25%. 37) Use the information in Scenario 5.8. What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next four years? A) less than or equal to $5.1 million B) more than $5.1 million but less than $5.3 million C) more than $5.3 million less than $5.5 million D) more than $5.5 million Answer: D Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

38) Use the information in Scenario 5.8. What is the pre-tax cash flow (net present value) for alternative #2 compared to the base case of doing nothing for the next four years? A) less than or equal to $5.1 million B) more than $5.1 million but less than $5.3 million C) more than $5.3 million less than $5.5 million D) more than $5.5 million Answer: C Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

39) Use the information in Scenario 5.8. What action, if any, should Summerville take? A) Find another option—neither alternative provides a positive net present value after four years. B) Select Alternative #1. C) Select alternative #2. D) Either alternative may be selected, since the positive net present values are the same after four years. Answer: B Difficulty: Moderate Keywords: capacity requirement, evaluate alternatives, cash flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

40) In the context of capacity requirements planning, which of these phrases best describes the term base case? A) the do-nothing alternative B) thinking outside the box C) working smarter, not harder D) working harder, not smarter Answer: A Difficulty: Easy Keywords: base case Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

41) A process's ________ is what its capacity should be for some future time period to meet the demand of its customers, allowing for the desired capacity cushion. Answer: capacity requirement Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

42) A process's ________ is the length of time it takes to switch from making one type of product to another. Answer: setup time Difficulty: Moderate Keywords: setup Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

43) The ________ is the set of consecutive time periods considered for planning purposes. Answer: planning horizon Difficulty: Easy Keywords: planning horizon Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

44) A(n) ________ is the difference between demand and current capacity. Answer: capacity gap Difficulty: Easy Keywords: capacity gap Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

45) ________ are more appropriate measures of capacity in situations where a task that is initially difficult and time-consuming to perform becomes second-nature and short in duration. Answer: Input measures Difficulty: Moderate Keywords: input measures Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

46) The ________ is the act of doing nothing and losing orders from any demand that exceeds capacity, or incurs costs because capacity is too large. Answer: base case Difficulty: Easy Keywords: base case Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

47) What are the four steps involved in making capacity decisions? Answer: The steps are: 1) estimate future capacity requirements, 2) identify gaps by comparing requirements with alternatives, 3) develop alternative plans for filling the gaps, and 4) evaluate alternatives, both qualitatively and quantitatively, and make a final choice. Difficulty: Moderate Keywords: capacity decision, steps Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

48) A printing company works on three types of printing jobs, each of which could be produced on the same model printing machine. The predicted annual demands and typical order sizes are shown in the table. The company has 2,000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance, breakdowns, and other unforeseen circumstances. How many printing machines must they have under these circumstances? Job Type Demand Process time per unit Average order size setup time (hours)

Job A 6,000 .8 40 1

Job B 4,000 .75 100 .75

Job C 5,000 .25 50 .5

Answer: M =

= 5.15 → 6 Difficulty: Moderate Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

49) A printing company works on three types of printing jobs, each of which could be produced on the same model printing machine. The predicted annual demands and typical order sizes are shown in the table. The company has 2,000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance, breakdowns, and other unforeseen circumstances. They have floor space for five printing machines. If the time needed to set up a printing machine to switch from one job to the next is identical for all three job types, what must their setup time be to achieve their required output? Job Type Demand Process time per unit Average order size

Job A 6,000 .8 40

Job B 4,000 .75 100

Job C 5,000 .25 50

Answer: It can't be done; the production time required is 4,800 + 3,000 + 1,250 = 9,050 hours, which exceeds the 9,000 hours available. The setup time would need to be a negative one-sixth of an hour in order to meet the five machine limit. M= = 5.00 5 × 1,800 = [4,800 + 150s] + [3,000 + 40s] + [1,250 + 100s] 9,000 - 4,800 - 3,000 - 1,250 = 290s -50 = 290s s = -.1724 hours Difficulty: Challenging Keywords: utilization, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

50) The single milling machine at Fred's Manufacturing was severely overloaded last year. The plant operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a capacity cushion of 20 percent. Two major types of products are routed through the milling machine. The annual demand for product A is 4,000 units and 3,000 units for product B. The batch size for A is 20 units and 30 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The standard setup time for product A is 2 hours and 8 hours for product B. How many new milling machines are required if Fred's does not resort to any short-term capacity options? Answer: M =

where M = number of machines required, D = number of units forecast per year, p = processing time in hours per unit, N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time. = 3.5 → 4 machines

Difficulty: Moderate Keywords: capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

51) The Union Manufacturing Company is producing two types of products: A and B. The demand forecasts, batch size, and time standards for the Mark I operation follow:

Demand forecast (units/yr) Batch size (units/batch) Processing time (hr/unit) Setup time (hr/batch)

Product A 1,000 20 3.2 10

Product B 4,000 10 4.5 20

The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20 percent capacity cushion is maintained, how many new Mark I machines are required if Union does not resort to any short-term capacity options? Answer: M =

where M = number of machines required, D = number of units forecast per year, p = processing time (in hours per unit), N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time. = 9.28 → 10 machines

52) Larry's Wickets, Inc. is producing two types of products: A and B. Both are produced at the same machining operation. Because of demand uncertainties, the operations manager obtained three demand forecasts (pessimistic, expected, and optimistic). The demand forecasts, batch sizes (units/batch), processing times (hr/unit), and setup times (hr/batch) follow.

The machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 20 percent capacity cushion. a. What is the minimum number of hours required of the machining equipment for the next year? b. How many hours of capacity can the company expect from each machine? c. What is the minimum number of machines needed (assuming no reliance on short-term options)? d. What is the maximum number of machines needed (assuming no reliance on short-term options)?

Answer:

a. 81,800 hours b. 3,200 hours c. 26 machines d. 34 machines Difficulty: Challenging Keywords: capacity cushion, capacity requirement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

53) The T. H. King Company has introduced a new product line that requires two work centers, A and B for manufacture. Work Center A has a current capacity of 10,000 units per year, and Work Center B is capable of 12,500 units per year. This year (year 0), sales of the new product line are expected to reach 10,000 units. Growth is projected at an additional 1,000 units each year through year 5. Pre-tax profits are expected to be $30 per unit throughout the 5-year planning period. Two alternatives are being considered: 1) Expand both Work Centers A and B at the end of year 0 to a capacity of 15,000 units per year, at a total cost for both Work Centers of $200,000; 2) Expand Work Center A at the end of year 0 to 12,500 units per year, matching Work Center B, at a cost of $100,000, then expanding both Work Centers to 15,000 units per year at the end of year 3, at an additional cost at that time of $200,000. The King Company will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years, and what action, if any, should the company take?

Answer: The following table summarizes demand and output capabilities for the two alternatives:

Alternative #1 Net Present Value (in $000s) = -200 + 30/1.15 + 60/(1.15)2 + 90/(1.15)3 + 120/(1.15)4 + 150/(1.15)5 = -200 + 26.1 + 45.4 + 59.2 + 68.6 + 74.6 = $73.9 Alternative #2 Net Present Value (in $000s) = -100 + 30/1.15 + 60/(1.15)2 + (75 - 200)/(1.15)3 + 120/(1.15)4 + 150/(1.15)5 = -100 + 26.1 + 45.4 - 82.2 + 68.6 + 74.6 = $32.5 Both alternatives have a positive net present value after five years at a discount rate of 15%. However, Alternative #1 has a higher net present value after the five-year period ($73,900 versus $32,500) and should therefore be the alternative selected. Difficulty: Challenging Keywords: evaluating alternatives, net present value, pre-tax cash flow, discount rate Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

54) Burdell Labs is a diagnostic laboratory that does various tests (blood tests, urine tests, etc.) for doctors' offices in the Indianapolis area. Test specimens are picked up at the doctors' offices and are transported to the testing facility, with uniform arrivals throughout the day. All tests go through two testing centers in the testing facility, Test Center A and Test Center B. A has a current capacity of 1,000 units per week, and B is capable of 1,500 units per week. The facility operates 50 weeks per year. This year (year 0), test volumes are expected to reach 1,000 units per week. Growth is projected at an additional 200 units each week through year 5 (i.e., 1,200 per week in year #1, 1,400 per week in year #2, etc.). Pre-tax profits are expected to be $5 per test throughout the 5-year planning period. Two alternatives are being considered: 1) Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week, at a total cost for both Test Centers of $300,000; 2) Expand Test Center A at the end of year 0 to 1,500 units per week, matching Test Center B, at a cost of $100,000, then expanding both Test Centers to 2,000 units per year at the end of year 3, at an additional cost at that time of $250,000. Burdell Labs will not consider projects that don't show a 5th year positive net present value using a discount rate of 15%. What are the pre-tax cash flows for the two alternatives compared to the base case of doing nothing for the next five years, and what action, if any, should Burdell take?

Answer: The following table summarizes demand and output capabilities for the two alternatives:

Alternative #1 Net Present Value (in $000s) = -300 + 50/1.15 + 100/(1.15)2 + 150/(1.15)3 + 200/(1.15)4 + 250/(1.15)5 = -300 + 43.5 + 75.6 + 98.6 + 114.4 + 124.3 = $156.4 Alternative #2 Net Present Value (in $000s) = -100 + 50/1.15 + 100/(1.15)2 + (125 - 250)/(1.15)3 + 200/(1.15)4 + 250/(1.15)5 = -100 + 43.5 + 75.6 - 82.2 + 114.4 + 124.3 = $175.6 Both alternatives have a positive net present value after five years at a discount rate of 15%. However, Alternative #2 has a higher net present value after five years ($175,600 versus $156,400) and should therefore be the alternative selected. Difficulty: Challenging Keywords: evaluating alternatives, net present value, pre-tax cash flow, discount rate Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify a systematic four-step approach for determining long-term capacity requirements and associated cash flows.

5.4 Tools for Capacity Planning 1) Simple waiting line models are best analyzed using simulation to aid in capacity planning. Answer: FALSE Difficulty: Easy Keywords: waiting line model, capacity planning Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

2) Which of the following descriptions about waiting line models is best? A) They account for major events such as competitor actions. B) They account for the random, independent behavior of many customers. C) They assume that each branch can give the highest expected payoff. D) They deal with the certainty and stability in demand. Answer: B Difficulty: Moderate Keywords: waiting line model Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

3) Which capacity planning tool would be most appropriate when selecting an appropriate capacity cushion for a high-customer-contact process? A) decision trees B) diseconomies of scale C) cause and effect diagrams D) waiting line models Answer: D Difficulty: Moderate Keywords: waiting line model Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

4) When future demand is uncertain and sequential decisions are involved in capacity planning, a manager should use a: A) waiting line model. B) cash flow analysis. C) decision tree. D) gap analysis. Answer: C Difficulty: Moderate Keywords: decision tree, capacity planning Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

Figure 5.1

5) A manager weighs three options for capacity cushion as depicted in Figure 5.1. If the dollar amounts expressed in the figure are cash flows, which option is optimal? A) large cushion B) medium cushion C) small cushion D) Not enough information is given to select an option. Answer: B Difficulty: Moderate Keywords: decision tree, capacity planning, cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

6) A manager weighs three options for capacity cushion as depicted in Figure 5.1. If the dollar amounts expressed in the figure are cash flows, what is the value of the optimal decision? A) $11,700 B) $11,500 C) $12,300 D) $10,500 Answer: A Difficulty: Moderate Keywords: decision tree, capacity planning, cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

7) A manager weighs three options for capacity cushion as depicted in Figure 5.1. If the dollar amounts expressed in the figure are costs, what is the optimal decision? A) large cushion B) medium cushion C) small cushion D) Not enough information is given to select an option. Answer: C Difficulty: Moderate Keywords: decision tree, capacity planning, cushion Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

8) A capacity decision in a call center, such as the number of customer service representatives to answer the phone during a peak period, can be addressed using a(n) ________. Answer: waiting-line (queuing) model Difficulty: Easy Keywords: waiting-line models, queuing Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

9) Extremely complex service capacity problems for which there are no optimizing equations should be analyzed using ________. Answer: simulation Difficulty: Easy Keywords: simulation Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

10) ________ are useful capacity analysis tools when the future is uncertain and capacity decisions can be made in a sequential fashion. Answer: Decision trees Difficulty: Moderate Keywords: decision tree Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

11) Capacity planning requires a demand forecast for an extended period of time into the future. What concerns would you have regarding an extended forecast as a capacity planner? Answer: Unfortunately, forecast accuracy declines as the forecasting horizon lengthens. In addition, anticipating what competitors will do increases the uncertainty of demand forecasts. Demand during any period of time may not be evenly distributed; peaks and valleys of demand may (and often do) occur within the time period. Difficulty: Moderate Keywords: forecasting Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

12) What is a waiting line model, and what information can it provide? Answer: Waiting line models use probability distributions to estimate delay times, line length, and utilization. Difficulty: Moderate Keywords: waiting line model, capacity planning Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe how the common tools for capacity planning such as waiting-line models, simulation, and decision trees assist in capacity decisions.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 6 Constraint Management 6.1 The Theory of Constraints 1) A bottleneck is an operation that has the lowest effective capacity of any operation in the process. Answer: TRUE Difficulty: Easy Keywords: bottleneck, effective capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

2) A constraint is any factor that limits the performance of a system and restricts its output. Answer: TRUE Difficulty: Moderate Keywords: bottleneck, capacity, constraint Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

3) Although constraints at any step causes imbalance in the capacity of a process, they do not always affect the overall performance of a system. Answer: FALSE Difficulty: Moderate Keywords: capacity, constraint, system performance Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

4) The Theory of Constraints method is also referred to as the drum-buffer-rope method. Answer: FALSE Difficulty: Easy Keywords: TOC, theory of constraints, drum-buffer-rope Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

5) Any system composed of resources that are operating at maximum output will, by definition, have maximum output for the entire system. Answer: FALSE Difficulty: Moderate Keywords: constraint, bottleneck, TOC Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

6) An increase in system inventory will always result in an increase in net profit, ROI and cash flows. Answer: FALSE Difficulty: Moderate Keywords: operational/ financial measures, inventory Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

7) Lanny discovers that the bottleneck is the riveting machine so he schedules all production around when that machine is available. This is an example of elevating the constraint in the five-step constraint management process. Answer: FALSE Difficulty: Moderate Keywords: elevate bottleneck, TOC Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

8) The focus for a process improvement exercise should be on balancing: A) flow. B) capacity. C) workload. D) time. Answer: A Difficulty: Moderate Keywords: TOC, theory of constraints, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

9) Consider consecutive processes A-B-C, where process A has a capacity of 35 units per hour, process B has a capacity of 20 units per hour, and process C has a capacity of 30 units per hour. Where would an operations manager want any inventory? A) in front of process A B) in front of process B C) in front of process C D) Inventory should not exist anywhere. Answer: B Difficulty: Moderate Keywords: TOC, theory of constraints, inventory Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

10) Use the process flow diagram to determine which of these events has the greatest net benefit.

A) reducing the flow time at Station A from 8 to 7 minutes B) increasing the capacity at Station B to 8 units per hour C) increasing the capacity at Station C to 7 units per hour D) reducing the flow time at Station D from 9 to 8 minutes Answer: C Difficulty: Moderate Keywords: TOC, theory of constraints, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Explain the theory of constraints.

11) Use the process flow diagram to determine which of these events has the greatest net benefit.

A) reducing the flow time at Station A from 10 to 8 minutes B) increasing the capacity at Station B to 12 units per hour C) increasing the capacity at Station C to 10 units per hour D) reducing the flow time at Station D from 12 to 10 minutes Answer: D Difficulty: Moderate Keywords: TOC, theory of constraints, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Explain the theory of constraints.

12) Use the process flow diagram to determine which of these events has the greatest net benefit.

A) reducing the flow time at Station A from 8 to 7 minutes B) increasing the capacity at Station B to 12 units per hour C) increasing the capacity at Station C to 9 units per hour D) reducing the flow time at Station D from 6 to 5 minutes Answer: A Difficulty: Moderate Keywords: TOC, theory of constraints, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Explain the theory of constraints.

13) Work should be released into the system when: A) a customer order is received. B) the first step in the process is idle. C) a customer order is completed. D) the bottlenecks need work. Answer: D Difficulty: Moderate Keywords: TOC, theory of constraints, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

14) The second step in Theory of Constraints application, "exploit the bottleneck(s)," means that the analyst should: A) create a schedule that maximizes the throughput of the bottlenecks. B) repeat the analysis process to look for other bottlenecks. C) consider increasing capacity of the bottleneck. D) schedule non-bottleneck resources to support the bottleneck. Answer: A Difficulty: Moderate Keywords: bottleneck, TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

15) The third step in Theory of Constraints application, "subordinate all other decisions to Step 2," means that the analyst should: A) wait for authorization before proceeding with any system-wide changes. B) schedule non-bottleneck resources to support the bottleneck schedule. C) seek to increase capacity of only the bottleneck resources. D) seek to increase capacity of both the bottleneck and non-bottleneck resources. Answer: B Difficulty: Moderate Keywords: bottleneck, TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

16) The fifth step in Theory of Constraints application, "do not let inertia set in," means that the analyst should: A) create a schedule that maximizes the throughput of the bottlenecks. B) repeat the analysis to identify and manage new set of constraints. C) consider increasing capacity of the bottleneck. D) schedule non-bottleneck resources to support the bottleneck. Answer: B Difficulty: Moderate Keywords: bottleneck, TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

17) According to the Theory of Constraints, the focus should be on balancing ________, not on balancing ________. Answer: flow, capacity Difficulty: Moderate Keywords: seven principles, TOC Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

18) Any factor that limits the performance of a system and restricts its output is a(n) ________. Answer: constraint Difficulty: Easy Keywords: constraint Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

19) ________ is the maximum rate of output of a process or a system. Answer: Capacity Difficulty: Easy Keywords: capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

20) A(n) ________ is an operation that has the lowest effective capacity of any operation in the process, and thus limits the system's output. Answer: bottleneck Difficulty: Easy Keywords: bottleneck, TOC, output Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

21) According to the Theory of Constraints, the rate at which a system generates money through sales is known as ________. Answer: throughput Difficulty: Moderate Keywords: throughput, TOC Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

22) All the money a system spends to turn inventory into throughput are categorized as ________ in the Theory of Constraints. Answer: operating expense Difficulty: Easy Keywords: operating expense Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

23) Explain why a bottleneck limits system output. Answer: A bottleneck, by definition, is a process that has less capacity than all other processes in the system. Just as a chain is as strong as its weakest link, the rest of a production system can produce only as much as the slowest process. The bottleneck limits capacity by serving to slow the rest of the system down. Running all other processes at their maximum capacity will result in inventory buildup in front of the bottleneck. Difficulty: Moderate Keywords: bottleneck, output, TOC Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

24) What are five of the seven key principles of the Theory of Constraints? Answer: The principles of TOC are: The focus should be on balancing flow, not on balancing capacity. Maximizing the output and efficiency of every resource may not maximize the throughput of the entire system. An hour lost at a bottleneck or a constrained resource is an hour lost for the whole system. In contrast, an hour saved at a nonbottleneck resource is a mirage because it does not make the whole system more productive. Inventory is needed only in front of the bottlenecks in order to prevent them from sitting idle, and in front of assembly and shipping points in order to protect customer schedules. Building inventories elsewhere should be avoided. Work, which can be materials, information to be processed, documents, or customers, should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses. Activating a nonbottleneck resource (using it for improved efficiency that does not increase throughput) is not the same as utilizing a bottleneck resource (that does lead to increased throughput). Activation of nonbottleneck resources cannot increase throughput, nor promote better performance on financial measures outlined in Table 5.1. Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE). Difficulty: Moderate Keywords: TOC, steps Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

25) Describe a process from your own personal experience at home or work that suffers from a lack of sufficient throughput. Apply the first four TOC steps to address the situation, assuming you have complete authority to do so. Answer: Examples will vary. The steps of TOC are (1) identify the system bottleneck(s); (2) exploit the bottlenecks; (3) subordinate all other decisions to step 2; (4) elevate the bottleneck(s); and (5) do not let inertia set in. Difficulty: Moderate Keywords: TOC, steps Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Explain the theory of constraints.

6.2 Managing Bottlenecks in Service Processes 1) There are three consecutive steps in a customer service process. The first step is capable of serving 30 customers per hour, the second step is capable of serving 20 customers per hour and the third step can serve 25 customers per hour. Which of the following statements regarding this system is true? A) The entire system is capable of processing 20 customers per hour. B) There are floating bottlenecks in the system. C) If the first two steps are run at full capacity, then the third step will have a waiting line. D) The first step is a bottleneck for the system. Answer: A Difficulty: Moderate Keywords: capacity, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in service processes.

Figure 6.1

The figure above shows the process for paying tuition at a major university. Students receive their bill, for the next term, for review. They are directed to different tables for clarifications, before being asked to pay their tuition at E. The numbers in parentheses are the time in minutes for each step of the process. 2) Use the information in Figure 6.1. What is the throughput time for the A-B-D-E process route? A) 17 minutes B) 20 minutes C) 21 minutes D) 19 minutes Answer: C Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

3) Use the information in Figure 6.1. What is the throughput time for the A-C-D-E process route? A) 17 minutes B) 20 minutes C) 21 minutes D) 19 minutes Answer: B Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

4) Use the information in Figure 6.1. What is the capacity for the A-B-D-E process route? A) 10.4 students per hour B) 6 student per hour C) 8.5 students per hour D) 3 students per hour Answer: C Difficulty: Moderate Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

5) Use the information in Figure 6.1. What is the capacity for the A-C-D-E process route? A) 10 students per hour B) 6 student per hour C) 4 students per hour D) 12 students per hour Answer: A Difficulty: Moderate Keywords: capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

6) Use the information in Figure 6.1. If 30% of the students are routed to B and 70% are routed to C, what is the average capacity per hour for the process? A) 10 students per hour B) 9.5 student per hour C) 7 students per hour D) 8.4 students per hour Answer: B Difficulty: Challenging Keywords: bottleneck, capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

7) Use the information in Figure 6.1. Where would you expect student wait times to occur? A) B and C only B) B, C and D C) A, B, C and E D) E only Answer: C Difficulty: Challenging Keywords: bottleneck, capacity, customer wait times Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

Figure 6.2

The figure above shows the process for customers arriving at Pierre's Spa and Salon. After signing in, customers are routed to different locations in the Spa for the two different services provided. The numbers in parentheses are the time in minutes for each step of the process. 8) Use the information in Figure 6.2. What is the throughput time for the A-B-C-D-H routing? A) 48 minutes B) 30 minutes C) 53 minutes D) 23 minutes Answer: C Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

9) Use the information in Figure 6.2. What is the throughput time for the A-B-E-F-G-H routing? A) 48 minutes B) 30 minutes C) 53 minutes D) 23 minutes Answer: A Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

10) Use the information in Figure 6.2. What is the process bottleneck? A) H B) B C) C D) D Answer: D Difficulty: Moderate Keywords: bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

Figure 6.3

The figure above shows the process for customers arriving at Hobbies Unlimited for several advertised crafts demonstrations. After signing in, customers are routed to different locations in the store for the two different programs provided. The numbers in parentheses are the time in minutes for each step of the process. 11) Use the information in Figure 6.3 What is the throughput time for the A-B-C-D-G routing? A) 25 minutes B) 70 minutes C) 105 minutes D) 60 minutes Answer: D Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

12) Use the information in Figure 6.3. What is the throughput time for the A-B-E-F-G routing? A) 25 minutes B) 70 minutes C) 105 minutes D) 60 minutes Answer: B Difficulty: Easy Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

13) Use the information in Figure 6.3. How many customers can be processed through the A-B-C-D-G routing during a 4-hour evening session? A) 48 B) 24 C) 32 D) 12 Answer: D Difficulty: Moderate Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

14) Use the information in Figure 6.3. How many customers can be processed through the A-B-E-F-G routing during a 4-hour evening session? A) 8 B) 24 C) 12 D) 32 Answer: A Difficulty: Moderate Keywords: bottleneck, throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Identify and manage bottlenecks in service processes.

15) ________ is the total time taken from the start to the finish of a process. Answer: Throughput time Difficulty: Easy Keywords: throughput time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in service processes.

16) Variability of a firm's workload may create ________. Answer: floating bottlenecks Difficulty: Challenging Keywords: workload, variability, floating bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in service processes.

17) What are two ways a process manager can identify a bottleneck in a service or manufacturing process? If you were in a manufacturing firm, what physical cues would signal a bottleneck? Answer: A workstation in a process is a bottleneck if 1) it has the highest total time per unit processed, or 2) it has the highest average utilization and total workload. Generally, the bottleneck has a pile of materials in front of it waiting to be processed. Difficulty: Moderate Keywords: bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in service processes.

6.3 Managing Bottlenecks in Manufacturing Processes 1) A bottleneck process has the lowest capacity and the longest total time from the start to the finish. Answer: TRUE Difficulty: Moderate Keywords: bottleneck process, lowest capacity, longest total time Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

2) A competent operations manager should first eliminate all of the bottlenecks from the process. Answer: FALSE Difficulty: Moderate Keywords: bottleneck process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

3) Short term capacity planning should be driven by identification and management of bottlenecks. Answer: TRUE Difficulty: Moderate Keywords: capacity planning, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

4) The key to managing bottlenecks is to bypass the bottleneck step in the process. Answer: FALSE Difficulty: Easy Keywords: bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

5) In a drum-buffer-rope system, the lot size that moves from one work center to another for additional processing is a(n): A) process batch. B) operations batch. C) transfer batch. D) rope batch. Answer: C Difficulty: Easy Keywords: DBR, drum-buffer-rope, transfer batch Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

6) The process batch at the constraint in a drum-buffer-rope system should be: A) the same size as that at any non-constraint. B) the same size as the transfer batch. C) of such a size as to maximize the number of setups for the constraint. D) of such a size as to improve utilization of the constraint. Answer: D Difficulty: Easy Keywords: DBR, drum-buffer-rope, process, batch, size Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

7) Which statement about transfer batch sizes is best? A) Transfer batches are the same size as process batches when arriving at a bottleneck. B) Transfer batches are the same size as process batches when departing from a bottleneck. C) Transfer batches are a convenient way to increase lead time. D) Transfer batches can be as small as one unit. Answer: D Difficulty: Moderate Keywords: transfer batch, process batch Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

8) Which statement about process batches is best? A) One or more transfer batches may combine at the constrain buffer to form a process batch. B) A process batch is used to maximize setups at the bottleneck. C) A process batch must be greater than or equal to market demand. D) Process batches are used to increase lead time. Answer: A Difficulty: Moderate Keywords: transfer batch, process batch Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

9) ________ is a planning and control system that regulates the flow of work-in-process materials at the bottleneck or the capacity constrained resource in a productive system. Answer: Drum-buffer-rope (DBR) Difficulty: Easy Keywords: drum-buffer-rope, DBR, CCR, capacity constrained resource, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

10) Managers might also relieve the bottleneck in the process by redesigning the process, either through ________ or ________. Answer: process reengineering, process improvement Difficulty: Moderate Keywords: relieving bottlenecks, process reengineering, process improvement Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

11) What is a Drum-Buffer-Rope system for planning and control? Answer: Drum-Buffer-Rope (DBR) is a planning and control system based on the theory of constraints that is often used in manufacturing firms to plan and schedule production. It works by regulating the flow of work-in-process materials at the bottleneck or the capacity constrained resource (CCR). The bottleneck schedule is the drum because it sets the beat or the production rate for the entire plant and is linked to the market demand. The buffer is a time buffer that plans early flows to the bottleneck and thus protects it from disruption. It also ensures that the bottleneck is never starved for work. A finished-goods inventory buffer can also be placed in front of the shipping point in order to protect customer shipping schedules. Finally, the rope represents the tying of material release to the drum beat, which is the rate at which the bottleneck controls the throughput of the entire plant. It is thus a communication device to ensure that raw material is not introduced into the system at a rate faster than what the bottleneck can handle. Completing the loop, buffer management constantly monitors the execution of incoming bottleneck work. Working together, the drum, the buffer, and the rope can help managers create a production schedule that reduces lead times and inventories while simultaneously increasing throughput and on-time delivery. Difficulty: Moderate Keywords: bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Identify and manage bottlenecks in manufacturing processes.

6.4 Applying the Theory of Constraints to Product Mix Decisions 1) Managers should produce products with the highest contribution margins or unit sales, provided they have market demand for them. Answer: FALSE Difficulty: Moderate Keywords: contribution margin Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Apply the theory of constraints to product mix decisions.

2) A firm's actual throughput and profit depend more on the contribution margin of each individual product produced rather than by the contribution margin generated at the bottleneck. Answer: FALSE Difficulty: Moderate Keywords: contribution margin Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Apply the theory of constraints to product mix decisions.

Table 6.1 A company makes four products that have the following characteristics: Product A sells for $70 but needs $20 of materials and $15 of labor to produce; Product B sells for $55 but needs $25 of materials and $10 of labor to produce; Product C sells for $80 but needs $35 of materials and $15 of labor to produce; Product D sells for $75 but needs $35 of materials and $15 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Processing Time (min/unit) Work Center A B C D W 5 3 7 5 X 7 6 6 4 Y 10 5 5 8 Z 6 6 5 3 Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand for each product is 100 units per week. In the questions that follow, the traditional method refers to maximizing the contribution margin per unit for each product, and the bottleneck method refers to maximizing the contribution margin per minute at the bottleneck for each product. 3) Use the information in Table 6.1. Which work center is of greatest concern to the operations manager? A) Work Center W B) Work Center X C) Work Center Y D) Work Center Z Answer: C Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

4) Use the information in Table 6.1. Using the traditional method, which product should be scheduled first? A) Product A B) Product B C) Product C D) Product D Answer: A Difficulty: Moderate Keywords: TOC, bottleneck, profit per minute at bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

5) Use the information in Table 6.1. Using the traditional method, in what sequence should products be scheduled for production? A) A, C, D, B B) D, B, A, C C) A, D, C, B D) C, D, B, A Answer: A Difficulty: Moderate Keywords: TOC, bottleneck, sequence, profit per minute at bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

6) Use the information in Table 6.1. Using the traditional method, what is the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) 100 A, 20B, 1000C, 100 D B) 100A, 100B, 100C, 20D C) 40A, 100B, 100C, 60D D) 100A, 50B, 75C, 100D Answer: A Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

7) Use the information in Table 6.1. Using the traditional method, what is the profit if the company manufactures the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) less than or equal to $9,300 B) greater than $9,300 but less than or equal to $9,500 C) greater than $9,500 but less than or equal to $9,700 D) greater than $9,700 Answer: B Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

8) Use the information in Table 6.1. Using the bottleneck method, which product should be scheduled first? A) Product A B) Product B C) Product C D) Product D Answer: C Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

9) Use the information in Table 6.1. Using the bottleneck method, in what sequence should products be scheduled for production? A) D, C, B, A B) D, C, A, B C) C, B, A, D D) C, D, B, A Answer: C Difficulty: Challenging Keywords: TOC, bottleneck, sequence, profit per minute at bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

10) Use the information in Table 6.1. Using the bottleneck method, what is the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) 75 A, 100B, 50C, 100 D B) 100A, 50B, 100C, 100D C) 100A, 100B, 60C, 100D D) 100A, 100B, 100C, 50D Answer: D Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

11) Use the information in Table 6.1. Using the bottleneck method, what is the profit if the company manufactures the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) less than or equal to $9,300 B) greater than $9,300 but less than or equal to $9,500 C) greater than $9,500 but less than or equal to $9,700 D) greater than $9,700 Answer: D Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

Table 6.2 A company makes four products that have the following characteristics: Product A sells for $75 but needs $20 of materials and $20 of labor to produce; Product B sells for $90 but needs $45 of materials and $20 of labor to produce; Product C sells for $110 but needs $50 of materials and $30 of labor to produce; Product D sells for $135 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table.

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. In the questions that follow, the traditional method refers to maximizing the contribution margin per unit for each product, and the bottleneck method refers to maximizing the contribution margin per minute at the bottleneck for each product. 12) Use the information in Table 6.2. Which work center is the bottleneck operation? A) Work Center W B) Work Center X C) Work Center Y D) Work Center Z Answer: C Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

13) Use the information in Table 6.2. Using the traditional method, which product should be scheduled first? A) Product A B) Product B C) Product C D) Product D Answer: A Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

14) Use the information in Table 6.2. Using the traditional method, in what sequence should products be scheduled for production? A) A, B, C, D B) A, C, B, D C) A, D, B, C D) D, B, C, A Answer: B Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

15) Use the information in Table 6.2. Using the traditional method, what is the optimal product mix? A) 37 A, 60 B, 70 C, 80 D B) 50 A, 51 B, 70 C, 80 D C) 50 A, 60 B, 62 C, 80 D D) 50 A, 60 B, 70 C, 60 D Answer: D Difficulty: Challenging Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

16) Use the information in Table 6.2. Using the traditional method, what is the profit if the company manufactures the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) less than or equal to $6,500 B) greater than $6,500 but less than or equal to $6,700 C) greater than $6,700 but less than or equal to $6,900 D) greater than $6,900 Answer: B Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

17) Use the information in Table 6.2. Using the bottleneck method, which product should be scheduled first? A) Product A B) Product B C) Product C D) Product D Answer: A Difficulty: Challenging Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

18) Use the information in Table 6.2. Using the bottleneck method, in what sequence should products be scheduled for production? A) A, D, B, C B) D, A, B, C C) A, D, C, B D) D, A, C, B Answer: C Difficulty: Challenging Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

19) Use the information in Table 6.2. Using the bottleneck method, what is the optimal product mix? A) 37 A, 60 B, 70 C, 80 D B) 50 A, 51 B, 70 C, 80 D C) 50 A, 60 B, 62 C, 80 D D) 50 A, 60 B, 70 C, 60 D Answer: B Difficulty: Challenging Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

20) Use the information in Table 6.2. Using the bottleneck method, what is the profit if the company manufactures the optimal product mix (consider variable costs only–overhead is not included in this profit calculation)? A) less than or equal to $6,500 B) greater than $6,500 but less than or equal to $6,700 C) greater than $6,700 but less than or equal to $6,900 D) greater than $6,900 Answer: C Difficulty: Challenging Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

Table 6.3 King Supply makes four different types of plumbing fixtures: W, X, Y and Z. The contribution margins for these products are: $70 for Product W, $60 for Product X, $90 for Product Y and $100 for Product Z. Fixed overhead is estimated at $5,500 per week. The manufacture of each fixture requires four machines, Machines #1, 2, 3 and 4. Each of the machines is available for 40 hours a week and there is no setup time required when shifting from the production of one product to any other. The processing requirements to make one unit of each product are shown in the table. Weekly product demand for the next planning period has been forecasted as follows: 70 Ws, 60 Xs, 50 Ys and 30 Zs.

In the questions that follow, the traditional method refers to maximizing the contribution margin per unit for each product, and the bottleneck method refers to maximizing the contribution margin per minute at the bottleneck for each product. 21) Use the information in Table 6.3. Which machine is the bottleneck operation? A) Machine 1 B) Machine 2 C) Machine 3 D) Machine 4 Answer: A Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

22) Use the information in Table 6.3. Using the traditional method, which product should be scheduled first? A) Fixture W B) Fixture X C) Fixture Y D) Fixture Z Answer: D Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

23) Use the information in Table 6.3. Using the traditional method, in what sequence should the fixtures be scheduled for production? A) Z, Y, X, W B) X, W, Z, Y C) Z, Y, W, X D) W, X, Y, Z Answer: C Difficulty: Moderate Keywords: TOC, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

24) Use the information in Table 6.3. Using the traditional method, what is the optimal product mix? A) 70 W, 60 X, 90 Y, 100 Z B) 70 W, 50 X, 50 Y, 30 Z C) 70 W, 60 X, 47 Y, 30 Z D) 70 W, 47 X, 50 Y, 30 Z Answer: B Difficulty: Challenging Keywords: TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

25) Use the information in Table 6.3. Using the traditional method, what is the profit if King Supply manufactures the optimal product mix? A) less than or equal to $10,000 B) greater than $10,000 but less than or equal to $11,000 C) greater than $11,000 but less than or equal to $12,000 D) greater than $12,000 Answer: A Difficulty: Challenging Keywords: TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

26) Use the information in Table 6.3. Using the bottleneck method, which product should be scheduled first? A) Fixture W B) Fixture X C) Fixture Y D) Fixture Z Answer: B Difficulty: Challenging Keywords: TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

27) Use the information in Table 6.3. Using the bottleneck method, in what sequence should products be scheduled for production? A) Z, Y, X, W B) X, W, Z, Y C) Z, Y, W, X D) X, Y, Z, W Answer: B Difficulty: Challenging Keywords: TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

28) Use the information in Table 6.3. Using the bottleneck method, what is the optimal product mix? A) 70 W, 60 X, 90 Y, 100 Z B) 70 W, 50 X, 50 Y, 30 Z C) 70 W, 60 X, 47 Y, 30 Z D) 70 W, 47 X, 50 Y, 30 Z Answer: C Difficulty: Challenging Keywords: TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

29) Use the information in Table 6.3. Using the bottleneck method, what is the profit if Burdell manufactures the optimal product mix? A) less than or equal to $10,000 B) greater than $10,000 but less than or equal to $11,000 C) greater than $11,000 but less than or equal to $12,000 D) greater than $12,000 Answer: B Difficulty: Challenging Keywords: TOC, bottleneck, profit per minute at bottleneck, mix, profit Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

30) Instead of producing products with the highest profit margins, operations managers should focus on the ________ generated at the ________. Answer: profit (margin), bottleneck Difficulty: Moderate Keywords: TOC, bottleneck, profit, profit margin Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Apply the theory of constraints to product mix decisions.

31) The traditional method of determining contribution margin does not consider ________ costs. Answer: fixed Difficulty: Moderate Keywords: contribution margin Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Apply the theory of constraints to product mix decisions.

32) What is contribution margin for a product? How might it be used to manage the productive resources on a shop floor? Answer: Contribution margin is the amount each product contributes to profits and overhead. Determining which product has the highest contribution margin and producing it at the expense of other products is the traditional method of shop floor management. The Theory of Constraints instead studies product's contribution margin based on bottleneck usage, which may be entirely different. Difficulty: Moderate Keywords: bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Apply the theory of constraints to product mix decisions.

33) Schmidt Industries makes four different snake traps; the Harlan, the Gaylen, the Leah and the Matthew. The Harlan sells for $200 and has $40 in parts and $40 in labor; the Gaylen sells for $150 and requires $30 in parts and $30 in labor; the Leah sells for $100 and has $20 in parts and $20 in labor; and the Matthew sells for $75 but requires only $10 of parts and $10 of labor. Schmidt Industries has four machines (we'll call them A, B, C, and D for convenience) that are used in the production of each of these products. Each of these machines is available for 40 hours a week and there is no setup time required when shifting from the production of one product to any other. The processing requirements to make one unit of each product are shown in the table.

Schmidt Industries has monthly fixed costs of $5,000 and has a demand forecast of 80 Harlans, 60 Gaylens, 40 Leahs and 20 Matthews for the coming month. How many of each of the four models should Susan, the operations manager, schedule for production this month? Answer: The processing requirements for the demand forecast result in a need for: Machine A: 80 × 10 + 60 × 10 + 40 × 5 + 20 × 5 = 1,700 ≤ 2,400 Machine B: 80 × 15 + 60 × 10 + 40 × 10 + 20 × 10 = 2,400 ≤ 2,400 Machine C: 80 × 15 + 60 × 10 + 40 × 15 + 20 × 10 = 2,600 ≤ 2,400 Bottleneck Machine D: 80 × 5 + 60 × 10 + 40 × 10 + 20 × 10 = 1,600 ≤ 2,400 The contribution margin per bottleneck minute is: Harlan: (200 - 40 - 40)/15 = $8/min Gaylen: (150 - 30 - 30)/10 = $9/min Leah: (100 - 20 - 20)/15 = $4/min Matthew: (75 - 10 - 10)/5 = $11/min Products should be produced in Matthew, Gaylen, Harlan, and Leah order. The product mix is 20 Matthews (using 100 minutes of Machine C); 60 Gaylens (using 600 minutes of Machine C); 80 Harlans (using 1,200 minutes of Machine C); and 33 Leahs (using up the remaining 500 minutes of Machine C time). Difficulty: Challenging Keywords: capacity, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Apply the theory of constraints to product mix decisions.

6.5 Managing Constraints in Line Processes 1) Line balancing is the assignment of work to stations in a line to achieve the desired output rate with the largest number of workstations. Answer: FALSE Difficulty: Moderate Keywords: line balance, workstations, line Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

2) Line balancing strives to create workstations with well-balanced workload — e.g. trying to make sure all workstations have roughly the same processing time per unit. Answer: TRUE Difficulty: Moderate Keywords: line balance, workstations, line, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

3) Line balancing applies only to line processes that do assembly work, or to work that can be bundled in many ways to create the jobs for each workstation in the line. Answer: TRUE Difficulty: Moderate Keywords: line balance, workstations, line Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

4) If the time required for work elements at a station exceeds the line's cycle time, the station will be a bottleneck. Answer: TRUE Difficulty: Moderate Keywords: cycle time, line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

5) To generate the maximum output in a line process, the cycle time should be set as the shortest elemental task time. Answer: FALSE Difficulty: Moderate Keywords: cycle time, output, task Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

6) Paced lines require that inventory storage areas be placed between stations. Answer: FALSE Difficulty: Moderate Keywords: paced line, inventory Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

7) A mixed-model line produces items belonging to several different mixed product families. Answer: FALSE Difficulty: Moderate Keywords: mixed model line, family Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

8) Which of the following statements concerning line balancing is true? A) The theoretical minimum number of stations must always be fewer than the actual number. B) The largest number of followers rule assigns (as quickly as possible) those work elements most difficult to fit into a station. C) Selecting the cycle time can never have an effect on line efficiency. D) Increasing the output rate may increase the theoretical minimum number of stations. Answer: B Difficulty: Moderate Keywords: line balancing, output rate, theoretical minimum number of work stations Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

9) What is the definition of "theoretical maximum efficiency"? A) It is the amount by which efficiency falls short of 100 percent. B) It is the efficiency that could be obtained by a solution that achieves the theoretical minimum number of stations. C) It is the maximum time allowed for work on a unit at each station. D) It is alternatively called the desired output rate. Answer: B Difficulty: Moderate Keywords: efficiency, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

10) Balance delay could be described as the: A) amount by which efficiency falls short of 100 percent. B) efficiency that could be obtained by a solution that achieves the theoretical minimum number of stations. C) maximum time allowed for work on a unit at each station. D) desired output rate. Answer: A Difficulty: Moderate Keywords: balance delay, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

11) A line balance that is 100% efficient must: A) be using the minimum cycle time. B) be using the theoretical minimum number of work stations. C) also achieve 100% balance delay. D) be producing the theoretical maximum output. Answer: B Difficulty: Moderate Keywords: efficiency, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

12) Instead of dividing the total standard time required to assemble each unit by nc to determine the efficiency of a line balance, you could divide by: A) the number of workers times the number of stations. B) the number of tasks plus the number of stations. C) the sum of the task times plus the sum of the idle times. D) (1-balance delay). Answer: C Difficulty: Moderate Keywords: efficiency, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

13) The most controversial aspect of line-flow layout is: A) the heuristic decision rules in assigning the next work element. B) the number of models produced. C) the cycle time. D) behavioral response. Answer: D Difficulty: Moderate Keywords: behavioral response, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

14) A line that produces several items belonging to the same family is called a: A) mixed-model line. B) part family line. C) group technology line. D) cellular line. Answer: A Difficulty: Moderate Keywords: mixed-model, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

15) Which one of the following statements about line balancing is best? A) If a precedence relationship exists between A and B, they cannot be assigned to the same station. B) If the desired output rate increases, the cycle time also tends to increase. C) The theoretical minimum number of stations can never be achieved, hence the name "theoretical." D) If a line's balance delay is minimized, its efficiency is maximized. Answer: D Difficulty: Moderate Keywords: line balancing, flow, balance delay, efficiency Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

Figure 6.4

16) Use the information in Figure 6.4. What are the required predecessors of activity H? A) E & G B) A through F, including E C) Activity H has no required predecessors. D) D Answer: A Difficulty: Easy Keywords: predecessor, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

17) Use the information in Figure 6.4. If each task has a work time of one minute, what is the theoretical minimum cycle time? A) There is no minimum cycle time. B) 1 minute C) 8 minutes D) The cycle time cannot be determined with the information given. Answer: B Difficulty: Moderate Keywords: cycle time, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

18) Use the information in Figure 6.4. If each task has a work time of one minute and there are 480 work minutes in a day, what is the task assignment at the fourth workstation if maximum output is desired? A) A B) B C) C D) D Answer: D Difficulty: Moderate Keywords: cycle, line process, flow, task Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

19) Use the information in Figure 6.4. If each task has a work time of one minute and there are 8 hours in a day, what is the task assignment at the first station if 160 units should be produced each day? A) A, B, C, D B) H, G, F, E C) A, B, C D) H, G, F Answer: C Difficulty: Moderate Keywords: line process, flow, task, station Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

20) Use the information in Figure 6.4. If each task has a work time of one minute and there are 8 hours in a day, what is the minimum number of stations if 240 units should be produced each day? A) one B) two C) three D) four Answer: D Difficulty: Moderate Keywords: station, minimum number of stations Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

Table 6.4 The Superior Management Company assembles muffalettas in The Big Easy. The steps to making a world class sandwich and the time required (in seconds) for each step are shown in the table. Work Element A B C D E F G H I J

Time (sec) 45 120 70 95 20 40 60 55 100 150

Immediate Predecessor(s) -A A B C B D,E F G H, I

21) Customers demand muffalettas at the rate of 20 sandwiches per hour. Use the information in Table 6.4 to determine the cycle time that will meet this level of demand. A) 100 seconds B) 120 seconds C) 180 seconds D) 240 seconds Answer: C Difficulty: Easy Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

22) Customers demand muffalettas at the rate of 20 sandwiches per hour. Use the information in Table 6.4 to determine how many workstations are needed to balance this line to maximum efficiency. A) 4 B) 5 C) 6 D) 7 Answer: B Difficulty: Moderate Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

23) Customers demand muffalettas at the rate of 20 sandwiches per hour. Use the information in Table 6.4 to determine the maximum efficiency you can achieve balancing this line with an output rate that meets demand. A) 84% B) 100% C) 76% D) 92% Answer: A Difficulty: Moderate Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

24) Customers demand muffalettas at the rate of 20 sandwiches per hour. Use the information in Table 6.4 to determine which tasks are assigned to station 3 in the most efficient balance that meets the desired output rate exactly. A) EGIJ B) EGI C) CFHE D) FHEG Answer: D Difficulty: Moderate Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

25) Customers demand muffalettas at the rate of 24 sandwiches per hour. Use the information in Table 6.4 to determine the minimum number of work stations needed to achieve exactly the output rate of customer demand. A) 4 B) 5 C) 6 D) 7 Answer: C Difficulty: Moderate Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

Table 6.5 Balance the following line for an output rate of 3 units per minute. Work Element A B C D E F G

Time (sec) 12 6 12 4 14 10 6

Immediate Predecessor(s) -A A B B, C E D, F

26) Use the information in Table 6.5. How many stations are required? A) 3 B) 4 C) 5 D) 6 Answer: B Difficulty: Moderate Keywords: stations, flow, line process Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

27) Use the information in Table 6.5. What is the balance delay for your solution? A) less than or equal to 15% B) more than 15% but less than or equal to 25% C) more than 25% but less than or equal to 35% D) more than 35% Answer: B Difficulty: Moderate Keywords: balance delay, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

Table 6.6 Balance the following line for an output rate of five pieces per hour. The times are in minutes (not seconds). Work Element A B C D E F G H I J

Time (min) 7 5 3 4 2 5 6 7 11 4

Immediate Predecessor(s) ----A, B C D E, F F, G H, I

28) Use the information from Table 6.6. The theoretical minimum number of stations is: A) fewer than three stations. B) three stations. C) four stations. D) more than four stations. Answer: D Difficulty: Moderate Keywords: line process, flow, stations Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

29) Use the information from Table 6.6. The highest efficiency for a balanced line is: A) less than 89%. B) more than 89% and less than 91%. C) more than 91% and less than 93%. D) more than 93%. Answer: B Difficulty: Moderate Keywords: line process, flow, efficiency Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

30) An assembly line has to perform 10 work elements, whose time requirements follow. An operations analyst has found a solution using some heuristics, as shown in the table. If the cycle time of the line is 90 seconds, what is the efficiency of the assembly line?

A) less than 85% B) greater than 85% but less than 90% C) greater than 90% but less than 95% D) greater than 95% Answer: C Difficulty: Moderate Keywords: efficiency, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

31) Given the following data about an assembly line and the knowledge that we are trying to attain an output rate of 40 units per hour, what is the theoretical minimum number of stations? Work Element 1 2 3 4 5 6

Time (sec) 90 80 75 70 90 85

A) four or fewer stations B) five stations C) six stations D) seven or more stations Answer: C Difficulty: Moderate Keywords: line process, flow, minimum number of stations Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

32) The production of a particular product consists of the following work elements. If the cycle time is 4 minutes and the work-element times are as follows, what is the theoretical minimum number of stations? Work Element 1 2 3 4 5 6 7 8 9 10

Time (min) 2.4 0.5 2.1 2.0 2.7 1.1 2.0 2.7 1.6 1.4

A) fewer than or equal to three stations B) four stations C) five stations D) more than five stations Answer: C Difficulty: Moderate Keywords: line process, flow, minimum number of stations Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

33) Fun Vehicles, Inc. makes beach buggies on an assembly line. The total productive time to make one buggy is 300 seconds. The current line has a 90-second cycle time and consists of four workstations. The balance delay of this line must be: A) 0%. B) greater than 0% but less than 6%. C) greater than 6% but less than 12%. D) greater than 12% but less than 18%. Answer: D Difficulty: Moderate Keywords: balance delay, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

Table 6.7 The Terminal Company is attempting to balance its assembly line of high-voltage electrical connectors. The desired output for the line is 50 connectors per hour, and the information on the work elements for this assembly line is as follows. Work Elements A B C D E F G H I J K

Time (sec) 40 36 20 25 30 34 35 5 15 40 38

Immediate Predecessor(s) -A A A B, C D E F E, H H G, I, J

34) Use the information from Table 6.7 to balance this line. What is the most efficient solution? A) more than 90% B) 80 - 90% C) 70 - 79% D) less than 70% Answer: C Difficulty: Challenging Keywords: efficiency, line balance, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

35) Use the information from Table 6.7 and the most efficient line balance possible. What work elements are included in the first station? A) A only B) A and B only C) A and E only D) A and D only Answer: D Difficulty: Moderate Keywords: tasks, station, line balance, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

36) Use the information from Table 6.7, and assume that the most efficient line balance possible has been achieved. What is the total idle time for an eight hour work day? A) less than an hour and a half B) more than 1:30 but less than or equal to 1:45 C) more than 1:45 but less than or equal to 2 hours D) more than 2 hours Answer: D Difficulty: Moderate Keywords: idle time, line balance, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

37) ________ is the maximum time allowed for work on a unit at each station. Answer: Cycle time Difficulty: Moderate Keywords: cycle time, work, line process, flow Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

38) ________ is the assignments of stations in a line process so as to achieve the desired output rate with the smallest number of workstations. Answer: Line balancing Difficulty: Moderate Keywords: line balancing Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

39) Work elements that must be done before the next element can begin are known as ________. Answer: immediate predecessors Difficulty: Moderate Keywords: line balance, predecessors Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

40) The smallest units of work that can be performed independently is known as ________. Answer: work elements Difficulty: Moderate Keywords: line balancing, work elements Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

41) Describe three ways that line balancing and line flow layouts are similar to project management and three ways that they are different from project management. Answer: Answers may vary. Line balancing and project management both rely on the completion of predefined activities in the proper sequence. A line flow may have multiple feeder lines that supply subassemblies to the main line, similar to subcontractors working on the project in state of partial completion. Both have anticipated completion times that may not be reached if things don't go smoothly. The time scale is radically different between line balancing and project management; projects tend to take much longer. Projects also tend to be one of a kind endeavors; line balancing is performed with the anticipation of high volumes of fairly standardized output. Line flows are created for more routine, process-oriented work that can be composed of standardized tasks. Projects are typically anything but routine and far from process-focused. Difficulty: Moderate Keywords: line balancing, flow layout Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

42) You have been assigned a line balancing task and given a list of tasks, their precedence requirements, and the time needed to accomplish them. As you begin to balance the line, you realize that you must make some assumptions. What are these assumptions and which of them has the greatest impact on the success of your balance? Answer: One assumption that is being made is that the task times are invariant, unless a mean and standard deviation have both been provided. You must also assume that the task durations will stay roughly the same, i.e., that learning effects are not significantly different amongst the tasks. You are also assuming that the tasks will stay somewhat static, or the line would require rearrangement and possibly rebalancing with some frequency. You also assume that the precedence is static. Among these, the last assumption is probably the least tenuous. Difficulty: Moderate Keywords: line balancing, flow layout Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

43) How can Theory of Constraints principles be reconciled with line balancing? Answer: Line balancing strives to assign work to stations such that the amount of work at each station is equal. Work flows from station to station based on a cycle time that is determined based on the number of units to be produced per unit time. Theory of Constraints stresses the need to balance flow with demand and is concerned with preserving flow through the bottleneck, or lowest capacity station. Flow can be preserved by protecting the bottleneck with protective WIP and making sure that market demand is sufficient to support continuous bottleneck operation. Line balancing, as explained in the text, assumes that all task times are constant. So the person performing the balance can try to allocate capacity as evenly as possible. If task times were stochastic, then flow would not be preserved with classic line balancing techniques because the lowest capacity work station would occasionally fall idle. Difficulty: Moderate Keywords: line balancing, TOC, theory of constraints Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Application of Knowledge Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

44) Consider the following production process. It is trying to meet a market demand of 500 units per week.

Step 1: Material release schedule Step 2: Drilling (capacity is 500 units/week) Step 3: Tapping (capacity is 450 units/week) Step 4: Grinding (capacity is 600 units/week) Step 5: Coating (capacity is 400 units/week) Step 6: Inspection (capacity is 1,000 units/week) a. Where should buffers be placed? b. Which resource is the drum? c. Where should the rope be placed? d. Which resource is the bottleneck? e. Which resource is the CCR? Answer: a. A constraint buffer should be placed between steps 4 and 5 to protect the bottleneck which is Step 5 (Coating). A shipping buffer should be placed at the end of the line, after Step 6, (Inspection). b. The resource functioning as the drum is the bottleneck, Step 5. c. The rope should connect Step 1 and Step 5. d. The bottleneck is Step 5. e. A CCR exists if the process with the least capacity can still meet market demand, which is not the case in this scenario. Difficulty: Moderate Keywords: drum-buffer-rope, DBR, CCR, capacity constrained resource, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

45) Consider the following production process. It is trying to meet a market demand of 250 units per week.

Step 1: Material release schedule Step 2: Drilling (capacity is 300 units/week) Step 3: Tapping (capacity is 150 units/week) Step 4: Grinding (capacity is 300 units/week) Step 5: Coating (capacity is 200 units/week) Step 6: Inspection (capacity is 500 units/week) a. Where should buffers be placed? b. Which resource is the drum? c. Where should the rope be placed? d. Which resource is the bottleneck? e. Which resource is the CCR? Answer: a. A constraint buffer should be placed between steps 2 and 3 to protect the bottleneck which is Step 3 (Tapping). A shipping buffer should be placed at the end of the line, after Step 6, (Inspection). b. The resource functioning as the drum is the bottleneck, Step 3. c. The rope should connect Step 1 and Step 3. d. The bottleneck is Step 3. e. A CCR exists if the process with the least capacity can still meet market demand, which is not the case in this scenario. Difficulty: Moderate Keywords: drum-buffer-rope, DBR, CCR, capacity constrained resource, bottleneck Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

46) Balance the assembly line for the tasks contained in the table. The desired output is 240 units per day. Available production time per day is 480 minutes. What is the efficiency for the balanced assembly line?

Work Element A B C D E F G

Immediate Predecessor(s) ----A B B C, D D, E

Time (Sec.) 40 45 55 55 65 40 25

Answer: For 240 units/day with available time of 480 minutes per day, the cycle time is 2.00 minutes or 120 seconds. One line balance is: Station Task(s) Work Time Idle Time Efficiency =

1 B, E 45, 65 10

2 D, A 55, 40 25

3 C, F, G 55, 40, 25 0 =

Totals 325 35

= 90.28%

There are four other legal assignments possible at the first work station, AB, BA, AC, and BD. There are a large number of possible legal balances since the longest two task times sum to 120, which is within the desired cycle time. A number of possible balances will achieve the three station balance that yields 90.28% efficiency. Difficulty: Moderate Keywords: line balance, efficiency Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

47) Balance the assembly line for the tasks contained in the table. The desired output is three units per hour. Available production time per day is eight hours. What is the theoretical minimum number of stations? What is the efficiency for the balanced assembly line?

Work Element A B C D E F G H I J K L

Time (Min.) 5 8 12 11 5 6 4 12 14 9 8 3

Immediate Predecessor(s) --A A B C D D E G, H F I K, J

Answer: For 3 units/hour the cycle time is 20 minutes. The theoretical minimum number of stations is 97/20 = 4.85→5 One line balance is: Station Task(s) Work Time Idle Time Efficiency =

1 A, C 5, 12 3

2 B, D 8, 11 1

3 F, J, E 6, 9, 5 0 =

4 H, G 12, 4 4

5 I 14 6

6 K, L 8, 3 9

Totals 97 2

= 80.8%

Difficulty: Moderate Keywords: line balance, efficiency Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

48) Balance the assembly line using the following task information contained in the table. The desired output is 360 units per day. Available production time per day is 480 minutes. What is the efficiency for the balanced assembly line?

Work Element A B C D E F G H

Time (Sec.) 30 20 50 45 30 55 35 40

Immediate Predecessor(s) --A A B B C, D D, E F

Answer: Cycle time for 360 units in a 480 minute day is 480/360 = 1.33 minutes = 80 seconds The theoretical minimum number of stations is 4; this balance is one of the 5-station solutions. Station Task(s) Work Time Idle Time Efficiency =

1 A, C 30, 50 0

2 B, D 20, 45 15

3 F 55 25

4 H, E 40, 30 10 =

5 G 35 45

Totals 305 95

= 76.25%

49) Balance the line in order to achieve maximum output for this ten activity product. Determine the number of units produced in a seven hour work day and the total idle time in hours. Task Z Y X W V T S R Q M

Time (sec) 40 30 80 75 15 55 35 40 10 40

Predecessor --Z Z X, Y W W V T R S, R

Answer: Cycle time for maximum output is 80 seconds and the theoretical minimum number of stations is Station Task(s) Work Time Idle Time

1 Z, Y 40, 30 10

2 X 80 0

Efficiency =

3 W 75 5 =

4 V, T 15, 55 10

5 S 70 10

6 R, M 40, 40 0

7 Q 60 20

Totals 420 55

= 88.42%

There are 315 units produced in a day.

The total idle time per day at this level of production is 4.8125 hours. (4:48:45 to be precise) 300 units/day × 55 seconds idle/unit = 17,325 seconds = 4.8125 hours Difficulty: Moderate Keywords: line balance, efficiency Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes AACSB: Analytical Thinking Learning Objective: Describe how to manage constraints in line processes and balance assembly lines.

50) Balance the line in order to achieve maximum output for this eight-activity product. Then balance the line to maximize the efficiency of the operation. How do the levels of output (assume an eight-hour day) and line efficiencies compare? Task 1 2 3 4 5 6 7 8

Time (min) 10 8 9 2 6 12 7 5

Predecessor --Task 1 Task 1 Task 2 Task 3 Task 4, Task 5 Task 5 Task 6, Task 7

Answer: The cycle time for maximum output is 12 minutes. One balance is shown below; it has 6 stations, an increase of one from the theoretical minimum of five stations. It produces at 81.9% efficiency. It produces a unit every twelve minutes, so over the course of a day it can produce 40 units using six people. Station Task(s) Work Time Idle Time Efficiency =

1 1 10 2

2 3 9 3

3 2, 4 8, 2 2

4 5 6 6

5 6 12 0

6 7, 8 7, 5 0

Totals 59 13

= 81.94%

The cycle time for maximum efficiency is 59 minutes. One balance is shown below; it has one station and produces at 100% efficiency. It produces a unit every 59 minutes, so over the course of an eight-hour day it can produce eight complete units plus get started on a ninth unit using just one person. If the line was replicated and six workers perfectly cross trained, they could produce 54 units and start on the first task for units 55-60. Station Task(s) Work Time Idle Time

1 1, 3, 2, 4, 5, 6, 7, 8 10, 9, 8, 2, 6, 12, 7, 5 0

Efficiency =

Totals 59 0 = 100%

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 7 Project Management 7.1 Defining and Organizing Projects 1) A program is an interrelated set of activities that has a definite starting and ending point. Answer: FALSE Difficulty: Easy Keywords: project, program Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

2) In a matrix organization structure for a project, all team members working on the project exclusively report to the project manager. Answer: FALSE Difficulty: Easy Keywords: matrix, pure project Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

3) Projects, and the application of project management, facilitate the implementation of operations strategy. Answer: TRUE Difficulty: Easy Keywords: project management, operations strategy Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

4) Project managers should be able to organize a set of disparate activities. Answer: TRUE Difficulty: Moderate Keywords: project manager, disparate activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

5) A pure project organizational structure houses the project in a specific functional area. Answer: FALSE Difficulty: Moderate Keywords: pure project, functional structure Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

6) Scope creep is one of the primary causes of project failure. Answer: TRUE Difficulty: Easy Keywords: scope creep, project failure Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

7) The project's objective statement should contain: A) slack time and activities. B) scope, time frame, and allocated resources. C) strengths and weaknesses of subcontractors. D) activities, completion times, and incentives. Answer: B Difficulty: Moderate Keywords: project objective statement, scope Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

8) A project organization structure which allows each functional area to maintain control over who works on a project and the technology that is used is called: A) a matrix structure. B) a fixed structure. C) a pure project structure. D) a hybrid structure. Answer: A Difficulty: Moderate Keywords: project, organizational structure Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

9) A(n) ________ is an interrelated set of activities that has a definite starting and ending point and that results in a unique outcome for a specific allocation of resources. Answer: project Difficulty: Easy Keywords: project activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

10) Heidi was part of a project team that retained their roles within the organization and was on loan to the project due to her technical expertise. In effect, she reported to two bosses, one in her functional area and also to the project manager. Heidi is operating within a(n) ________ organizational structure. Answer: matrix Difficulty: Moderate Keywords: matrix Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

11) What are the primary responsibilities of a Project Manager? Briefly describe these responsibilities for a project manager whose team is purchasing a new machine and installing it in a manufacturing process. Answer: Best answers will include the following points, describing the manager's role in the purchase and installation of the new machine: 1. Facilitator: resolves conflicts; leads with a system view; blends project interaction, resources and deliverables with firm as a whole; 2. Communicator: informs senior management and other stakeholders of project's progress and need for additional resources; communicates with project team to achieve best performance; 3. Decision Maker: organize team meetings; define how team decisions will be made; determine how to communicate to senior management; make tough decisions if necessary. Difficulty: Moderate Keywords: project manager, selecting Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the major activities associated with defining and organizing a project.

12) What characteristics should be considered when selecting project team members? Briefly describe these characteristics for members of a project team assigned to improve a teller's job in a bank. Answer: Best answers should include the following in the context on the job improvement project: 1. Technical Competence: capable of completing activities assigned to them; 2. Sensitivity: to interpersonal conflicts within the team; help mitigate these issues and any problems dealing with upper level management; 3. Dedication: capable of solving problems outside immediate expertise by involving others as needed; display persistence and initiative for completing the project in a timely fashion. Difficulty: Moderate Keywords: project team member, selecting Learning Outcome: Describe the goals and stages of project management AACSB: Interpersonal Relations and Teamwork Learning Objective: Explain the major activities associated with defining and organizing a project.

7.2 Constructing Project Networks 1) The work breakdown structure is a listing of all resources that are under breakdown and unavailable, thus affecting the on-time completion of the project. Answer: FALSE Difficulty: Moderate Keywords: WBS, work breakdown structure Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

2) The network diagram is a planning method that is designed to depict the relationships between activities. Answer: TRUE Difficulty: Moderate Keywords: network diagram, activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

3) A relationship that determines the sequence for undertaking activities is a precedence relationship. Answer: TRUE Difficulty: Easy Keywords: precedence relationship Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

4) In a network diagram, an activity: A) is the largest unit of work effort consuming both time and resources that a project manager can schedule and control. B) is the smallest unit of work effort consuming both time and resources that a project manager can schedule and control. C) should always be something the company has had experience with. D) must always have a single, precise estimate for the time duration. Answer: B Difficulty: Moderate Keywords: activity, smallest unit of work Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

5) Activity times for a project are estimated by all except which of the following methods? A) the use of dowsing rods B) managerial opinions based on similar prior experiences C) statistical methods based on actual past experience D) estimates using learning curve models to improve replications and estimate accuracy Answer: A Difficulty: Moderate Keywords: activity times, estimating activity times Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

6) The ________ is a statement of all work that has to be completed. Answer: work breakdown structure (WBS) Difficulty: Moderate Keywords: WBS, work breakdown structure Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

7) A(n) ________ is a visual display, designed to depict the relationships between activities in a project. Answer: network diagram Difficulty: Moderate Keywords: network diagram, sequence of activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

8) Following the project defining and organizing phase, project planning involves five steps. List and briefly describe these five planning steps as applied to writing a term paper for an Operations Management class. Answer: The following points should be included in the best answers: 1. Define the work breakdown structure: develop a list of all work to be completed on the project; 2. Diagram the network: develop a PERT/CPM diagram showing all activities and precedence requirements for the project; 3. Develop the schedule: define the project's critical path, duration, and earliest and latest start and finish times for each activity; 4. Analyze cost–time trade-offs: determine normal time and costs for the project, as well as crash time and costs; using project crashing techniques, find a minimum cost schedule for completing the project; 5. Assess project risks: develop a risk management plan, including such areas as strategic fit, service/product attributes, team capabilities and operations risks. Difficulty: Moderate Keywords: project planning, steps Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Describe the procedure for constructing a project network.

7.3 Developing the Project Schedule 1) A critical path is any sequence of activities between a project's start and finish. Answer: FALSE Difficulty: Moderate Keywords: critical path activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

2) For activities having no slack, the earliest start time is always the same as the latest start time. Answer: TRUE Difficulty: Moderate Keywords: earliest start time, latest start time, slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

3) To obtain the latest start and latest finish time in a network diagram, we must work backward from the finish node of the network diagram. Answer: TRUE Difficulty: Moderate Keywords: latest start time, latest finish time Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

4) A Gantt chart is a project schedule that superimposes project activities on a time line. Answer: TRUE Difficulty: Moderate Keywords: Gantt chart, project schedule Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

5) A project has three paths. A-B-C has a length of 20 days. A-D-C has a length of 30 days. Finally, A-E-C has a length of 25 days. Which one of the following statements is true? A) A-D-C is the critical path. B) A-D-C has the most slack. C) The expected duration of this project is 20 days. D) The expected duration of this project is 20 + 30 + 25 = 75 days. Answer: A Difficulty: Moderate Keywords: project, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

6) The earliest start time for an activity is equal to the: A) smallest earliest finish time of all of its immediate predecessors. B) largest earliest finish time of all of its immediate predecessors. C) smallest late start time of any of its immediate predecessors. D) largest late finish time of all of its immediate predecessors. Answer: B Difficulty: Moderate Keywords: activity, earliest start time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

7) Assume that activity B has the following times: Early start time = 9 days Early finish time = 15 days Late start time = 15 days Late finish time = 21 days Which of the following statements is true about activity B? A) Activity B takes 6 days to complete. B) Activity B has a slack time of 0 days. C) Activity B is on the critical path. D) Activity B takes 12 days to complete. Answer: A Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

8) Activity slack is defined as: A) latest start time minus earliest start time. B) earliest start time minus latest start time. C) earliest finish time minus latest finish time. D) latest finish time minus earliest start time. Answer: A Difficulty: Moderate Keywords: activity slack, latest start time, earliest start time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

9) Which one of the following best describes the critical path of a PERT/CPM network? A) the sequence of activities between a project's start and finish that takes the longest time to complete B) the sequence of activities between a project's start and finish that has the maximum amount of activity slack C) the set of activities that has no precedence relationships D) the sequence of activities that has the lowest normal activity cost Answer: A Difficulty: Moderate Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

Figure 7.1

10) For the network shown in Fig. 7.1, which of the following is the critical path? A) ABCDEF B) ABEF C) ACDF D) ACEF Answer: C Difficulty: Easy Keywords: activity network, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

11) For the network shown in Fig. 7.1, what is the project duration? A) 6 B) 15 C) 13 D) 14 Answer: B Difficulty: Easy Keywords: activity network, critical path, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

Figure to accompany Table 7.1

Table 7.1

Activity A B C D E F G

Activity Time 2 1 3 7 3 4

Earliest Start 0 2 2 3 5 5 11

Earliest Finish 3 5 10 8 11 15

Latest Start 0 3 2 4 5 11

Latest Finish 2 4 5 11 11 11 15

Slack 0 1 0 3 0 0

12) Using the information shown in Table 7.1, what is the slack time for activity D? A) 1 B) 4 C) 6 D) 7 Answer: A Difficulty: Easy Keywords: activity, network, critical path, activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

13) Using the information shown in Table 7.1, what is the earliest finish time for activity A? A) 0 B) 2 C) 3 D) 4 Answer: B Difficulty: Easy Keywords: activity network, critical path, earliest finish Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

14) Using the information shown in Table 7.1, what is the latest start time for activity E? A) 2 B) 3 C) 5 D) 8 Answer: D Difficulty: Easy Keywords: activity network, critical path, latest start Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

15) Using the information shown in Table 7.1, what is the activity time for activity F? A) 5 B) 11 C) 6 D) 1 Answer: C Difficulty: Easy Keywords: activity network, critical path, activity time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

16) Refer to the Figure to accompany Table 7.1. Which one of the following is the critical path? A) ABDG B) ABEG C) ACEG D) ACFG Answer: D Difficulty: Easy Keywords: activity network, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

17) Using the information shown in Table 7.1, what is the project duration? A) 15 B) 14 C) 12 D) 10 Answer: A Difficulty: Easy Keywords: activity network, critical path, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

Figure 7.2

18) Which one of the following statements regarding Figure 7.2 is true? A) Activities S and T have to complete before activity U can begin. B) Activity T cannot begin until activity U is completed. C) Activity S cannot finish until activity T finishes. D) Activity V cannot begin until activity S has been completed. Answer: A Difficulty: Moderate Keywords: activity precedence Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

19) Which one of the following conditions violates the assumptions of PERT/CPM networks? A) Some activities can have zero variance. B) Costs increase linearly as activity time is reduced below its normal time. C) Two activities tied together by an arc are overlapping and can be worked on simultaneously. D) There can be more than one critical path in a network. Answer: C Difficulty: Moderate Keywords: assumption, PERT and CPM networks Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

20) The ________ is the sequence of activities between a project's start and finish that takes the longest time to complete. Answer: critical path Difficulty: Moderate Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

21) A(n) ________ is a project schedule that superimposes project activities on a time line. Answer: Gantt chart Difficulty: Moderate Keywords: Gantt chart, project schedule Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

22) Explain the importance of the critical path in project management. Answer: The critical path of activities determines the time duration of the project. Any slippage along the critical path means the project will be delayed. The critical path also defines the activities requiring the team's attention and focus to assure timely and cost effective completion of the project. Difficulty: Moderate Keywords: project critical path Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

23) Why do managers want to know the slack of activities? Answer: Managers monitor activity slack reports to identify activities that have fallen behind schedule or are dangerously close to doing so. Also, activities with large amounts of slack might afford a reduction in resources so that other activities behind schedule can catch up. Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Develop the schedule of a project.

24) Draw the network corresponding to the following information. Also, complete the table, identify the critical path, and specify project completion time.

Activity A B C D E F G H

Immediate Predecessor(s) ----A B B C, D D, E G, F

Earliest Start

Time (Weeks) 3 4 6 9 6 6 8 9

Earliest Finish

Latest Start

Latest Finish

Slack

Answer:

Activity A B C D E F G H

Earliest Start 0 0 3 4 4 13 13 21

Earliest Finish 3 4 9 13 10 19 21 30

Latest Start 6 0 9 4 7 15 13 21

Latest Finish 9 4 15 13 13 21 21 30

Slack 6 0 6 0 3 2 0 0

Critical path is B—D—G—H, and project completion time is 30 weeks. Difficulty: Moderate Keywords: early and late start and finish times, critical path, completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

25) Phoebe B. Beebee is constructing a canal for the annual canoe races and has identified eleven activities that are required to complete this important project. She calculated early and late start times and early and late finish times but spilled coffee all over her printout. Use the remaining information to reconstruct the table for Phoebe B. Beebee and her new canoe canal. Activity A B C D E F G H I J K

Predecessor -A A B, E C E D G G F H, I, J

Length

Early Start Late Start

Early Finish 12

Late Finish

20 42 28 42 53 70

42 50 53 72

4 81

Answer: The completed table appears below: Activity A B C D E F G H I J K

Predecessor -A A B, E C E D G G F H, I, J

Length 12 20 16 11 14 8 17 11 9 4 10

Early Start Late Start 0 0 12 22 12 12 42 42 28 28 42 69 53 53 70 70 70 72 50 77 81 81

Early Finish 12 32 28 53 42 50 70 81 79 54 91

Difficulty: Challenging Keywords: critical path, network, early and late start and finish times Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Develop the schedule of a project.

Late Finish 12 42 28 53 42 77 70 81 81 81 91

7.4 Analyzing Cost-Time Trade-Offs 1) The normal time is the time necessary to complete an activity under normal conditions. Answer: TRUE Difficulty: Easy Keywords: normal cost, activity time, normal time Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

2) A project manager should continue crashing a project as long as there are activities available that can be crashed. Answer: FALSE Difficulty: Moderate Keywords: crash cost, penalty costs, indirect costs Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

Table 7.4 Activity A B C D E F

Predecessor --A B C,D E

Time(weeks) 6 6 4 9 11 3

3) Using Table 7.4, what is the earliest completion time for this project? A) 18 weeks B) 20 weeks C) 22 weeks D) 25 weeks Answer: D Difficulty: Moderate Keywords: completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

4) Using Table 7.4, what is the largest amount of slack that any activity in the project has? A) zero weeks B) two weeks C) three weeks D) four weeks Answer: C Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

5) Using Table 7.4, what is the slack for activity D? A) zero weeks B) one week C) two weeks D) three weeks Answer: A Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

6) Using Table 7.4, what is the latest start time for activity C? A) week 6 B) week 9 C) week 11 D) week 14 Answer: B Difficulty: Moderate Keywords: latest start time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

7) Using Table 7.4, what is the early finish time for activity E? A) week 14 B) week 17 C) week 21 D) week 25 Answer: C Difficulty: Moderate Keywords: activity, earliest finish time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

8) Using Table 7.4, what is the slack for activity A? A) zero weeks B) one week C) two weeks D) three weeks Answer: D Difficulty: Moderate Keywords: activity, latest finish time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

9) Using Table 7.4, what is maximum amount of time activity E can be delayed without delaying the normal completion time for the project? A) 0 weeks B) 1 week C) 2 weeks D) 3 weeks Answer: A Difficulty: Moderate Keywords: activity slack, activity delay Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

Table 7.5 Activity A B C D E F G H

Predecessor ---A,B C A D,E G

Time (days) 8 6 3 10 8 5 3 4

10) Using Table 7.5, what is the earliest completion time of this project? A) 23 days B) 25 days C) 27 days D) 29 days Answer: B Difficulty: Moderate Keywords: earliest project completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

11) Using Table 7.5, what is the latest start time for activity E? A) day 8 B) day 10 C) day 12 D) day 14 Answer: B Difficulty: Moderate Keywords: activity, latest start time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

12) Using Table 7.5, what is the earliest that activity D can be finished? A) 18 days B) 8 days C) 13 days D) 25 days Answer: A Difficulty: Moderate Keywords: activity, earliest completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

13) Disaster strikes and activity F takes 20 days instead of the anticipated 5 days. Using Table 7.5, how much longer will the project last than initially estimated? A) 15 days B) 0 days C) 7 days D) 3 days Answer: D Difficulty: Moderate Keywords: project latest finish time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

14) Using Table 7.5, every day the construction crew is on-site costs $1000. What activities would you consider crashing to reduce the project completion cost? A) Activity E B) Activity F C) Activity G D) All of these activities would be candidates for crashing. Answer: C Difficulty: Moderate Keywords: project completion cost, activity crashing Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

15) Using Table 7.5, how many days can activity C be delayed without changing the whole project's earliest completion time? A) 0 days B) 2 days C) 5 days D) 7 days Answer: D Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

Table 7.6

Activity A B C

Immediate Predecessor(s) ----

Time (weeks) 3 4 2

D E F

A A, B A, B, C

4 5 2

G H I

D, E E E, F

1 6 2

J K L

G, H, I H, I I

4 3 6

16) Using Table 7.6, what is the critical path for this project? A) B—E—H—K B) B—E—H—J C) A—E—G—J D) C—F—I—L Answer: B Difficulty: Challenging Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

17) Using Table 7.6, suppose activity D can be shortened from four days to one day. Assume all other activity times remain the same. How much shorter will the total project earliest completion time become? A) zero days B) one day C) two days D) three days Answer: A Difficulty: Challenging Keywords: earliest completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

18) Using Table 7.6, suppose activity I is delayed, taking eight days to complete instead of two days. Assume all other activity times remain the same. How much longer will the total project earliest completion time become? A) zero days B) one or two days C) three or four days D) five or six days Answer: C Difficulty: Challenging Keywords: project, earliest completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

19) Using Table 7.6, what is the latest start time for activity A? A) day 0 B) day 1 C) day 2 D) day 3 or later Answer: B Difficulty: Challenging Keywords: activity, latest start time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

Figure to accompany Table 7.7

Table 7.7 CRASH NORMAL CRASH NORMAL COST ACTIVITY TIME TIME COST ($000s) ($000s) A 4 2 8 14 B 3 2 9 11 C 4 4 10 10 D 5 3 10 15 E 4 1 11 14 F 1 1 6 6

AVAILABLE WEEKS OF CRASHING

CRASHING COST / WEEK

20) What is the critical path for the project shown in the above network and Table 7.7, using the normal times? A) A-B-D-F B) A-C-D-F C) A-C-E-F D) A-B-C-D-E-F Answer: B Difficulty: Easy Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

21) Determine the information missing from Table 7.7; then answer the following questions. How many week(s) of crashing are available for activity D? A) 0 B) 1 C) 2 D) 6 Answer: C Difficulty: Easy Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

22) How many week(s) of crashing are available for activity B in Table 7.7? A) 0 B) 1 C) 2 D) 3 Answer: B Difficulty: Easy Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

23) How many weeks of crashing are available for activity C in Table 7.7? A) 0 B) 1 C) 2 D) 6 Answer: A Difficulty: Easy Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

24) What is the crashing cost per week for activity A in Table 7.7? A) $2,000 B) $3,000 C) $4,000 D) This activity cannot be crashed. Answer: B Difficulty: Moderate Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

25) What is the crashing cost per week for activity E in Table 7.7? A) $1,000 B) $2,000 C) $3,000 D) This activity cannot be crashed. Answer: A Difficulty: Moderate Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

26) What is the crashing cost per week for activity F in Table 7.7? A) $2,000 B) $3,000 C) $4,000 D) This activity cannot be crashed. Answer: D Difficulty: Moderate Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

27) If a decision is made to crash activity D in Table 7.7 by one week, what is the cost for this one week of crashing? A) $3,000 B) $2,000 C) $2,500 D) This activity cannot be crashed. Answer: C Difficulty: Moderate Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

28) Which activity should be crashed first for the project shown in Table 7.7? A) A B) B C) C D) D Answer: D Difficulty: Challenging Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

Table 7.8

Activity A B C D E F G H

Predecessor ---A B A, C B E, D, G

Normal Time (days) 5 7 5 10 6 7 4 6

Crashing Crashing Time (days) Cost/day 1 $200 1 $500 1 $200 2 $300 1 $400 2 $650 1 $500 1 $350

29) Using Table 7.8, what is the critical path for this project using the normal times? A) A—D—H B) C—F C) B—E—H D) B—G—H Answer: A Difficulty: Moderate Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

30) Using Table 7.8, what is the minimum completion time for this project after crashing? A) 23 days B) 21 days C) 19 days D) 17 days Answer: D Difficulty: Moderate Keywords: project, critical path, minimum completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

31) Using Table 7.8, what is the minimum crashing cost to finish this project in 18 days? A) $3,450 B) $850 C) $1,150 D) $1,500 Answer: B Difficulty: Challenging Keywords: crash, cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

32) Using Table 7.8, what is the activity with the greatest amount of slack? A) A B) B C) C D) D Answer: C Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

33) Using Table 7.8, what is the latest start time for activity E? A) day 7 B) day 8 C) day 9 D) day 10 Answer: C Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

34) Using Table 7.8, what is the earliest possible completion time for activity E after crashing? A) day 11 B) day 13 C) day 15 D) day 17 Answer: B Difficulty: Moderate Keywords: activity, earliest completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

Table 7.9

35) Using Table 7.9, what is the earliest completion time of this project if normal times are used for all activities? A) fewer than 13 weeks B) 13 weeks C) 14 weeks D) more than 14 weeks Answer: B Difficulty: Moderate Keywords: earliest completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

36) Using Table 7.9, what is the minimum time schedule for this project? A) fewer than 8 weeks B) 8 weeks C) 9 weeks D) more than 9 weeks Answer: C Difficulty: Challenging Keywords: minimum time schedule Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

37) Using Table 7.9, if the project completion time has to be reduced by one week, which of the following activities should be crashed to minimize the extra cost of earlier completion? A) Activity B B) Activity E C) Activity H D) Activity J Answer: A Difficulty: Moderate Keywords: activity crashing, project, completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

38) Using Table 7.9, what is the difference, in dollars, between the minimum-time schedule and the schedule created by crashing all activities to their limits? Assume that there are no indirect or penalty costs. A) less than or equal to $1,000 B) greater than $1,000 but less than or equal to $2,000 C) greater than $2,000 but less than or equal to $3,000 D) greater than $3,000 Answer: D Difficulty: Challenging Keywords: project crashing cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

39) Using Table 7.9, if the project's normal earliest completion time is to be reduced by two weeks, what is the minimum additional cost that will be incurred in achieving this two-week reduction? A) less than or equal to $1,000 B) greater than $1,000 but less than or equal to $1,500 C) greater than $1,500 but less than or equal to $2,000 D) greater than $2,000 Answer: B Difficulty: Challenging Keywords: project crashing cost / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

40) A project is currently scheduled to be finished on its normal earliest completion date. The project manager has the opportunity to earn a bonus if the project can be completed three weeks ahead of schedule. The increase in project direct costs related to crashing activities would be $40,000. Also, project indirect costs are $15,000 per week. What is the smallest bonus that the project manager should accept if he or she wants to avoid increasing overall project costs? A) less than or equal to $5,000 B) greater than $5,000 but less than or equal to $10,000 C) greater than $10,000 but less than or equal to $15,000 D) greater than $15,000 Answer: A Difficulty: Moderate Keywords: activity crashing cost Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

41) You are given the following information about activity A: Normal time Crash time Normal cost Crash cost

= 9 weeks = 7 weeks = $20,000 = $30,000

What will it cost to complete activity A in 8 weeks? A) less than or equal to $24,000 B) greater than $24,000 but less than or equal to $27,000 C) greater than $27,000 but less than or equal to $30,000 D) greater than $30,000 Answer: B Difficulty: Moderate Keywords: activity crashing cost Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

42) You are given the following information about activity C: Normal time Crash time Normal cost Crash cost

= 12 weeks = 9 weeks = $52,000 = $43,000

What is the cost per week to crash activity C? A) $3,000 B) 4,000 C) $4,500 D) $9,000 Answer: A Difficulty: Moderate Keywords: activity crashing cost Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

43) You are given the following information about activity D: Normal time = 10 weeks Crash time = 8 weeks Crash cost = $20,000 Cost to crash per week = $1,500 What is the normal cost for activity F? A) $10,000 B) $14,000 C) $17,000 D) $20,000 Answer: C Difficulty: Moderate Keywords: activity crashing cost Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

44) A company could add $10,000 per week in revenues if the project depicted in Table 7.10 could be shortened. Table 7.10

Activity A B C

Immediate Predecessor(s) --A

Time (weeks) 7 9 8

D E F

A, B B C

8 9 10

G H I

D, E E F, G

5 10 5

Four possible options exist to crash activities: crash A by one week at a cost of $6,000; crash C by two weeks at a cost of $15,000; crash E by one week at a cost of $2,000; and crash I one week at a cost of $7,000. What is the maximum amount of additional profit that can be made by crashing an option (or options)? A) less than or equal to $4,000 B) greater than $4,000 but less than or equal to $8,000 C) greater than $8,000 but less than or equal to $12,000 D) greater than $12,000 Answer: B Difficulty: Moderate Keywords: activity crashing, project, completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

45) If a project has exactly one critical path, which of the following statements is true? A) Crashing an activity on the critical path will always result in an increase in total project profits. B) Activities on the critical path cannot be crashed. C) Crashing an activity on the critical path will always result in a reduced total project completion time. D) The best schedule is one in which all activities are crashed as much as possible. Answer: C Difficulty: Moderate Keywords: crashing an activity, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

46) The activity cost associated with the normal time is known as ________. Answer: normal cost Difficulty: Easy Keywords: normal cost Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

47) The ________ is determined by starting with the normal time schedule and crashing activities along the critical path in such a way that the costs of crashing do not exceed the savings in indirect and penalty costs. Answer: minimum-cost schedule Difficulty: Moderate Keywords: minimum cost schedule Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

48) Describe how time—cost tradeoffs for project activities should be identified and analyzed. Answer: There are always time—cost tradeoffs in project management situations. Overall project length is driven by the length of the critical path, so if it is necessary to finish the project more quickly, the activities that should be shortened are those on the critical path. Whether the goal is to reduce the project's length to avoid a penalty, meet a deadline, or to reach an incentive, the cheapest activities on the critical path should be attacked first. If the objective is to minimize costs, then the project manager should reduce the critical path by expediting activities until the increase in direct costs exceeds the savings that can be gained. If the objective is to finish the project in a certain number of days, the project manager must continue to reduce activity lengths until that target is reached regardless of expense. Difficulty: Moderate Keywords: time-cost tradeoffs, expediting project activities Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Analyze cost-time trade-offs in a project network.

49) The following table contains a list of activities, with early- and late-start and finish times and crash costs for the network shown in the figure. All start and finish times and crash costs are on a per-week basis. Each activity can be reduced by one week at the most. a. Determine the uncrashed activity lengths for activities A though K. b. Determine the minimum completion cost for this project if each week carries a fixed cost of $1,000.

Activity A B C D E F G H I J K

ES 0 5 5 0 6 9 11 11 18 17 26

EF 5 9 11 6 10 14 17 18 26 21 34

LS 0 13 5 1 7 17 16 11 18 22 26

LF 5 17 11 7 11 22 22 18 26 26 34

Crash Cost/week $1,100 $250 $1,200 $350 $900 $875 $1,500 $500 $300 $625 $750

Answer: Activity lengths for A—K can be found by subtracting the early start of each activity from the late start of each activity. The activity lengths appear in this table: a.

Activity A B C D E F G H I J K

Length 5 4 6 6 4 5 6 7 8 4 8

LS 0 13 5 1 7 17 16 11 18 22 26

LF 5 17 11 7 11 22 22 18 26 26 34

Crash Cost/week $1,100 $250 $1,200 $350 $900 $875 $1,500 $500 $300 $625 $750

b. The critical path is ACHIK = 34 weeks. Other paths are DEHIK = 33; ACGJK = 29; DEGJK = 28; and ABFJK = 26. With a fixed cost of $1,000/week, the initial cost is 34 weeks @ $1,000 = $34,000. The cheapest critical-path activity is I @ $300, so reducing I from 8 weeks to 7 weeks costs $300 but saves $1,000, resulting in a net savings of $700. The next cheapest critical-path activity is H @ $500, so reducing H from 7 weeks to 6 weeks costs $500 but saves $1,000, for a net savings of $500. The next cheapest critical-path activity is K @ $750, so reducing K from 8 weeks to 7 weeks costs $750 but saves $1,000, for a net savings of $250. The other two activities on the critical path are more expensive to crash than the penalty cost, so the cheapest completion time is 34 weeks - 3 weeks (I, H, K) = 31 weeks for a cost of $31,000 plus the crash costs of $300 + $500 + $750 = $32,550. Difficulty: Moderate Keywords: activity crashing, early and late start and finish times Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

50) The following table contains a list of activities, with precedence requirements and crash costs. All start and finish times and crash costs are on a per-week basis. a. Determine the project cost and duration without crashing. b. Determine the least expensive project cost if the duration is to be 10% shorter than normal project duration. c. Determine the least expensive project cost if the duration is to be 20% shorter than normal project duration. d. Create a graph that shows project expediting cost plotted as a function of the reduction in project duration.

Activity A B C D E F G H

Normal Normal Time Crash Time Cost 10 7 2,000 12 8 1,500 16 12 2,200 8 7 2,500 13 10 1,950 9 8 800 24 29 3,650 17 14 1,200

Crash Cost 2,600 2,000 3,000 3,000 2,275 1,000 4,000 1,800

Predecessor A A B C D E, F G

Answer: a. Crash costs per week are shown in the table. The uncrashed project duration is 80 weeks at a cost of $15,800.

Activity A B C D E F G H

Normal Normal Time Crash Time Cost 10 7 2,000 12 8 1,500 16 12 2,200 8 7 2,500 13 10 1,950 9 8 800 20 15 3,650 17 14 1,200

Crash Crash Cost cost/week 2,600 $ 200 2,000 125 3,000 200 3,000 500 2,275 108.33 1,000 200 4,000 70 1,800 200

b. The least expensive way to reduce the project duration by 10% (eight weeks) is by crashing activity G by five weeks at a cost of $70 per week, followed by activity B for three weeks at a cost of $125 per week. The total cost of the 72 week project is $725 extra, or $16,525. c. Reducing the project by 20% from normal duration requires the actions indicated in part b, plus these actions. The reduction of activity B by another week for $125, activity A by three weeks at $200/week, activity H for three weeks at $200 per week, and activities E and F for one week each at $108.33 and $200 respectively. The total cost for the 64 week project is $2,358.33 above the normal cost, or $18,158.33.

Difficulty: Moderate Keywords: activity crashing, early and late start and finish times Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Analyze cost-time trade-offs in a project network.

7.5 Assessing and Analyzing Risks 1) The most likely time for a project activity is the longest estimated time to perform an activity. Answer: FALSE Difficulty: Easy Keywords: pessimistic time, most likely time time Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

2) The optimistic time for a project activity is the shortest time in which an activity can be completed. Answer: TRUE Difficulty: Easy Keywords: optimistic time, probable time Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

3) A risk-management plan contains all identified risks to a project plus the ways that they can be circumvented. Answer: TRUE Difficulty: Moderate Keywords: risk-management plan Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

4) A good risk management plan will contain which of these elements? A) the project manager's tolerance level for risk B) the number of acceptable outcomes C) a prediction of the impact of each risk on the project D) the number of unacceptable outcomes Answer: C Difficulty: Moderate Keywords: risk-management plan Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

5) A plan that identifies key threats to a project and prescribes ways to circumvent them is called a: A) project plan. B) contingency plan. C) backup plan. D) risk management plan. Answer: D Difficulty: Moderate Keywords: risk management Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

6) Which of these is not one of the four categories of project risk? A) cost/benefit B) operations C) strategic fit D) project team capability Answer: A Difficulty: Moderate Keywords: risk management Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

7) Information accuracy relative to the completeness of the work breakdown structure and communication of timely information affect the: A) strategic fit risk of a project. B) operations risk of a project. C) service/product attribute risk of a project. D) cost/benefit risk of a project. Answer: B Difficulty: Moderate Keywords: risk management, operations Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

8) When using the beta distribution for estimating activity times: A) an advantage is that the mode of the distribution is always equidistant from the end points of the distribution. B) the most likely time estimate can be positioned anywhere between the optimistic and pessimistic time estimates. C) we assume that the standard deviation is one-third the range between the optimistic and pessimistic time estimates. D) the most likely time estimate becomes the mean of the distribution. Answer: B Difficulty: Moderate Keywords: beta distribution Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

9) Following are four sets of most optimistic, most likely, and most pessimistic times (in weeks) for an activity. Which one of the four sets will have a mean estimated time equal to the most likely time? A) 1, 9, 9 B) 1, 5, 9 C) 1, 1, 9 D) 1, 5, 5 Answer: B Difficulty: Moderate Keywords: optimistic times, most likely times, pessimistic times Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

10) To calculate the probability of completing a project by a certain date: A) the expected completion time of the project is taken to be the sum of the activity times on the shortest path. B) the variance of the distribution of project completion times is taken to be one-sixth the difference between the latest finish time and the earliest finish time of the last activity in the project. C) we assume that the activity durations are independent of each other so that the normal distribution can be used. D) we need only the parameters of the beta distribution for the finish node of the diagram. Answer: C Difficulty: Moderate Keywords: project completion date, probability Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

11) In making an estimate of the most pessimistic time for an activity, a manager deliberately estimates this time too high (i.e., longer than it should be). What is the result of this action, assuming the beta distribution is being used to make time estimates? A) The most likely time for this activity will be larger than it should be. B) The variance of the activity will be smaller than it should be. C) The beta distribution will be symmetric around its mean. D) The expected time for this activity will be larger than it should be. Answer: D Difficulty: Moderate Keywords: activity, pessimistic time, beta distribution Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

Table 7.11

12) Using Table 7.11 what is the earliest expected time of completion of the whole project? A) fewer than or equal to 19 weeks B) greater than 19 but fewer than or equal to 21 weeks C) greater than 21 but fewer than or equal to 24 weeks D) greater than 24 weeks Answer: D Difficulty: Moderate Keywords: project completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

13) Using Table 7.11, which activity will have the largest amount of slack? A) Activity F B) Activity C C) Activity H D) Activity A Answer: C Difficulty: Moderate Keywords: activity slack Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

14) Using Table 7.11 if the expected times for activities A, G, and H increased by 2, 3, and 4 weeks, respectively, by how many weeks would the project's earliest expected time of completion increase? A) fewer than or equal to 2 weeks B) greater than 2 weeks but fewer than or equal to 4 weeks C) greater than 4 weeks but fewer than or equal to 6 weeks D) greater than 6 weeks Answer: C Difficulty: Challenging Keywords: expected activity time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

Table 7.12

15) Using Table 7.12 what is the earliest expected time of completion of the whole project? A) fewer than or equal to 21 days B) greater than 21 but fewer than or equal to 22 days C) greater than 22 but fewer than or equal to 23 days D) greater than 23 days Answer: D Difficulty: Moderate Keywords: project, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

16) Using Table 7.12 which activity is on the critical path? A) Activity D B) Activity F C) Activity G D) Activity K Answer: C Difficulty: Moderate Keywords: activity, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

17) Using Table 7.12 if the project is due to be completed in 28 days, what is the probability that the project will be completed on or before the due date? A) less than or equal to 75% B) greater than 75% but less than or equal to 85% C) greater than 85% but less than or equal to 95% D) greater than 95% Answer: C Difficulty: Moderate Keywords: project completion time, probability Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

18) Using Table 7.12 if the project manager wants at least a 98% probability that the project will be completed on or before the due date, what is the shortest project due date that will satisfy the manager? A) fewer than or equal to 28 days B) greater than 28 days but fewer than or equal to 30 days C) greater than 30 days but fewer than or equal to 32 days D) greater than 32 days Answer: B Difficulty: Challenging Keywords: due date, probability of completion Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

Table 7.13 All activity times for the project are in weeks. Activity A B C D E F G H

Predecessor ---A C B F D, E, G

Optimistic 12 7 5 15 8 9 18 15

Most Likely 16 14 10 18 12 12 22 19

Pessimistic 25 22 14 25 18 15 29 27

19) Using Table 7.13, what is the critical path of this project? A) A—D—H B) C—E—H C) B—F—G—H D) C—E—H and B—F—G—H are both critical. Answer: C Difficulty: Moderate Keywords: critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

20) Using Table 7.13, what is the expected time of completion of the project? A) fewer than 60 weeks B) between 60 and 65 weeks C) between 65 and 70 weeks D) greater than 70 weeks Answer: C Difficulty: Moderate Keywords: project, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

21) Using Table 7.13, what is the probability that the project will be completed in 65 or fewer weeks? A) less than or equal to 20% B) greater than 20% but less than or equal to 24% C) greater than 24% but less than or equal to 28% D) greater than 28% Answer: A Difficulty: Moderate Keywords: project completion probability / time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

22) Using Table 7.13, if the expected time for activity H is changed to 25 weeks, by how many weeks will the project's expected completion time increase? A) It will increase by one week. B) It will increase by three weeks. C) It will increase by two weeks. D) It will increase by four weeks. Answer: D Difficulty: Challenging Keywords: activity, project expected completion time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

Table 7.14 You are responsible for managing a project with the following activities (times are given in weeks). Task A B C D E

Predecessor -A B -D

Optimistic 5 7 8 11 12

Most Likely 8 10 10 15 14

Pessimistic 10 12 14 20 18

23) Using Table 7.14, what is the critical path and expected completion time for this project? A) D—E; 29.5 weeks B) A—B—C; 25 weeks C) D—E; 27.5 weeks D) A—B—C; 26.5 weeks Answer: A Difficulty: Moderate Keywords: project critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

24) Using Table 7.14, which activity has the largest standard deviation, and how large is that standard deviation? A) Activity A; 0.83 weeks B) Activity B; 1.25 weeks C) Activity D; 1.5 weeks D) Activity C; 1.25 weeks Answer: C Difficulty: Moderate Keywords: standard deviation, variance, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

25) Using Table 7.14, what is the probability of completing the project in 29 or fewer weeks? A) less than or equal to 40% B) greater than 40% but less than or equal to 45% C) greater than 45% but less than or equal to 50% D) greater than 50% Answer: A Difficulty: Moderate Keywords: project, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

26) Using Table 7.14, what is the probability that the project will take 16 or more weeks to complete? A) less than or equal to 20% B) greater than 20% but less than or equal to 25% C) greater than 25% but less than or equal to 30% D) greater than 30% Answer: A Difficulty: Moderate Keywords: project, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

27) Using Table 7.14, if the expected time for activity C is changed to 12 weeks, by how many weeks will the project's expected completion time increase? A) It will not change. B) It will increase by one week. C) It will increase by two weeks. D) It will increase by three weeks. Answer: A Difficulty: Challenging Keywords: project, duration Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

28) Assuming a beta distribution is being used, if the most pessimistic time for an activity increases by six weeks, what will happen to the expected time for that activity? A) It will increase by one week. B) It will decrease by one week. C) It will increase by six weeks. D) It will remain the same. Answer: A Difficulty: Moderate Keywords: beta distribution, pessimistic activity time Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

29) The probability that a project will be completed by its earliest expected completion date is: A) 50 percent. B) 95 percent. C) 100 percent. D) impossible to determine. Answer: A Difficulty: Moderate Keywords: probability, project completion date Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

30) If the sum of the variances on the critical path (and all other network paths) is equal to zero, what is the probability that the project will be completed by its earliest expected completion date? A) 50 percent B) 95 percent C) 100 percent D) It cannot be determined. Answer: C Difficulty: Moderate Keywords: critical path expected variance, earliest expected completion date Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

31) In an agile project management team, the role of facilitating team communication, removing obstacles to progress, and negotiating with those external to the team is assigned to the: A) ScrumMaster. B) Product Owner. C) Development Team. D) Project Scheduler. Answer: A Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

32) In an agile project management team, the person who has authority to make decisions about the product and prioritize its features is the: A) ScrumMaster. B) Product Owner. C) Development Team. D) Project Scheduler. Answer: B Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

33) In an agile project management team, the person(s) who assign ownership of tasks and is/are responsible for the delivery of the product is/are the: A) ScrumMaster. B) Product Owner. C) Development Team. D) Project Scheduler. Answer: C Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

34) The ________ is the shortest time in which an activity can be completed if all goes exceptionally well. Answer: optimistic time Difficulty: Moderate Keywords: optimistic time Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

35) To find the standard deviation of the critical path, you must first add the ________ of all activities on the critical path. Answer: variances Difficulty: Challenging Keywords: standard deviation, variance, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

36) A(n) ________ identifies the key threats to a project and prescribes ways to work around them. Answer: risk-management plan Difficulty: Moderate Keywords: project risk-management plan Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

37) ________ is an agile project management framework that focuses on allowing teams to respond rapidly, efficiently and effectively to change. Answer: Scrum Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

38) The ________ as part of an agile project management team, facilitates team communication, removes obstacles to progress, and negotiates with those external to the team. Answer: ScrumMaster Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

39) The ________ as part of an agile project management team, has authority to make decisions about the product and prioritize its features. Answer: Product Owner Difficulty: Moderate Keywords: agile project management, scrum Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Assess the risk of missing a project deadline.

40) Consider the activities, durations, and predecessor relationships in the following network. Draw the network and answer the questions that follow. Activity Description A B C D E F G H I J a. b. c. d. e. f.

Immediate Predecessor(s) --A A B D, C C F F E, G, H I

Optimistic (Weeks) 4 2 8 1 6 2 2 6 4 1

Most Likely (Weeks) 7 8 12 2 8 3 2 8 8 2

Pessimistic (Weeks) 10 20 16 3 22 4 2 10 12 3

What is the expected time for activity B? What is the variance for activity B? Based on the calculation of estimated times, what is the critical path? What is the estimated time of the critical path? What is the activity variance along the critical path? What is the probability of completion of the project before week 42?

Answer:

te =

= 9 weeks

σ2 =

c. d. e.

A—C—F—H—I—J 40 Weeks 1 + 1.78 + .11 + .44 + 1.78 + .11 = 5.22

2 = 9.00

= .875

therefore, the probability from the standard normal table is approximately .81. Note that the variability of some non-critical path activities is large. Consideration might be given to those paths.

Activity A B C D E F G H I J

a 4 2 8 1 6 2 2 6 4 1

m 7 8 12 2 8 3 2 8 8 2

b 10 20 16 3 22 4 2 10 12 3

Expected Time 7 9 12 2 10 3 2 8 8 2

Variance 1 9 1.78 0.11 7.11 0.11 0 0.44 1.78 0.11

Difficulty: Moderate Keywords: expected time, variance, probability, activity, critical path Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Assess the risk of missing a project deadline.

7.6 Monitoring and Controlling Projects 1) The phase of project management that takes the most resources is the planning phase. Answer: FALSE Difficulty: Moderate Keywords: project management, planning, execution phase Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

2) Resource allocation involves reducing the peaks and valleys in resources needs for a project by shifting the schedules of conflicting activities. Answer: FALSE Difficulty: Moderate Keywords: resource leveling, resource allocation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

3) Which of these steps comes first in the project life cycle? A) close out B) definition and organization C) execution D) planning Answer: B Difficulty: Easy Keywords: project life cycle Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

4) A project manager hires a few new coders to help speed up the new software project and deliver the package on time to an important client. The manager has engaged in: A) resource leveling. B) resource allocation. C) resource acquisition. D) resource enhancement. Answer: C Difficulty: Moderate Keywords: resource acquisition Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

5) The savvy project manager knew there would be a high demand for finish carpenters in late October, so she started a crew early on one section of the house so they would be available to help elsewhere later on. This project manager is engaging in: A) resource allocation. B) resource acquisition. C) resource scheduling. D) resource leveling. Answer: D Difficulty: Moderate Keywords: resource leveling Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

6) The phase of project management that takes the most resources is the ________, during which managers focus on activities that pertain to deliverables. Answer: execution phase Difficulty: Moderate Keywords: execution phase, resources Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

7) ________ is the work of adding more of an overloaded resource to maintain the schedule of a project activity that otherwise may be at risk of a delay. Answer: Resource Acquisition Difficulty: Moderate Keywords: resource acquisition Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

8) The project manager and team can step back and examine how the project work was accomplished during the ________ phase of the project. Answer: close out Difficulty: Moderate Keywords: close out Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

9) A project tracking system should collect information on three topics for the project manager. What are these topics, why are they important, and what actions can the manager take to address any concerns that surface? Answer: The three topics are open issues, risks, and the schedule status. Open issues consist of any ideas, concerns, or questions that were raised during the project life cycle that have yet to be resolved. The tracking system should permit easy identification of these unresolved concerns for the manager and team members. Similarly, the tracking system should provide the status of each risk and its potential impact on project completion. These risks can be discussed at each project meeting. Finally, the project tracking system should provide periodic monitoring of slack time in the project schedule to help protect the critical path. As progress is made on all constituent activities, the tracking system should provide current information on the level of risks in the project. Difficulty: Moderate Keywords: open issues, schedule status, risk Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

10) What options do project managers have to alleviate resource problems? Briefly describe each method. Answer: The methods are resource leveling, resource allocation, and resource acquisition. Resource leveling can be used to reduce the peaks and valleys in resource needs by shifting the schedules of conflicting activities within their earliest and latest start dates. Resource allocation attempts to shift resources from activities with slack to those on the critical path where resources are overloaded. Resource acquisition adds more of an overloaded resource to maintain the schedule of activity. Difficulty: Moderate Keywords: resource leveling, resource allocation, resource acquisition Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Identify the options available to monitor and control projects.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 8 Forecasting 8.1 Managing Demand 1) The repeated observations of demand for a product or service in their order of occurrence form a pattern known as a time series. Answer: TRUE Difficulty: Easy Keywords: time series, repeated observations Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

2) A cyclical pattern will depict a systematic increase or decrease in the mean of time series data over time. Answer: FALSE Difficulty: Moderate Keywords: time series, pattern, trend, cyclical Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

3) A water ski manufacturer believes they can double their sales by producing snow skis during the other half of the year. This approach to demand management is an example of complementary products. Answer: TRUE Difficulty: Easy Keywords: complementary products Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

4) Airlines offering low prices for tickets booked months in advance, with those ticket prices being higher closer to the travel date is an example of promotional pricing. Answer: FALSE Difficulty: Easy Keywords: promotional pricing, revenue management Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

5) Which one of the following basic patterns of demand is difficult to predict because it is affected by national or international events or because of a lack of demand history reflecting the stages of demand from product development to decline? A) horizontal B) seasonal C) random D) cyclical Answer: D Difficulty: Moderate Keywords: cyclical demand pattern Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

6) The Universal Computer company saw a systematic increase in demand for their newly introduced tablet computer. This is an example of a: A) trend demand pattern. B) random demand pattern. C) seasonal demand pattern. D) cyclical demand pattern. Answer: A Difficulty: Easy Keywords: trend demand pattern, time series Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

7) Airlines offering low prices for tickets booked months in advance, with those ticket prices being higher closer to the travel date is an example of: A) promotional pricing. B) trend demand pattern. C) revenue management. D) complementary products. Answer: C Difficulty: Moderate Keywords: trend demand pattern, coefficient of determination, regression equation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

8) Professor Willis noted that the popularity of his office hours mysteriously rose in the middle and the end of each semester, falling off to virtually no visitors throughout the rest of the year. The demand pattern at work is: A) cyclical. B) random. C) seasonal. D) trend. Answer: C Difficulty: Easy Keywords: seasonal demand pattern Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

9) There are historically three 32-month periods of generally rising prices in the stock market for every one 9-month period of falling prices. This observation leads you to conclude that the stock market exhibits a: A) random pattern. B) trend pattern. C) seasonal pattern. D) cyclical pattern. Answer: D Difficulty: Easy Keywords: cyclical demand pattern Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

10) Polly Prognosticator was the greatest quantitative forecaster in recorded history. A skillful user of all techniques in your chapter on forecasting, she knew better than to try and develop a forecast for data that exhibited a: A) random pattern. B) horizontal pattern. C) seasonal pattern. D) cyclical pattern. Answer: A Difficulty: Easy Keywords: random demand pattern Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

11) Which one of the following statements about the patterns of a demand series is false? A) The five basic patterns of most business demand series are the horizontal, trend, seasonal, cyclical, and random patterns. B) Estimating cyclical movement is difficult. Forecasters do not know the duration of the cycle because they cannot predict the events that cause it. C) The trend, over an extended period of time, always increases the average level of the series. D) Every demand series has at least a random component. Answer: C Difficulty: Moderate Keywords: demand pattern, trend Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

12) One aspect of demand that makes every forecast inaccurate is: A) trend variation. B) random variation. C) cyclical variation. D) seasonal variation. Answer: B Difficulty: Moderate Keywords: random variation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

13) A weary traveler shows up at a hotel desk at midnight without a reservation. The desk clerk informs him that there is a room available, but sadly it is marked up 80% higher than the usual price. This is an example of: A) promotional pricing. B) yield management. C) backlogs. D) backorder. Answer: B Difficulty: Moderate Keywords: yield management, revenue management Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

14) "Well if you're out of Duff I'll just take my business elsewhere!" the customer shouted as he stomped out of the Quickie Mart. This unfortunate incident could be described as: A) a stockout. B) a backorder. C) a backlog. D) yield management. Answer: A Difficulty: Moderate Keywords: stockout Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

15) What is the difference between a reservation and an appointment? A) There is no difference between the two terms. B) The term reservation implies that the customer has paid in advance. C) The term appointment implies that the customer has paid in advance. D) The term reservation is issued when the customer occupies the facility to receive service. Answer: D Difficulty: Moderate Keywords: reservation, appointment Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

16) In the winter, Handyman Negri repaired snowblowers and in the summer he earned extra money by repairing lawnmowers, a classic example of: A) promotional pricing. B) complementary products. C) mixed model service. D) yield management. Answer: B Difficulty: Moderate Keywords: complementary products Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

17) A systematic increase or decrease in the mean of the series over time is a(n) ________. Answer: trend Difficulty: Easy Keywords: time series, trend Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

18) A(n) ________ pattern is a gradual increases or decreases in demand over longer periods of time that are less predictable. Answer: cyclical Difficulty: Easy Keywords: time series, demand pattern, cyclical Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

19) Nathan managed to level the customer requests for his valuable services by offering reservations, deploying some promotional pricing, and engaging in yield management, all forms of ________. Answer: demand management Difficulty: Easy Keywords: demand management Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

20) Draw a curve that represents four out of the five demand patterns for time series as discussed in this chapter. Clearly label both dependent and independent axis and the salient features of your graph that demonstrate your chosen patterns. Select a product or service and discuss what influences might cause it to exhibit each of these patterns. Answer: Answers will vary depending on which patterns among horizontal, trend, seasonal, cyclical, and random patterns have been chosen. Difficulty: Moderate Keywords: demand patterns, horizontal, trend, seasonal, cyclical, random patterns Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Explain how managers can manage demand patterns.

8.2 Key Decisions on Making Forecasts 1) Aggregation is the act of clustering several similar products or services so that forecasts and plans can be made at the individual product level. Answer: FALSE Difficulty: Moderate Keywords: aggregation, clustering, product families Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

2) Aggregating products or services together generally decreases the forecast accuracy. Answer: FALSE Difficulty: Moderate Keywords: aggregation, forecast accuracy Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

3) Which one of the following statements about forecasting is false? A) Causal methods of forecasting use historical data on independent variables (promotional campaigns, competitors' actions, etc.) to predict demand. B) Three general types of forecasting techniques are used for demand forecasting: time-series analysis, causal methods, and judgment methods. C) Time series express the relationship between the factor to be forecast and related factors such as promotional campaigns, economic conditions, and competitor actions. D) A time series is a list of repeated observations of a phenomenon, such as demand, arranged in the order in which they actually occurred. Answer: C Difficulty: Moderate Keywords: time series, causal factor Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

4) Causal forecasting methods: A) translates the opinions of managers and expert opinions into quantitative estimates. B) is the act of clustering several similar services or products to forecast demand for product families. C) use historical demand on independent variables to predict demand. D) average historical time series data to arrive at a demand forecast. Answer: C Difficulty: Moderate Keywords: time series, causal methods Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

5) Which one of the following statements about forecasting is true? A) The five basic patterns of demand are the horizontal, trend, seasonal, cyclical, and the subjective judgment of forecasters. B) Judgment methods are particularly appropriate for situations in which historical data are lacking. C) Casual methods are used when historical data are available and the relationship between the factor to be forecast and other external and internal factors cannot be identified. D) Focused forecasting is a technique that focuses on one particular component of demand and develops a forecast from it. Answer: B Difficulty: Moderate Keywords: judgment, data, forecast Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

6) judgment forecasting methods: A) translates the opinions of managers and expert opinions into quantitative estimates. B) is the act of clustering several similar services or products to forecast demand for product families. C) use historical demand on independent variables to predict demand. D) average historical time series data to arrive at a demand forecast. Answer: A Difficulty: Moderate Keywords: judgment methods Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

7) ________ is the act of clustering several similar services or products so that forecasts and plans can be made for whole families. Answer: Aggregation Difficulty: Moderate Keywords: aggregation, clustering Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

8) ________ methods use historical data on independent variables to predict demand. Answer: Causal Difficulty: Moderate Keywords: forecasting, causal method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

9) ________ analysis is a statistical approach that relies heavily on historical demand data to project the future size of demand, and it recognizes trends and seasonal patterns. Answer: Time-series Difficulty: Moderate Keywords: time-series analysis Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

10) Why are forecasts for product families typically more accurate than forecasts for the individual items within a product family? Answer: More accurate forecasts are obtained for a group of items because the individual forecast errors for each item tend to cancel each other. Difficulty: Moderate Keywords: aggregate forecast accuracy Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the two key decisions on making forecasts.

8.3 Forecast Error 1) Random forecast errors result from predictable factors that cause the forecast to deviate from the actual demand. Answer: FALSE Difficulty: Moderate Keywords: forecast, random error Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

2) Forecast error is found by subtracting the forecast from the actual demand for a given period. Answer: TRUE Difficulty: Moderate Keywords: forecast error, forecast, demand Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

3) A bias error results from unpredictable factors that cause the forecast to deviate from actual demand. Answer: FALSE Difficulty: Moderate Keywords: bias error Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

4) The mean squared error (MSE) is a measurement of the dispersion of forecast errors. Answer: TRUE Difficulty: Easy Keywords: mean squared error, dispersion Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

5) Which one of the following is most useful for measuring the bias in a forecast? A) cumulative sum of forecast errors B) standard deviation of forecast errors C) mean absolute deviation of forecast errors D) percentage forecast error in period t Answer: A Difficulty: Moderate Keywords: bias, cumulative sum of forecast errors Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

6) A tracking signal greater than zero and a mean absolute deviation greater than zero imply that the forecast has: A) no bias and no variability of forecast error. B) a nonzero amount of bias and a nonzero amount of forecast error variability. C) no bias and a nonzero amount of forecast error variability. D) a nonzero amount of bias and no variability of forecast error. Answer: B Difficulty: Challenging Keywords: tracking signal, error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

7) Assume that a time-series forecast is generated for future demand and subsequently it is observed that the forecast method did not accurately predict the actual demand. Specifically, the forecast errors were found to be: Mean absolute percent error = 10% Cumulative sum of forecast errors = 0 Which one of the statements concerning this forecast is true? A) The forecast has no bias but has a positive standard deviation of errors. B) The forecast has a positive bias and a standard deviation of errors equal to zero. C) The forecast has no bias and has a standard deviation of errors equal to zero. D) The forecast has a positive bias and a positive standard deviation of errors. Answer: A Difficulty: Moderate Keywords: bias, standard deviation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

Table 8.1 The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months. Month 1 2 3 4 5 6 7 8 9 10

Mistakes 55 61 71 77 88 100 109 122 126 126

Exponential

WMA

71 73 77 84 92 101 108

62 70 79 88 99 110 119

67 74 84 95 105 117 123

8) Using Table 8.1, what is the CFE for months 6-10 for the exponential smoothing technique? A) less than or equal to 120 B) greater than 120 but less than or equal to 123 C) greater than 123 but less than or equal to 126 D) greater than 126 Answer: B Difficulty: Moderate Keywords: CFE, forecast error, cumulative forecast error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

9) Using Table 8.1, what is the MSE for months 6-10 for the exponential smoothing technique? A) less than 591 B) greater than or equal to 591 but less than 595 C) greater than or equal to 595 but less than 599 D) greater than 599 Answer: D Difficulty: Moderate Keywords: MSE, forecast error, mean squared error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

10) Using Table 8.1, what is the MAD for months 6-10 for the exponential smoothing technique? A) less than 23 B) greater than or equal to 23 but less than 25 C) greater than or equal to 25 but less than 27 D) greater than or equal to 27 Answer: B Difficulty: Moderate Keywords: MAD, forecast error, mean absolute deviation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

11) Using Table 8.1, what is the mean absolute percent error for months 6-10 using the exponential smoothing forecasts? A) less than 22% B) greater than or equal to 22% but less than 24% C) greater than or equal to 24% but less than 26% D) greater than 26% Answer: A Difficulty: Moderate Keywords: MAPE, mean absolute percent error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

12) Consider the following data concerning the performance of a forecasting method.

A) The CFE is greater than 100, and the MAD is less than 50. B) The CFE is less than 100, and the MAD is less than 50. C) The CFE is less than 100, and the MAD is greater than 50. D) The CFE is greater than 100, and the MAD is greater than 50. Answer: B Difficulty: Moderate Keywords: CFE, MAD, cumulative forecast error, mean absolute deviation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

13) Which one of the following is a measure of dispersion in forecast errors? A) cumulative sum of forecast errors B) mean absolute deviation C) aggregation of forecast errors D) mean absolute percent error Answer: B Difficulty: Moderate Keywords: mean absolute deviation, MAD Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

14) Which one of the following is useful for putting forecast performance in the proper perspective? A) cumulative sum of forecast errors B) standard deviation of forecast errors C) mean absolute deviation of forecast errors D) mean absolute percent error Answer: D Difficulty: Moderate Keywords: mean absolute percent error, MAPE Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

15) The dispersion of forecast errors is measured by both MAD and MSE, which behave differently in the way they emphasize errors. ________ gives larger weight to errors and ________ gives smaller weight to errors. Answer: MSE, MAD Difficulty: Moderate Keywords: forecast error, MAD, MSE, mean absolute deviation, mean squared error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

16) ________ is a measurement that relates the forecast error to the level of demand and is useful for putting forecast performance in the proper perspective. Answer: mean absolute percent error (MAPE) Difficulty: Moderate Keywords: forecast error, MAD, MSE, mean absolute deviation, mean squared error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

17) What is the difference between mean absolute deviation (MAD) and mean squared error (MSE)? Answer: Both MAD and MSE are measurements of the amount of forecast error, and smaller values of both metrics reflect superior forecasting methods. The difference between the two is that MAD places less emphasis on an outlier while MSE is more sensitive to one. A forecast technique that seeks to minimize MSE will have overall forecast accuracy hurt by one extreme outlier more than a forecast developed using a MAD-minimizing technique. Difficulty: Moderate Keywords: MAD, MSE, mean absolute deviation, mean squared error Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

18) What are reasonable criteria for selecting one time-series method over another? Answer: Forecast error measures provide important information for choosing the best forecasting method for a service or product. They also guide managers in selecting the best values for the parameters needed for the method: n for the moving average method, the weights for the weighted moving average method, alpha for the exponential smoothing method, and when regression data begins for the trend projection with regression method. The criteria to use in making forecast method and parameter choices include (1) minimizing bias (CFE); (2) minimizing MAPE, MAD, or MSE; (3) maximizing r2; (4) meeting managerial expectations of changes in the components of demand; and (5) minimizing the forecast errors in recent periods. The first three criteria relate to statistical measures based on historical performance, the fourth reflects expectations of the future that may not be rooted in the past, and the fifth is a way to use whatever method seems to be working best at the time a forecast must be made. Difficulty: Moderate Keywords: MAD, MSE, time series, MAPE, statistical method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Calculate the five basic measures of forecast errors.

19) Ten months of data and the forecasts for those same periods are in the table below. Use mean bias, MAD, and MAPE to analyze the accuracy of the forecasts. Month January February March April May June July August September October

Actual 42 58 58 77 91 102 124 148 171 177

Forecast 37 50 58 67.5 84 96.5 113 136 159.5 174

Answer:

Bias = 7.25 MAD= 7.25 MAPE = 7.65% Difficulty: Moderate Keywords: error, MAPE, bias, MAD Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

20) Two mercenary forecasters dueled for the lucrative Surreal Farms egg production forecasting job. The farmer provided them with output levels from ten day's production and had them forecast the next ten days. The combatant's forecasts and the actual egg production are shown in the table. Which forecaster was more accurate and should be hired as a result of his performance on this trial?

Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10

Actual 102 108 118 130 142 154 166 181 198 206

Forecast A 97 105 113 124 136 148 160 174 190 202

Forecast B 107 113 109 119 130 142 154 167 182 195

Answer: Based on mean absolute deviation and mean absolute percent error; Forecaster A is more accurate than Forecaster B.

Period Error A Error B Day 1 5 -5 Day 2 3 -5 Day 3 5 9 Day 4 6 11 Day 5 6 12 Day 6 6 12 Day 7 6 12 Day 8 7 14 Day 9 8 16 Day 10 4 11 Sum 56 107 Avg 5.6 10.7

Absolute Error A 5 3 5 6 6 6 6 7 8 4 56 5.6 MADa

Absolute Error B 5 5 9 11 12 12 12 14 16 11 107 10.7 MADb

Abs % Error A 4.9% 2.8% 4.2% 4.6% 4.2% 3.9% 3.6% 4.1% 4.3% 1.9% 39% 4% MAPEa

Abs % Error B 4.9% 4.63% 7.63% 8.46% 8.45% 7.79% 7.23% 7.73% 8.08% 5.34% 70.25% 7% MAPEb

Difficulty: Moderate Keywords: error, MAPE, bias, MAD Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Calculate the five basic measures of forecast errors.

8.4 Judgment Methods 1) Contextual knowledge is knowledge gained through rigorous quantitative analysis of time series data. Answer: FALSE Difficulty: Moderate Keywords: judgment methods, contextual knowledge Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

2) Technological forecasting is an application of executive opinion to keep abreast of the latest advances in technology. Answer: TRUE Difficulty: Moderate Keywords: technological forecasting, executive opinion Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

3) Market research is a systematic approach to determine external consumer interest in a service or product through data-gathering surveys. Answer: TRUE Difficulty: Moderate Keywords: market research, judgment methods Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

4) Judgment methods of forecasting should never be used with quantitative forecasting methods. Answer: FALSE Difficulty: Moderate Keywords: judgment, quantitative method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

5) The Delphi method is a process of gaining consensus from a group of experts while maintaining their anonymity. Answer: TRUE Difficulty: Moderate Keywords: judgment, Delphi method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

6) Using salesforce estimates for forecasting has the advantage that: A) no biases exist in the forecasts. B) statistical estimates of seasonal factors are more precise than any other approach. C) forecasts of individual sales force members can be easily combined to get regional or national sales totals. D) confusion between customer "wants" (wish list) and customer "needs" (necessary purchases) is eliminated. Answer: C Difficulty: Moderate Keywords: salesforce estimates, forecast, aggregation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

7) The judgment methods of forecasting are to be used for purposes of: A) making adjustments to quantitative forecasts due to unusual circumstances. B) generating data for use in time-series approaches. C) providing the calculations necessary for quantitative forecasts. D) calculating the forecast error for quantitative methods. Answer: A Difficulty: Moderate Keywords: judgment, adjustments, quantitative forecasts Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

8) The Delphi method of forecasting is useful when: A) judgment and opinion are the only bases for making informed projections. B) a systematic approach to creating and testing hypotheses is needed and the data are usually gathered by sending a questionnaire to consumers. C) historical data are available and the relationship between the factor to be forecast and other external or internal factors can be identified. D) historical data is available and the best basis for making projections is to use past demand patterns. Answer: A Difficulty: Moderate Keywords: Delphi method, judgment, opinion Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

9) The manufacturer developed and tested a questionnaire, designed to assist them in gauging the level of acceptance for their new product, and identified a representative sample as part of their: A) salesforce estimate. B) market research. C) executive opinion. D) Delphi method. Answer: B Difficulty: Easy Keywords: market research, judgment Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

10) It would be most appropriate to combine a judgment approach to forecasting with a quantitative approach by: A) having a group of experts examine each historical data point to determine whether it should be included in the model. B) combining opinions about the quantitative models to form one forecasting approach. C) adjusting a forecast up or down to compensate for specific events not included in the quantitative technique. D) developing a trend model to predict the outcomes of judgmental techniques in order to avoid the cost of employing the experts. Answer: C Difficulty: Moderate Keywords: market research, judgment, quantitative Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

11) The ________ is a process of gaining consensus from a group of experts while maintaining their anonymity. Answer: Delphi method Difficulty: Moderate Keywords: judgment methods, Delphi method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

12) ________ is a forecasting method in which the experience and technical knowledge of one or more managers or customers are summarized to arrive at a single forecast. Answer: Executive opinion Difficulty: Moderate Keywords: judgment methods, executive opinion Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

13) Which forecasting technique would you consider for technological forecasts? Answer: I would consider the Delphi method because technological change takes place at a rapid pace and often the only way to make forecasts is to get the opinion of experts who devote their attention to those issues. Difficulty: Moderate Keywords: technological forecasting, Delphi method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

14) Your team has been asked to develop a forecast for the need for storage in the company's communication devices ten years from now. What method would develop the best forecast? Why? How would you execute this method? Answer: Since you are tasked with developing a technological forecast ten years into the future, and for a product that has evolved significantly over the last ten years, it is doubtful that a quantitative approach is suitable. Among the judgment methods discussed in the text; salesforce estimates, market research, executive opinion, technological forecasting and the Delphi method, the latter three would hold the most potential for a forecast. Answers will vary as to implementation depending on the approach chosen. Difficulty: Moderate Keywords: judgment, salesforce estimates, executive opinion, technological forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Compare and contrast the four approaches to judgmental forecasting.

8.5 Causal Methods: Linear Regression 1) The causal method of forecasting translates the opinions of managers and expert opinions into quantitative estimates. Answer: FALSE Difficulty: Moderate Keywords: causal method, executive opinion Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

2) The closer the value of the sample correlation coefficient is to -1.00, the worse the predictive ability of the independent variable for the dependent variable. Answer: FALSE Difficulty: Moderate Keywords: regression, correlation coefficient Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

3) A linear regression model results in the equation Y = 50 - 35X. If the coefficient of determination is a perfect 1.0, the correlation coefficient value must also be 1. Answer: FALSE Difficulty: Moderate Keywords: regression, correlation coefficient, slope, coefficient of determination Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

4) A linear regression model is developed that has a slope of 5.5 and an intercept of 15. The sample coefficient of determination is 0.75. Which of the following statements is true? A) The sample correlation coefficient must be 0.866. B) The sample correlation coefficient must be 0.75 C) The sample correlation coefficient must be 0.5625. D) The sample correlation coefficient must be 1.00. Answer: A Difficulty: Moderate Keywords: linear regression, sample correlation coefficient, sample coefficient of determination Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

5) The level of product sales appears to be highly correlated with the money spent on advertising to promote the product. The marketing team wants to create a linear regression model to assist them in forecasting the product demand. In this scenario: A) the dependent variable is the money spent on advertising. B) the independent variable is the money spent on advertising. C) there are two dependent variables. D) the independent variable is product demand. Answer: B Difficulty: Moderate Keywords: linear regression, independent and dependent variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

Table 8.2 The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

6) Use the information provided in Table 8.2. What percent in the variation of the variable Bushels is explained by the value of the variable Fertilizer? A) 89% B) 79% C) 71% D) 50% Answer: B Difficulty: Moderate Keywords: regression, coefficient of determination, variance Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

7) Use the information provided in Table 8.2. For every unit of fertilizer applied, the crop yield increases by: A) 8.0 bushels. B) 8.5 bushels. C) 8.9 bushels. D) 7.9 bushels. Answer: B Difficulty: Moderate Keywords: regression, slope Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

8) Use the information provided in Table 8.2. The value of Bushels when Fertilizer is 60 is: A) 2520. B) 490. C) 390. D) 518. Answer: D Difficulty: Moderate Keywords: regression, forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

9) Use the information provided in Table 8.2. The value of Fertilizer required to generate 100 bushels yield must be: A) 10.82. B) 12.25. C) 10.26. D) 9.07. Answer: A Difficulty: Moderate Keywords: regression, forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

10) Use the information in Table 8.2. If the correlation coefficient were negative, which of these statements would be true? A) The coefficient of determination would also be negative. B) An increase in fertilizer would result in a decrease in crop yield. C) Applying no fertilizer would mean a negative crop yield. D) The standard error would also be negative. Answer: B Difficulty: Moderate Keywords: regression, slope, coefficient of correlation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

Table 8.3 A textbook publisher for books used in business schools believes that the number of books sold is related to the number of campus visits to decision makers made by their sales force. A sampling of the number of sales calls made and the number of books sold is shown in the following table. NUMBER OF SALES NUMBER OF BOOKS CALLS MADE SOLD 25 375 15 250 25 525 45 825 35 550 25 575 25 550 35 575 25 400 15 400

11) Use the information provided in Table 8.3. What percent in the variation of the variable Books Sold is explained by the value of the variable Sales Calls Made? A) 86.5% B) 83.3% C) 74.8% D) 72.5%

Answer: C Difficulty: Moderate Keywords: regression, coefficient of determination, variance Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

12) Use the information provided in Table 8.3. For every sale call made, the number of books sold increases by: A) 14.74 books. B) 104.6 books. C) 83.30 books. D) 7.25 books. Answer: A Difficulty: Moderate Keywords: regression, slope Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

13) Use the information provided in Table 8.3. If a sales representative makes 55 sales calls, the number of book sales the publisher should expect is: A) 105. B) 4,581. C) 114. D) 915. Answer: D Difficulty: Moderate Keywords: regression, forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

14) Use the information provided in Table 8.3. In order to realize the sale of 700 books, how many sales calls will the sales representative have to make? A) 40.4 B) 45.9 C) 32.7 D) 37.6 Answer: A Difficulty: Moderate Keywords: regression, forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

Table 8.4 The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

WEEK 1 2 3 4 5

AVERAGE WEEKLY AVERAGE WEEKLY AVERAGE WEEKLY GROSS REVENUE RADIO NEWSPAPER ($000) ADVERTISING ($000) ADVERTISING ($000) 60 6 1 45 3 3 55 4 2 70 5 3 40 2 1

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

15) Use the information provided in Table 8.4. Adding $1,000 of Weekly Radio Advertising (X1) can be expected to increase Weekly Gross Revenues by what amount? (Assume all other variables are held constant.) A) $20,500 B) $3,750 C) $6,500 D) $10,250 Answer: C Difficulty: Moderate Keywords: multiple regression, variables Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

16) Use the information provided in Table 8.4. Adding $1,000 of Weekly Newspaper Advertising (X2) can be expected to increase Weekly Gross Revenues by what amount? (Assume all other variables are held constant.) A) $20,500 B) $3,750 C) $6,500 D) $10,250 Answer: B Difficulty: Moderate Keywords: multiple regression, variables Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

17) Use the information provided in Table 8.4. What amount of Weekly Gross Revenue can be expected for a week in which no radio or newspaper advertising is purchased? (Assume all other variables are held constant.) A) $20,500 B) $3,750 C) $6,500 D) $10,250 Answer: A Difficulty: Moderate Keywords: multiple regression, variables Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

18) Use the information provided in Table 8.4. What is the estimated Weekly Gross Revenue if $7,000 is spent on Radio Advertising (X1) and $4,000 is spent on Newspaper Advertising (X2)? A) $45,500 B) $15,000 C) $60,500 D) $81,000 Answer: D Difficulty: Moderate Keywords: multiple regression, variables Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

19) Use the information provided in Table 8.4. What is the estimated Weekly Gross Revenue if $4,000 is spent on Radio Advertising (X1) and $7,000 is spent on Newspaper Advertising (X2)? A) $52,250 B) $26,250 C) $72,750 D) $20,500 Answer: C Difficulty: Moderate Keywords: multiple regression, variables Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

20) Which one of the following is an example of causal forecasting technique? A) weighted moving average B) linear regression C) exponential smoothing D) Delphi method Answer: B Difficulty: Moderate Keywords: causal, linear regression Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

21) In a linear regression model, the coefficient of determination is ________ of the correlation coefficient. Answer: square Difficulty: Moderate Keywords: coefficient of determination, correlation coefficient, linear regression Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

22) The ________ variable is the variable that one wants to forecast. Answer: dependent Difficulty: Moderate Keywords: dependent variable, causal method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

23) ________ are assumed to "cause" the results that a forecaster wishes to predict. Answer: Independent variables Difficulty: Moderate Keywords: independent variable, cause, causal method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

24) A(n) ________ measures the direction and strength between the independent variable and the dependent variable. Answer: sample correlation coefficient, r Difficulty: Easy Keywords: sample correlation coefficient, r, independent variable, dependent variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

25) The ________ measures the amount of variation in the dependent variable about its mean that is explained by the regression line. Answer: sample coefficient of determination, r-squared Difficulty: Easy Keywords: sample coefficient of determination, r-squared Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Use regression to make forecasts with one or more independent variables.

26) The marketing department for a major manufacturer tracks sales and advertising expenditures each month. Data from the past nine months and regression output appear in the following table. Interpret the equation coefficients and the values for the coefficient of determination and the correlation coefficient.

Month 1 2 3 4 5 6 7 8 9

Advertising ($1,000) 25 40 65 45 70 55 50 35 60

Sales (units) 86,010 134,697 202,025 141,180 217,086 178,399 156,975 113,155 191,901

Created by POM-QM for Windows

Answer: The regression equation is: Y = a + bX Sales (units) = 12,311.28 + 2,945.23 × Advertising ($ in 000s) The intercept of 12,311 suggests that if no money were spent on advertising, sales would be 12,311 units for that month. The slope may be interpreted as for every $1,000 spent on advertising, sales increase by a little over 2,945 units. The correlation coefficient of 0.997 shows a very strong positive relationship between the independent and dependent variables. The sample coefficient of determination is 0.995, so the level of advertising expenditure explains 99.5% of the variation in sales. Difficulty: Moderate Keywords: regression, correlation coefficient, coefficient of determination Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Use regression to make forecasts with one or more independent variables.

8.6 Time-Series Methods 1) Time-series forecasting takes into consideration historical data and the influence of other internal and external factors likes sales promotions and economic indicators to compute a future forecast. Answer: FALSE Difficulty: Moderate Keywords: time series methods, causal methods, historical demand data Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

2) The naive forecast may be adapted to take into account a demand trend. Answer: FALSE Difficulty: Easy Keywords: naive method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

3) A naive forecast is a time-series method whereby the forecast for the next period equals the demand for the current period. Answer: TRUE Difficulty: Easy Keywords: naive method Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

4) Using a large value for the number of periods n with a simple moving average, when the historical demand data is susceptible to changes in the underlying average will lead to more accurate results. Answer: FALSE Difficulty: Moderate Keywords: simple moving average forecast, number of periods Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

5) An exponential smoothing model with an alpha equal to 0.5 is the same as a naive forecasting model. Answer: FALSE Difficulty: Moderate Keywords: exponential smoothing, alpha, naïve forecast Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

6) The use of larger smoothing parameter (alpha) values with an exponential smoothing forecast will result in a forecast that is more responsive to changes in the underlying average. Answer: TRUE Difficulty: Moderate Keywords: exponential smoothing, smoothing parameter, alpha Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

7) Which one of the following statements about forecasting is false? A) You should use the simple moving-average method to estimate the mean demand of a time series that has a pronounced trend and seasonal influences. B) The weighted moving-average method allows forecasters to emphasize recent demand over earlier demand. The forecast will be more responsive to change in the underlying average of the demand series. C) The most frequently used time-series forecasting method is exponential smoothing because of its simplicity and the small amount of data needed to support it. D) In exponential smoothing, higher values of alpha place greater weight on recent demands in computing the average. Answer: A Difficulty: Moderate Keywords: forecasting, moving average, trend, seasonal demand patterns Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

8) When the underlying mean of a time series is very stable and there are no trend, cyclical, or seasonal influences: A) a simple moving-average forecast with n = 20 should outperform a simple moving-average forecast with n = 3. B) a simple moving-average forecast with n = 3 should outperform a simple moving-average forecast with n = 15. C) a simple moving-average forecast with n = 20 should perform about the same as a simple movingaverage forecast with n = 3. D) an exponential smoothing forecast with a = 0.30 should outperform a simple moving-average forecast with α = 0.01. Answer: A Difficulty: Moderate Keywords: time series, exponential smoothing, simple moving average, stable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

9) With the multiplicative seasonal method of forecasting: A) the times series cannot exhibit a trend. B) seasonal factors are multiplied by an estimate of average demand to arrive at a seasonal forecast. C) the seasonal amplitude is a constant, regardless of the magnitude of average demand. D) there can be only four seasons in the time-series data. Answer: B Difficulty: Moderate Keywords: multiplicative seasonal forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

10) Which one of the following statements about forecasting is false? A) The method for incorporating a trend into an exponentially smoothed forecast requires the estimation of three smoothing constants: one for the mean, one for the trend, and one for the error. B) The cumulative sum of forecast errors (CFE) is useful in measuring the bias in a forecast. C) The standard deviation and the mean absolute deviation measure the dispersion of forecast errors. D) A tracking signal is a measure that indicates whether a method of forecasting has any built-in biases over a period of time. Answer: A Difficulty: Moderate Keywords: trend, exponential smoothing Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

11) Demand for a new five-inch color TV during the last six periods has been as follows:

What is the forecast for period 7 if the company uses the simple moving-average method with n = 4? A) fewer than or equal to 115 B) greater than 115 but fewer than or equal to 120 C) greater than 120 but fewer than or equal to 125 D) greater than 125 Answer: C Difficulty: Moderate Keywords: simple moving average Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

12) Demands for a newly developed salad bar at the Great Professional restaurant for the first six months of this year are shown in the following table. What is the forecast for July if the 3-month weighted moving-average method is used? (Use weights of 0.5 for the most recent demand, 0.3, and 0.2 for the oldest demand.)

A) fewer than or equal to 432 units B) greater than 432 units but fewer than or equal to 442 units C) greater than 442 units but fewer than or equal to 452 units D) greater than 452 Answer: C Difficulty: Moderate Keywords: weighted moving average Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

13) It is now near the end of January and you must prepare a forecast for February for a certain product. The forecast for January was 2000 units. The actual demand for January was 1,800 units. You are using the exponential smoothing method with α = 0.30. The forecast for February is: A) fewer than 1800 units. B) greater than or equal to 1800 units but fewer than 1900 units. C) greater than or equal to 1900 units but fewer than 2,000 units. D) greater than or equal to 2,00 units. Answer: C Difficulty: Moderate Keywords: exponential smoothing, alpha Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

Table 8.5

14) Use the information in Table 8.5. Using the simple moving-average technique for the most recent three months, what will be the forecasted demand for November? A) fewer than or equal to 260 units B) greater than 260, but fewer than or equal to 275 units C) greater than 275, but fewer than or equal to 290 units D) more than 290 units Answer: C Difficulty: Moderate Keywords: simple moving average forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

15) Use the information in Table 8.5. Using the 4-month weighted moving-average technique and the following weights, what is the forecasted demand for November? Time Period Most recent month One month ago Two months ago Three months ago

Weight 50% 20% 20% 10%

A) fewer than or equal to 250 units B) greater than 250 but fewer than or equal to 265 units C) greater than 265 but fewer than or equal to 280 units D) more than 280 units Answer: C Difficulty: Moderate Keywords: weighted moving average forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

16) Use the information in Table 8.5. Using the exponential smoothing method, with alpha equal to 0.2, what is the forecasted demand for November? Use an initial value for the forecast equal to 277 units. A) fewer than or equal to 260 units B) greater than 260 but fewer than or equal to 275 units C) greater than 275 but fewer than or equal to 285 units D) more than 285 units Answer: B Difficulty: Moderate Keywords: exponential smoothing forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

Table 8.6 Month June July August September October November

Demand 1000 1100 1050 1075 1050 1050

17) Use the information in Table 8.6. Use an exponential smoothing model with a smoothing parameter of 0.20 and an October forecast of 1000 to determine what the forecast sales would have been for December. A) fewer than or equal to 1000 B) greater than 1000 but fewer than or equal to 1025 C) greater than 1025 but fewer than or equal to 1050 D) greater than 1050 Answer: B Difficulty: Challenging Keywords: exponential smoothing forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

18) Use the information in Table 8.6. Use the exponential smoothing method with smoothing parameter = 0.5 and a July forecast of 1000 to forecast the sales for October. A) fewer than or equal to 1050 B) greater than 1050 but fewer than or equal to 1075 C) greater than 1075 but fewer than or equal to 1100 D) greater than 1100 Answer: B Difficulty: Moderate Keywords: exponential smoothing forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

Table 8.7 The Universal Computer Company wants to forecast the monthly sales of their newly introduced tablet computer using the following historical sales data: Month 1 2 3 4 5 6 7

Sales (units) 8,000 10,000 12,500 11,000 10,500 11,500 11,000

19) Use the information in Table 8.7. Forecast the monthly sales for month 8, using the three-month moving-average method. A) 10,700 B) 11,000 C) 11,300 D) 11,500 Answer: B Difficulty: Moderate Keywords: simple moving average forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

20) Use the information in Table 8.7. Use the 3-month weighted moving-average method to calculate the forecast for month 8 using weights of 0.50, 0.30, and 0.20, where 0.50 refers to the weight for the most recent demand. A) 10,750 B) 10,950 C) 11,050 D) 11,500 Answer: C Difficulty: Moderate Keywords: weighted moving average forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

21) Use the information in Table 8.7. If the forecast for period 6 was 11,000 units, what is the forecast for period 8 using exponential smoothing with an alpha equal to 0.20? A) 10,900 B) 11,080 C) 11,250 D) 11,400 Answer: B Difficulty: Challenging Keywords: exponential smoothing forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

22) Use the information in Table 8.7. What is the forecast for period 8 using a naive forecast? A) 10,500 B) 10,800 C) 11,000 D) 11,250 Answer: C Difficulty: Easy Keywords: naive forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

23) Which statement about forecast accuracy is true? A) A manager must be careful not to "overfit" past data. B) The ultimate test of forecasting power is how well a model fits past data. C) The ultimate test of forecasting power is how a model fits holdout samples. D) The best technique in explaining past data is the best technique to predict the future. Answer: A Difficulty: Moderate Keywords: forecast accuracy Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

24) A forecaster that uses a holdout set approach as a final test for forecast accuracy typically uses: A) the entire data set available to develop the forecast. B) the older observations in the data set to develop the forecast and more recent to check accuracy. C) the newer observations in the data set to develop the forecast and older observations to check accuracy. D) every other observation to develop the forecast and the remaining observations to check the accuracy. Answer: B Difficulty: Moderate Keywords: holdout set, final test, forecast accuracy Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

Graph 8.1 Data plotted in the graph appear in the table below.

Obs # 1 2 3 4 5 6 7 8 9 10 11

Day Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu

Demand 33 34 37 42 44 79 86 51 50 51 52

Obs # 12 13 14 15 16 17 18 19 20 21

Day Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun

Demand 54 95 92 58 63 67 70 74 114 119

25) Refer to Graph 8.1. Which term most accurately describes the data points associated with Saturdays and Sundays? A) nonbase data B) outliers C) seasons D) erroneous Answer: C Difficulty: Moderate Keywords: seasonal, multiplicative seasonal model Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

26) Refer to Graph 8.1. What is the average demand for the second period? A) 63.57 B) 50.71 C) 82.5 D) 93.5 Answer: A Difficulty: Easy Keywords: seasonal, multiplicative seasonal model, season Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

27) Refer to Graph 8.1. What is the seasonal index for the first Saturday in the data set? A) 1.69 B) 1.56 C) 0.64 D) 0.58 Answer: B Difficulty: Moderate Keywords: seasonal, multiplicative seasonal model, seasonal index Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

28) Refer to Graph 8.1. What is the average seasonal index for the Sundays in the data set? A) 0.65 B) 0.67 C) 1.49 D) 1.54 Answer: D Difficulty: Moderate Keywords: seasonal, multiplicative seasonal model, seasonal index Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

29) Refer to Graph 8.1. Use a trend projection to forecast the next week's demand. Then apply seasonal indices to determine the demand on Saturday of the fourth week. What is the demand projected to be? A) 141.4 B) 146.2 C) 151.3 D) 158.9 Answer: A Difficulty: Challenging Keywords: seasonal, multiplicative seasonal model, seasonal index Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

30) If forecast errors are normally distributed with a mean of 0, the relationship between σ and MAD is: A) 1.25MAD ≈ σ B) MAD ≈ 1.25σ C) MAD ≈ 0.5σ D) 0.8MAD ≈ σ Answer: A Difficulty: Challenging Keywords: MAD, mean absolute deviation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

Table 8.8 Consider the following results from the last ten periods of student enrollment forecast by the Operations Management department chairman. Period 1 2 3 4 5 6 7 8 9 10

Forecast 25 32 42 53 64 70 81 88 95 102

Actual 26 31 45 50 70 72 78 90 93 105

31) Use Table 8.8 to determine the tracking signal for period 4 for the department chairman's forecast. A) 0.6 B) -0.6 C) 0.0 D) -1.8 Answer: C Difficulty: Challenging Keywords: tracking signal Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

32) Use Table 8.8 to determine the MAD for period 5 for the department chairman's forecast. A) 2.0 B) 2.8 C) 2.67 D) 2.42 Answer: B Difficulty: Moderate Keywords: MAD, mean absolute deviation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

33) Use Table 8.8 to determine the cumulative sum of forecast errors as of period 6 for the department chairman's forecast. A) -10 B) -6 C) -8 D) -4 Answer: C Difficulty: Moderate Keywords: CFE, cumulative sum of errors Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

34) In an exponential smoothing model a(n) ________ value for alpha results in greater emphasis being placed on more recent periods. Answer: larger Difficulty: Moderate Keywords: time series, exponential smoothing, alpha Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

35) A(n) ________ forecast is a time-series method whereby the forecast for the next period equals the demand for the current period. Answer: naive Difficulty: Easy Keywords: naive forecast, time-series forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

36) A(n) ________ is a portion of data from more recent time periods that is used to test different models developed from earlier time period data. Answer: holdout set Difficulty: Moderate Keywords: holdout set Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

37) ________ is a time-series method used to estimate the average of a demand time series by averaging the demand for the n most recent time periods. Answer: Simple moving average Difficulty: Easy Keywords: simple moving average, time-series forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

38) Explain how the value of alpha affects forecasts produced by exponential smoothing. Answer: The smoothing constant alpha allows recent demand values to be emphasized or deemphasized depending on how the forecaster wishes to incorporate previous values. Larger alpha values emphasize recent levels of demand and result in forecasts more responsive to changes in the underlying average. Smaller alpha values treat past demand more uniformly and result in more stable forecasts. Difficulty: Moderate Keywords: alpha value, exponential smoothing Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

39) Calculate three forecasts using the following data. First, for periods 4 through 10, develop the exponentially smoothed forecasts using a forecast for period 3 (F3) of 45.0 and an alpha of 0.4. Second, calculate the three-period moving-average forecast for periods 4 through 10. Third, calculate the weighted moving average for periods 4 through 10, using weights of .70, .20, and .10, with 0.70 applied to the most recent data. Calculate the mean absolute deviation (MAD) and the cumulative sum of forecast error (CFE) for each forecasting procedure. Which forecasting procedure would you select? Why? Month 1 2 3 4 5 6 7 8 9 10

Demand 45 48 43 48 49 54 47 50 46 47

Answer:

CFE MAD

Simple Moving Exponential Smoothing Average 9.37 5.33 3.29 3.14

Weighted Moving Average 4.90 3.33

Using MAD, the simple moving average is best. However, the weighted moving average does better on CFE. Difficulty: Moderate Keywords: time-series forecast, exponential smoothing forecast, simple moving average forecast, weighted moving average forecast, MAD, mean absolute deviation, CFE, cumulative forecast error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

40) Calculate three forecasts using the following data. First, for periods 4 through 10, develop the exponentially smoothed forecasts using a forecast for period 3 (F3) of 120.0 and an alpha of 0.3. Second, calculate the three-period moving-average forecast for periods 4 through 10. Third, calculate the weighted moving average for periods 4 through 10, using weights of .60, .30, and .10. Calculate the mean absolute deviation (MAD) and the cumulative sum of forecast error (CFE) for each forecasting procedure. Which forecasting procedure would you select? Why? Month 1 2 3 4 5 6 7 8 9 10

Demand 120 115 125 119 127 114 120 124 116 137

Answer:

CFE MAD

Simple Moving Exponential Smoothing Average 11.19 14.00 6.28 6.00

Weighted Moving Average 12.80 7.17

Using MAD, the simple moving average is best. However, the exponential smoothing does better on CFE. Difficulty: Moderate Keywords: time-series forecast, exponential smoothing forecast, simple moving average forecast, weighted moving average forecast, MAD, mean absolute deviation, CFE, cumulative forecast error Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

41) A local moving company has collected data on the number of moves they have been asked to perform over the past three years. Moving is highly seasonal, so the owner/operator, who is both burly and highly educated, decides to apply the multiplicative seasonal method (based on a linear regression for total demand) to forecast the number of customers for the coming year. What is his forecast for each quarter?

Answer: The seasonal factor calculations for each year show: Year 1

Year 1

Year 2

Quarter Demand 1 20 2 40 3 45 4 30

Seas Fact 0.592 1.185 1.333 0.889

Seas Quarter Demand Fact 1 27 0.647 2 45 1.078 3 55 1.317 4 40 0.958

Year 3

Year 3 Year 3

Quarter Demand 1 33 2 45 3 55 4 40

Seas Fact Avg SF 0.763 0.667 1.040 1.1014 1.272 1.307 0.925 0.924

The regression equation for total demand is y = 120.33 + 19*year; for the fourth year y = 196.33. (This is assuming the regression is done in year sequence, i.e. year 1, year 2, year 3. If a regression is run using the actual year dates, the equation of the line is y = -37,936.7+19*year.) Both equations result in a forecast for Year 4 of 196.33. Dividing this total demand by 4 yields 49.08333. Forecasts for the next four quarters are: Quarter 1: (49.083) × 0.67 = 32.74 Quarter 2: (49.083) × 1.10 = 54.06 Quarter 3: (49.083) × 1.31 = 64.15 Quarter 4: (49.083) × 0.92 = 45.35 Difficulty: Challenging Keywords: multiplicative seasonal forecast Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

42) The demand for an item over the last year is plotted below. Develop a forecast and explain why your approach is reasonable.

Answer: The data were generated using the function 25*rand()-15*rand() added to the previous value with the value 61 seeded in the first month. As such, the data show an upward trend with some random variation. There is some temptation to model a seasonality, but this is truly random variation. A technique with a short memory would be most appropriate. Difficulty: Challenging Keywords: trend, random variation, short memory, time series Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

43) Three weeks of data are available from a restaurant. Develop a forecast and explain why your approach is reasonable.

Answer: The data were generated using the function ROUND(10*RAND()+C28-5*RAND(),0) added to the previous value with the value 33 seeded in the first day. For Saturday and Sunday observations, and additional RAND()*40 is added and then the series reverts to additive from the previous Friday's observation. As such, the data show an upward trend with some random variation and a strong seasonality. A technique with a short memory and an ability to capture the spike in Saturday and Sunday demand would be most appropriate. Of the techniques covered in the text, the multiplicative seasonal method would be most suitable. Difficulty: Challenging Keywords: trend, random variation, short memory, time series Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Make forecasts using the five most common statistical approaches for time-series analysis.

8.7 Big Data and the Forecasting Process 1) Combination forecasts are produced by averaging independent forecasts based on different methods, different sources or different data. Answer: TRUE Difficulty: Moderate Keywords: combination forecast Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

2) Combination forecasting is most effective when the techniques being combined contribute different kinds of information to the forecasting process. Answer: TRUE Difficulty: Moderate Keywords: combination forecast Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

3) Focus forecasting selects the best forecast from a group of forecasts generated by individual techniques. Answer: TRUE Difficulty: Moderate Keywords: focus forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

4) Focus forecasting involves focusing exclusively on a single forecasting technique that the decision maker thinks will work well instead of trying different techniques. Answer: FALSE Difficulty: Moderate Keywords: focus forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

5) Once a decision maker has checked a forecast for accuracy and found that it performs excellently, they should finalize and communicate it to important stakeholders. Answer: FALSE Difficulty: Moderate Keywords: forecasting process Learning Outcome: Describe major approaches to forecasting AACSB: Information Technology Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

6) A forecasting system that brings the manufacturer and its customers together to provide input for forecasting is a(n): A) nested system. B) harmonically balanced supply chain. C) iterative Delphi method system for the supply chain. D) collaborative planning, forecasting, and replenishment system. Answer: D Difficulty: Moderate Keywords: forecast, collaborative planning, forecasting, and replenishment, CPFR Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

7) Barney took what he liked to call "the shotgun approach" to forecasting. Every period he tried a number of different forecasting approaches and at the end of the period he reviewed all of the forecasts to see which was the most accurate. The winner would be used for next period's forecast (but he still made forecasts all possible ways so he could use the system again for the following period). The more formal name for this technique is: A) combination forecasting. B) post-hoc forecasting. C) focus forecasting. D) shotgun forecasting. Answer: C Difficulty: Moderate Keywords: focus forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

8) Forecasts that are produced by averaging independent forecasts based on different methods, different sources, or different data are known as: A) grand averaging forecasts. B) focus forecasts. C) exponential smoothing forecasts. D) combination forecasts. Answer: D Difficulty: Moderate Keywords: combination forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

Table 8.9 The manager of a pizza shop must forecast weekly demand for special pizzas so that he can order pizza shells weekly. Recent demand has been: WEEK 1 2 3 4 5 6

No. Special Pizzas 30 45 33 36 35 40

9) Use the information from Table 8.9. The pizza shop manager believes that a combination forecast might improve her ability to predict future demand, and thus improve keeping fresh ingredients on hand. She decides to use the 3-week simple moving average and 3-week weighted moving average, giving them equal weight. The 3-week weighted moving averages are .6 for the most recent period, .25 for the second most recent period, and .15 for the third most recent period. What is her forecast for week #7? A) 38.15 pizzas B) 39.5 pizzas C) 37 pizzas D) 37.58 pizzas Answer: D Difficulty: Challenging Keywords: combination forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

10) Use the information from Table 8.9. The pizza shop manager believes that a combination forecast might improve her ability to predict future demand, and thus improve keeping fresh ingredients on hand. She decides to use the 3-week weighted moving average and exponentially smoothed average forecast, giving them equal weight. The 3-week weighted moving averages are .6 for the most recent period, .25 for the second most recent period, and .15 for the third most recent period. The smoothing constant is .10 and the previously forecasted demand for week 6 was 39.28 pizzas. What is her forecast for week #7? A) 38.75 pizzas B) 40.8 pizzas C) 42.25 pizzas D) 44.8 pizzas Answer: A Difficulty: Challenging Keywords: combination forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

11) Use the information from Table 8.9. The pizza shop manager believes that a combination forecast might improve her ability to predict future demand, and thus improve keeping fresh ingredients on hand. She decides to use the 3-week simple moving average and exponentially smoothed average forecast, giving them equal weight. The smoothing constant is .10 and the previously forecasted demand for week 6 was 39.28 pizzas. What is her forecast for week #7? A) 35.5 pizzas B) 37.4 pizzas C) 38.2 pizzas D) 40.2 pizzas Answer: C Difficulty: Challenging Keywords: combination forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

12) Use the information from Table 8.9. The pizza shop manager is looking for a forecasting approach that will forecast her demand within 0.5 pizzas. If the actual demand for week #7 was 39 pizzas, which of the combination forecasts came closest to predicting this demand? A) simple moving average and weighted moving average forecast B) simple moving average and exponentially smoothed forecast C) weighted moving average and exponentially smoothed forecast D) week #7 demand of 39 is within 0.5 pizzas for all three of these combination forecasts, and thus all of them are appropriate Answer: C Difficulty: Challenging Keywords: combination forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

13) Which of the following statements about bid data is not true? A) Data technicians must be the ones to identify problems to be tackled with big data. B) Companies employing data-driven decisions tend to be more successful than others. C) Data scientists and skilled professionals are a necessity to execute big data projects. D) Public cloud providers are an option for hosting bid data projects that may swamp single servers. Answer: A Difficulty: Moderate Keywords: big data Learning Outcome: Describe major approaches to forecasting AACSB: Information Technology Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

14) ________ is a method of forecasting that selects the best forecast from a group of forecasts generated by individual techniques. Answer: focus forecasting Difficulty: Moderate Keywords: focus forecasting Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

15) ________ is a collection of data from traditional and digital sources and is characterized by volume, variety, and velocity. Answer: Big data Difficulty: Easy Keywords: forecasting process, big data Learning Outcome: Describe major approaches to forecasting AACSB: Information Technology Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

16) Pho Bulous, a Vietnamese restaurant in the bustling metropolis of Edmond, has had great success using forecasting techniques to predict demand for their main menu items ever since they opened their doors. Their forecast for last month was grossly inaccurate and so far this month, their forecast appears to be just as bad as last month's. It's already time to prepare the forecast for next month, what should they do about their model? Answer: The answer depends on whether Pho Bulous believes that last month's and this month's results are aberrations or the start of something new. Both causal and time-series techniques assume that there has been no change in how the world works, that is, independent factors of time or other variables will permit the forecaster to make accurate predictions about the future. If Pho Bulous believes that there is a significant change in the system, for example, a new competitor in the Edmond restaurant scene, a significant change in population or in their disposable income, then they might try multiple regression to include these factors or weight more recent data more heavily in a time-series model (the scenario isn't specific about which technique they have used thus far). Pho Bulous might also try a combination approach if they feel their situation has changed significantly. On the other hand, if Pho Bulous feels that these two months are not reflective of any major paradigm shift for the restaurant crowd in Edmond, they could continue to use the model(s) they have had success with in the past. Difficulty: Moderate Keywords: forecast accuracy Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

17) How is a typical forecasting process similar to the Plan-Do-Study-Act (PDSA) cycle? (See Chapter 5 for more information on PDSA) Answer: The authors indicate that forecasting is a process that should be continually reviewed for improvements; the PDSA cycle provides one vehicle for continuous improvement. The authors present a six step cycle for forecasting: 1) adjust the history file, 2) prepare initial forecasts, 3) consensus meetings and collaboration, 4) revise forecasts, 5) review by the operating committee, and 6) finalize and communicate the forecasts. The history file adjustment in step 1 provides a check of forecast accuracy; if results have been less than stellar, then planners and forecasters will explore different techniques and/or independent variables to prepare future forecasts. This approach closely parallels the PDSA cycle of methodically trying a new approach and checking results before acting system-wide. Difficulty: Challenging Keywords: forecasting process, Plan-Do-Study-Act, PDSA Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

18) Describe the combination forecast techniques and discuss how they have been shown to perform in recent studies. Answer: Combination forecasts are forecasts that are produced by averaging independent forecasts based on different methods, different sources, or different data. Research during the last two decades suggests that combining forecasts from multiple sources often produces more accurate forecasts. It is intriguing that combination forecasts often perform better over time than even the best single forecasting procedure. Combining is most effective when the individual forecasts bring different kinds of information into the forecasting process. Forecasters have achieved excellent results by weighting forecasts equally, and this is a good starting point. However, unequal weights may provide better results under some conditions. Difficulty: Moderate Keywords: combination forecast Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

19) What are the steps of the forecasting process as described in the text? Answer: The authors describe a six-step forecasting process. Step 1. Update the history file and review forecast accuracy. Enter the actual demand and review forecast accuracy. Step 2. Prepare initial forecasts using some forecasting software package and judgment. Adjust the parameters of the software to find models that fit the past demand well and yet reflect the demand manager's judgment on irregular events and information about future sales pulled from various sources and business units. Step 3. Hold consensus meetings with the stakeholders, such as marketing, sales, supply chain planners, and finance. Arrive at consensus forecasts from all of the important players. Step 4. Revise the forecasts using judgment, considering the inputs from the consensus meetings and collaborative sources. Step 5. Present the forecasts to the operating committee for review and to reach a final set of forecasts. Step 6. Finalize the forecasts based on the decisions of the operating committee and communicate them to the important stakeholders. Difficulty: Moderate Keywords: forecasting process, principles Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

20) What are some of the principles organizations can observe to improve their forecasting process? Answer: Some principles organizations can observe to improve their forecasting process include: 1. Better processes yield better forecasts. 2. Demand forecasting is being done in virtually every company, either formally or informally. The challenge is to do it well—better than the competition. 3. Better forecasts result in better customer service and lower costs, as well as better relationships with suppliers and customers. 4. The forecast can and must make sense based on the big picture, economic outlook, market share, and so on. 5. The best way to improve forecast accuracy is to focus on reducing forecast error. 6. Bias is the worst kind of forecast error—strive for zero bias. 7. Whenever possible, forecast at more aggregate levels. Forecast in detail only where necessary. 8. Far more can be gained by people collaborating and communicating well than by using the most advanced forecasting technique or model. Difficulty: Moderate Keywords: forecasting process, principles Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

21) Describe some of the managerial considerations required to utilize big data effectively. Answer: Answers will vary but students may start by describing the 3Vs of big data, which are volume, variety, and velocity and how the complexity of big data creates managerial challenges for harnessing it. Some of the specific managerial considerations are: 1. The need for adequate computing power and server capacity to handle the load of big data, which can be alleviated by public cloud servers. 2. The skills required to clean, organize, and analyze big data. 3. The culture and support of top organizational leaders in accepting findings from big data projects. 4. The managers with knowledge of problems that big data can tackle. Difficulty: Moderate Keywords: forecasting process, big data Learning Outcome: Describe major approaches to forecasting AACSB: Information Technology Learning Objective: Describe the big-data approach and the six steps in a typical forecasting process.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 9 Inventory Management 9.1 Inventory Trade-Offs 1) A quantity discount is advantageous because it offers savings in the purchase price with a simultaneous reduction in the lot size. Answer: FALSE Difficulty: Moderate Keywords: quantity discount, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

2) Inventory includes any stock of finished goods used to satisfy customer demand, but does not include any raw materials used to support the production of good or services. Answer: FALSE Difficulty: Easy Keywords: inventory, raw materials, finished goods Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

3) When looking at inventory management, the term "lot size" refers to the physical dimensions of the area where the inventory is stored. Answer: FALSE Difficulty: Easy Keywords: inventory management, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

4) When looking at inventory management, the term "lot size" refers to the quantity of an inventory item management either buys from a supplier or manufactures using internal processes. Answer: TRUE Difficulty: Easy Keywords: inventory management, lot size, buys, manufactures Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

5) One of the primary reasons for holding inventories is that it is safer and more convenient way to invest money, rather than holding liquid cash. Answer: FALSE Difficulty: Easy Keywords: inventory, investment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

6) One component of the holding cost of inventory is interest. Answer: TRUE Difficulty: Moderate Keywords: holding cost, inventory, interest Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

7) The cost of taxes and insurance is an external factor and not included in the cost of holding inventory. Answer: FALSE Difficulty: Moderate Keywords: taxes, insurance cost, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

8) One component of the ordering cost of inventory is the storage costs. Answer: FALSE Difficulty: Moderate Keywords: holding cost, ordering cost, storage cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

9) A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later. Answer: TRUE Difficulty: Easy Keywords: backorder, fill Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

10) Setup cost is independent of order size. Answer: TRUE Difficulty: Moderate Keywords: setup cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

11) Reducing setup costs will increase the pressure to keep large inventories. Answer: FALSE Difficulty: Moderate Keywords: setup cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

12) Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs. Answer: TRUE Difficulty: Moderate Keywords: pressure for large inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

13) The term lot size signifies: A) the total production of a single SKU for a one-year period. B) the physical dimensions of the raw materials used to make a batch of one SKU. C) the dimensions of the container used to ship an order to any location outside of company property. D) the number of units of a single item that a company buys from a supplier. Answer: D Difficulty: Easy Keywords: lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

14) Which of the following generates pressure to increase inventories? A) inventory holding costs B) ordering costs C) storage and handling costs D) taxes and insurance Answer: B Difficulty: Moderate Keywords: pressures for small / large inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

15) Which of the following generates pressure to decrease inventories? A) inventory shrinkage costs B) backorders and stockouts C) transportation costs D) quantity discounts Answer: A Difficulty: Moderate Keywords: pressures for small / large inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

16) Which of the following does not generate pressure to decrease inventories? A) taxes and insurance B) inventory holding costs C) storage and handling costs D) ordering costs Answer: D Difficulty: Moderate Keywords: pressures for small / large inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

17) Which of the following does not generate pressure to increase inventories? A) transportation costs B) backorders and stockouts C) inventory shrinkage costs D) quantity discounts Answer: C Difficulty: Moderate Keywords: pressures for small / large inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

18) The costs associated with theft of inventory is known as ________ cost. Answer: pilferage Difficulty: Moderate Keywords: pilferage, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

19) The term ________ is used to refer to the quantity of inventory management either buys from a supplier or manufactures using internal processes. Answer: lot size Difficulty: Challenging Keywords: lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

20) ________ is the opportunity cost of investing in an asset relative to the expected return on assets of similar risk. Answer: Cost of capital Difficulty: Moderate Keywords: cost of capital, opportunity, return on assets Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

21) Inventory ________ cost is the variable cost of keeping items on hand, such as storage and handling, taxes, insurance, and shrinkage. Answer: holding Difficulty: Moderate Keywords: holding cost, interest, storage, handling, tax Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

22) ________ occurs when inventory is stolen by employees and customers or when the inventory cannot be sold at full value owing to model changes or low demand. Answer: Shrinkage Difficulty: Moderate Keywords: shrinkage, pilferage, obsolescence Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

23) A(n) ________ is an order that cannot be satisfied, resulting in the loss of a sale. Answer: stockout Difficulty: Moderate Keywords: inventory, pressure for large inventories, customer service Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

24) A(n) ________ occurs when a customer order cannot be filled as promised or demanded but is filled later. Answer: backorder Difficulty: Moderate Keywords: backorder, order Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

25) The cost associated with changing over a machine or workspace to produce a different item is known as ________. Answer: setup cost Difficulty: Moderate Keywords: setup cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

26) What are the components of holding cost? Answer: The components of holding cost include cost of capital, storage and handling cost, taxes, insurance, and shrinkage. Difficulty: Moderate Keywords: holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

27) Although lower inventories and a just-in-time approach receive considerable attention in the business media, some organizations prefer high levels of inventory. Why would they want to hold a large inventory? Answer: In the retail sector, some firms target a high level of inventory due to customer service considerations. If an item is in stock, then the customer can rely on finding it whenever they decide to place an order. If a customer values one-stop shopping, it may make sense to have high levels of inventory just to keep customers within the store. Some items are critical; a stockout may result in considerable inconvenience or a threat to safety and well-being. To the producer, a high cost of placing an order or high setup or transportation cost may provide motivation for a large stock of materials. A large inventory will improve labor and equipment utilization and will also help producers take advantage of quantity discounts. Difficulty: Moderate Keywords: inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Identify the trade-offs involving small versus large inventories.

9.2 Types of Inventory 1) Dependent demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other item held in stock. Answer: FALSE Difficulty: Moderate Keywords: dependent demand, inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

2) An experienced operations manager can tell at a glance whether an item should be classified as safety stock, anticipation inventory, or cycle stock. Answer: FALSE Difficulty: Easy Keywords: safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

3) Independent-demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other items held in stock. Answer: TRUE Difficulty: Moderate Keywords: independent demand, inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

4) Inventories needed for the production of services and goods (inputs to a firm's transformation processes) are called: A) quarantined materials. B) work-in-process. C) raw materials. D) finished goods. Answer: C Difficulty: Easy Keywords: types of inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

5) Items, such as components or assemblies, needed to manufacture a final product are called: A) quarantined materials. B) work-in-process. C) raw materials. D) finished goods. Answer: B Difficulty: Easy Keywords: types of inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

6) Items sold to a firm's customers are called: A) quarantined materials. B) work-in-process. C) raw materials. D) finished goods. Answer: D Difficulty: Easy Keywords: types of inventories Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

7) Which of these statements about pipeline inventory is best? A) Shorter lead times create more pipeline inventory. B) Changing an item's lot size does not directly affect the average level of the pipeline inventory. C) Pipeline inventory exists to avoid customer service problems. D) Pipeline inventory is used to even out volatile fluctuations in supply or demand. Answer: B Difficulty: Moderate Keywords: pipeline inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

Scenario 9.1 Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment. 8) Refer to Scenario 9.1. With the change in purchased quantities, the average cycle inventory will: A) decrease by 75 units. B) increase by 50 units. C) decrease by 25 units. D) increase by 25 units. Answer: D Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

9) Refer to Scenario 9.1. With the change in lead time, the pipeline inventory will: A) decrease by 75 units. B) increase by 50 units. C) decrease by 25 units. D) increase by 25 units. Answer: A Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

10) Refer to Scenario 9.1. The net impact on the retailer will be: A) no net change in average cycle and pipeline inventories. B) a net average increase in cycle and pipeline inventories of 50 units. C) a net average decrease in cycle and pipeline inventories of 75 units. D) a net average decrease in cycle and pipeline inventories of 50 units. Answer: D Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

Scenario 9.2 Shipments of Product X from a plant to a wholesaler are made in lots of 1500 units each. The wholesaler's average demand for X is 300 units per week. The lead time from the plant to the wholesaler is 3 weeks. The wholesaler pays for the shipments when they leave the plant. 11) Refer to Scenario 9.2. What is the total of the wholesaler's current cycle plus pipeline inventories? A) 750 units B) 850 units C) 1650 units D) 1800 units Answer: C Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

12) Refer to Scenario 9.2. If the plant reduces its lead time from 3 to 2 weeks and keeps its 1500 unit lot size, what is the wholesaler's new total cycle plus pipeline inventories? A) 750 units B) 1000 units C) 1200 units D) 1350 units Answer: D Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

13) Refer to Scenario 9.2. If the plant reduces its shipment lot size from 1500 to 1000 units and keeps its 3 week lead time, what is the wholesaler's new total cycle plus pipeline inventories? A) 800 units B) 1000 units C) 1400 units D) 1600 units Answer: C Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

14) Refer to Scenario 9.2. The wholesaler would like to reduce their total cycle plus pipeline inventories to 900 units? Which of the following situations will help them achieve that? A) the plant shipment lot size of 300 units and plant-to-wholesaler lead time of 2 weeks B) the plant shipment lot size of 600 units and plant-to-wholesaler lead time of 1 week C) the plant shipment lot size of 1200 units and plant-to-wholesaler lead time of 1 week D) the plant shipment lot size of 900 units and plant-to-wholesaler lead time of 1 week Answer: C Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

15) Refer to Scenario 9.2. Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 800 units? A) the plant shipment lot size of 500 units and plant-to-wholesaler lead time of 3 weeks B) the plant shipment lot size of 400 units and plant-to-wholesaler lead time of 2 weeks C) the plant shipment lot size of 600 units and plant-to-wholesaler lead time of 3 weeks D) the plant shipment lot size of 500 units and plant-to-wholesaler lead time of 2 weeks Answer: B Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Define the different types of inventory and the roles they play in supply chains.

16) ________ are inventories needed for the production of goods and services; they are considered to be the inputs to the transformation process. Answer: Raw materials Difficulty: Moderate Keywords: inventory types, raw materials Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

17) ________ consists of items such as components or assemblies needed for a final product in manufacturing. Answer: Work-in-process (WIP) Difficulty: Moderate Keywords: inventory types, WIP, work-in-process inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

18) ________ inventory is the portion of total inventory that varies directly with lot size. Answer: Cycle Difficulty: Moderate Keywords: cycle, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

19) The ________ determines the frequency and quantity to order. Answer: lot size Difficulty: Moderate Keywords: lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

20) ________ inventory is the surplus inventory that a company holds to protect against uncertainties in demand, lead-time, and supply. Answer: Safety stock Difficulty: Moderate Keywords: safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

21) Inventory that is used to absorb uneven rates of demand or supply is known as ________. Answer: anticipation inventory Difficulty: Moderate Keywords: anticipation inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

22) Inventory that is created when an order for an item is issued but not yet received is known as ________. Answer: pipeline inventory Difficulty: Moderate Keywords: pipeline, point flow Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

23) When considering dependent / independent demand, in the example of tires and automobiles, the original equipment tires represent ________-demand items, while automobiles represent a(n) ________demand item. Answer: dependent, independent Difficulty: Easy Keywords: independent demand Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

24) What are the three types of inventory? For which inventory type is a stockout most critical? Answer: The types of inventory discussed in the text are raw materials, work-in-process, and finished goods. Answers may vary as to the most critical stockout. Difficulty: Moderate Keywords: cycle inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

25) What are the types of inventory from the perspective of how it is created? Where is each type most likely to exist in the supply chain? Answer: Inventory takes four forms from this perspective; cycle, safety stock, anticipation, and pipeline. Pipeline inventory is in transit between points in the supply chain. The other types in this classification scheme, anticipation inventory, safety stock, and cycle inventory could be found at any point in the supply chain that has customers. Difficulty: Moderate Keywords: cycle inventory, safety stock, anticipation inventory, pipeline Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Define the different types of inventory and the roles they play in supply chains.

9.3 Inventory Reduction Tactics 1) Eliminating the need for changeovers through increased repeatability of the work being done is one of the levers to reduce cycle inventory. Answer: TRUE Difficulty: Moderate Keywords: repeatability, changeover, inventory reduction lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

2) Increasing lead times so that vendors can plan better and eliminating capacity cushions can help reduce safety stock inventory. Answer: FALSE Difficulty: Moderate Keywords: lead time, capacity cushion, safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

3) Which of the following is not a lever for reducing cycle inventories? A) place purchased item orders at fixed intervals B) reduce lot sizes for items moving in the supply chain C) streamline methods for placing orders and making machine set ups D) increase repeatability to eliminate the need for changeovers Answer: A Difficulty: Moderate Keywords: cycle inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

4) The manager at Crystal Mountain Ski Resort lowers the price of lift tickets to $2 during July and August, a traditionally slow period for skiing. This secondary lever impacts: A) safety stock inventory. B) cycle inventory. C) pipeline inventory. D) anticipation inventory. Answer: D Difficulty: Moderate Keywords: anticipation inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

5) Which of the following does not increase repeatability? A) parts standardization B) customization C) group technology D) flexible automation Answer: B Difficulty: Moderate Keywords: repeatability Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

6) One of the secondary levers for reducing pipeline inventory is to: A) offer seasonal pricing plans. B) increase capacity cushions. C) accept only large orders. D) select more responsive suppliers. Answer: D Difficulty: Moderate Keywords: pipeline inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

7) Cutting ________ and reducing are two of the important levers to reduce safety stock inventory. Answer: lead times, supply uncertainties Difficulty: Moderate Keywords: lead time, supply uncertainty, safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

8) Eliminating the need for changeovers through increased ________ of the work being done is one of the levers to reduce cycle inventory. Answer: repeatability Difficulty: Moderate Keywords: repeatability, changeover, inventory reduction lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

9) ________-demand items are items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock. Answer: Independent Difficulty: Moderate Keywords: independent demand Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

10) What are the secondary levers for cycle inventory? Answer: The secondary levers for cycle inventory are streamlining methods for placing orders and making setups, and increasing repeatability to eliminate the need for changeovers. Difficulty: Moderate Keywords: cycle inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

11) What are the secondary levers for safety stock inventory? Answer: The secondary levers for safety stock inventory are improved demand forecasts, cutting leadtime of purchased or produced items, reducing supply uncertainties, and relying more on equipment and labor buffers. Difficulty: Moderate Keywords: safety stock inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

12) What are the secondary levers for pipeline inventory? Answer: The secondary levers for pipeline inventory are finding more responsive suppliers and introducing new computer systems to overcome information delays and changing Q where lead-time depends on lot size. Difficulty: Moderate Keywords: pipeline inventory, lever Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

13) What are the key issues when implementing and operating an inventory control system? Answer: The authors indicate that three important questions must be addressed when pondering an inventory control system: What degree of control should we impose on an item? How much should we order? and When should we place the order? Inventory control systems respond to the last two questions. In selecting an inventory control system for a particular application, the nature of the demands imposed on the inventory items is crucial. Difficulty: Moderate Keywords: inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Explain the tactics for reducing inventories in supply chains.

9.4 ABC Analysis 1) A stock-keeping unit (SKU) is an individual item or product that has an identifying code and is held in inventory somewhere along the supply chain. Answer: TRUE Difficulty: Easy Keywords: SKU, individual item, inventory, supply Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

2) Class B items typically represent about 30% of SKUs, but only 15% of the dollar usage. Answer: TRUE Difficulty: Moderate Keywords: ABC analysis, class B Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

3) Class A items typically represent about 80% of SKUs, but only 20% of the dollar usage. Answer: FALSE Difficulty: Moderate Keywords: ABC analysis, class A Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

4) Class C items typically represent only about 20% of SKUs, but 80% of the dollar usage. Answer: FALSE Difficulty: Moderate Keywords: ABC analysis, class C Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

5) When using ABC analysis, class A SKUs should be reviewed frequently. Answer: TRUE Difficulty: Moderate Keywords: ABC analysis, class A Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

6) When using ABC analysis, class C SKUs should be reviewed frequently. Answer: FALSE Difficulty: Moderate Keywords: ABC analysis, class C Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

7) Cycle counting is an inventory-control method whereby storeroom personnel physically count a small percent of the total number of items each day. Answer: TRUE Difficulty: Moderate Keywords: cycle counting, physical count Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

Table 9.1 Inventory records show the following: Series Q R S T U V W

Unit Cost $1,751.34 $462.00 $88.44 $382.73 $96.42 $38.04 $34.23

Count 6 22 63 14 24 51 17

8) In the context of an ABC inventory classification, use Table 9.1 to ascertain the veracity of this statement. Items in series U are the most C-like of all inventory SKUs. Answer: TRUE Difficulty: Moderate Keywords: ABC analysis, class Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

9) What is generally true about class A SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 30 percent of all SKUs. C) 20 percent of the dollar usage. D) 50 percent of the dollar usage. Answer: A Difficulty: Moderate Keywords: ABC analysis, class A Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

10) What is generally true about class A SKUs in ABC analysis? They represent about: A) 50 percent of all SKUs. B) 80 percent of all SKUs. C) 20 percent of the dollar usage. D) 80 percent of the dollar usage. Answer: D Difficulty: Moderate Keywords: ABC analysis, class A Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

Table 9.1 Inventory records show the following: Series Q R S T U V W

Unit Cost $1,751.34 $462.00 $88.44 $382.73 $96.42 $38.04 $34.23

Count 6 22 63 14 24 51 17

11) Use Table 9.1 to identify the best statement. A) Items in series V and Q fall in the same category of an ABC analysis. B) Items in series W and S fall in the same category of an ABC analysis. C) Items in series W and Q fall in the same category of an ABC analysis. D) Items in series S and V should be in the Class B of an ABC analysis. Answer: C Difficulty: Moderate Keywords: ABC analysis, class Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

12) What is generally true about class B SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs and about 80 percent of the dollar usage. B) 80 percent of all SKUs and about 20 percent of the dollar usage. C) 30 percent of all SKUs and about 15 percent of the dollar usage. D) 50 percent of all SKUs and about 95 percent of the dollar usage. Answer: C Difficulty: Moderate Keywords: ABC analysis, class B Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

13) What is generally true about class C SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 50 percent of all SKUs. C) 15 percent of the dollar usage. D) 50 percent of the dollar usage. Answer: B Difficulty: Moderate Keywords: ABC analysis, class Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

14) What is generally true about class C SKUs in ABC analysis? They represent about: A) 20 percent of all SKUs. B) 30 percent of all SKUs. C) 5 percent of the dollar usage. D) 50 percent of the dollar usage. Answer: C Difficulty: Moderate Keywords: ABC analysis, Pareto, class C Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

15) ABC analysis is closely related to: A) three-bin analysis. B) EOQ analysis. C) repeatability analysis. D) Pareto analysis. Answer: D Difficulty: Moderate Keywords: ABC analysis, Pareto analysis Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

16) In ABC analysis, class ________ SKUs represent the smallest number of SKUs but the greatest dollar usage. Answer: A Difficulty: Moderate Keywords: ABC, Pareto Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

17) In an ABC analysis, class ________ SKUs, which typically make up about ________% of the SKUs, account for about 80% of the dollar usage. Answer: A, 20 Difficulty: Moderate Keywords: ABC, Pareto Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

18) In an ABC analysis, class ________ SKUs, which typically make up about ________% of the SKUs, account for only about 15% of the dollar usage. Answer: B, 30 Difficulty: Moderate Keywords: ABC, Pareto Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

19) In an ABC analysis, class ________ SKUs, which typically make up ________% of the SKUs, account for only about 5% of the dollar usage. Answer: C, 50 Difficulty: Moderate Keywords: ABC, Pareto Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

20) Inventory manager George Costanza knows too well that shrinkage occurs so he goes to the stock room every day to do a spot check of a few pre-selected items, physically counting them to verify that his count agrees with the number indicated by their computerized inventory system. This method of inventory control is known as ________. Answer: cycle counting Difficulty: Moderate Keywords: cycle counting Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

21) What is ABC analysis and how does it work? Answer: ABC analysis is a process of dividing SKUs into three classes according to their dollar usage so that managers can focus on SKUs that have the highest dollar value. Class A SKUs represent about 20% of the SKUs but account for 80% of the dollar usage. Class B SKUs account for another 30% of the SKUs but only 15% of the dollar usage. Finally, 50% of all SKUs fall in class C, representing only 5% of the dollar usage. Difficulty: Moderate Keywords: ABC analysis, Pareto analysis Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Use ABC analysis to determine the items deserving most attention and tightest inventory control.

9.5 Economic Order Quantity 1) EOQ should be used if you use a make-to-order strategy and the customer specifies that the entire order be delivered in one shipment. Answer: FALSE Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

2) EOQ should be used if you follow a make-to-stock strategy and the item has relatively stable demand. Answer: TRUE Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

3) The EOQ is the smallest lot size that a supplier will allow a customer to order. Answer: FALSE Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

4) As the annual demand increases, other factors remaining constant, the EOQ will decrease. Answer: FALSE Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

5) Considering the EOQ model, larger lots are justified with higher holding costs. Answer: FALSE Difficulty: Moderate Keywords: EOQ, economic order quantity, holding cost, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

6) Considering the EOQ model, a reduction in ordering costs justifies reducing the lot size ordered. Answer: TRUE Difficulty: Moderate Keywords: EOQ, economic order quantity, ordering cost, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

7) Which one of the following is not an assumption of the EOQ model? A) Decisions for one item can be made independently of decisions made for other items. B) There is no uncertainty in lead-time. C) The amount of an order received is exactly equal to what was ordered, without any "short shipments" from a supplier or scrap losses in the shop. D) Quantity discounts can be taken advantage of for large lot sizes. Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity, assumptions Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

8) Which one of the following statements regarding the economic order quantity (EOQ) is true? A) The EOQ model combines several different item orders to the same supplier. B) If an order quantity is larger than the EOQ, the annual holding cost for cycle inventory exceeds the annual ordering cost. C) The EOQ model assumes a variable demand pattern. D) When the interest rate drops, the inventory holding cost decreases and the EOQ decreases. Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, cycle inventory Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

9) Which one of the following statements concerning the economic order quantity (EOQ) model is true? A) An increase in holding cost will increase the EOQ. B) A decrease in demand will increase the EOQ. C) A decrease in holding cost will increase the EOQ. D) None of the above is true. Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

10) Which one of the following statements concerning the economic order quantity (EOQ) is true? A) The EOQ is the order quantity that minimizes annual inventory holding costs. B) An increase in demand will increase the EOQ. C) The time between orders (TBO) will increase with an increase in holding costs. D) The EOQ formula assumes that there are only three relevant costs: holding, transportation, and setup. Answer: B Difficulty: Challenging Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

11) You have taken a job in industry and are facing your first ordering decision. As you prepare to place the order, you remember your instructor teaching you that you would not use the EOQ formula if: A) you followed a make-to-stock strategy for an item with stable demand. B) your carrying costs and ordering costs are known and relatively stable. C) the order size is constrained by capacity limitations such as the number or size of the delivery trucks. D) your setup costs and holding costs remain constant and can be determined. Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

12) A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years. During this time their holding cost and ordering cost remain constant. Which statement is best? A) Their order quantity will fall and so will the time between orders. B) Their order quantity will fall but the time between orders will rise. C) Their order quantity will rise but the time between orders will fall. D) Their order quantity will rise and so will the time between orders. Answer: C Difficulty: Challenging Keywords: EOQ, economic order quantity, time between orders Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

13) The Lemma Company manufactures and sells 10 products. Ways have been found to cut both the setup and inventory holding costs in half. What effect will this have on the economic order quantities of the 10 products? A) They will be reduced by a factor of 1.41. B) They will not change. C) They will be reduced by a factor of 2.00. D) They will be increased by a factor of 1.41. Answer: B Difficulty: Challenging Keywords: EOQ, economic order quantity, setup cost, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

14) Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories. Which one of the following questions is not answered by EOQ sensitivity analysis? A) How critical are errors in estimating demand (D), inventory holding cost (H), and setup cost (S)? B) What should happen to lot sizes if interest rates drop? C) What should happen to cycle inventory if the demand rate increases? D) What should happen to lot sizes if supply and lead-time uncertainty increase? Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity, lead time, sensitivity analysis Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

15) Vilas County Hospital consumed 400 boxes of bandages per week last year. The price of bandages was $80 per box, and the hospital operates 52 weeks per year. The cost of processing an order was $64, and the cost of holding one box throughout a full year was 20% of the value of the material. Last year the hospital ordered bandages, on average, once every two weeks, each time ordering 800 boxes. What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied? A) less than or equal to $650 B) more than $650 and less than $1,050 C) more than $1,050 and less than $1,450 D) more than $1,450 Answer: D Difficulty: Challenging Keywords: EOQ, economic order quantity, total cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.3 The Universal Computer Company uses a newly developed A1 chip in the manufacturer of their tablet computers. The estimated annual demand for this chip is 12,000 units. It is estimated that the cost to place an order is $75, and the holding cost for each chip is $20 per year. The company operates 320 days per year. 16) Use the information in Scenario 9.3. What is the economic order quantity for the A1 chip? A) less than or equal to 200 units B) greater than 200 units but less than or equal to 250 units C) greater than 250 units but less than or equal to 300 units D) greater than 300 units Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

17) Use the information in Scenario 9.3. What is the annual inventory holding cost if the Universal Computer Company orders using the EOQ quantity? A) less than or equal to $1,500 B) greater than $1,500 but less than or equal to $2,500 C) greater than $2,500 but less than or equal to $3,500 D) greater than $3,500 Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, inventory holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

18) Use the information in Scenario 9.3. What is the annual ordering cost if the Universal Computer Company orders using the EOQ quantity? A) less than or equal to $2,000 B) greater than $2,000 but less than or equal to $3,000 C) greater than $3,000 but less than or equal to $4,000 D) greater than $4,000 Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, inventory holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

19) Use the information in Scenario 9.3. What is the total annual holding and ordering costs if the Universal Computer Company orders using the EOQ quantity? A) greater than $7,000 B) greater than $5,000 but less than or equal to $7,000 C) greater than $3000 but less than or equal to $5,000 D) less than or equal to $3,000 Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, total inventory holding and ordering costs Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

20) Use the information in Scenario 9.3. What is the cycle length (time between orders) when orders are placed using the EOQ quantity? A) less than 4 days B) greater than 4 days but less than or equal to 7 days C) greater than 7 days but less than or equal to 10 days D) greater than 10 days Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, cycle length, time between orders Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

21) Use the information in Scenario 9.3. How many times per year must the Universal Computer Company order the A1 chip when orders are placed using the EOQ quantity? A) less than 20 times per year B) greater than 20 times but less than or equal to 30 times per year C) greater than 30 times but less than or equal to 40 times per year D) greater than 40 times per year Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, orders per year Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

22) Use the information in Scenario 9.3. The purchasing manager decides that, in order to save purchasing time, orders for the A1 chip will be placed once every month. How much does this approach cost the Universal Computer Company in total annual holding and ordering costs (instead of ordering using the EOQ quantity)? A) greater than $20,000 B) greater than $15,000 but less than or equal to $20,000 C) greater than $10,000 but less than or equal to $15,000 D) less than or equal to $10,000 Answer: C Difficulty: Challenging Keywords: EOQ, economic order quantity, total inventory holding and ordering costs Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.4 The Mwongola Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter," is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. 23) Use the information in Scenario 9.4. What is the economic order quantity for the Smooth Shifter? A) less than or equal to 40 units B) greater than 40 units but less than or equal to 80 units C) greater than 80 units but less than or equal to 120 units D) greater than 120 units Answer: A Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

24) Use the information in Scenario 9.4. What is the annual inventory holding cost if Mwongloa orders using the EOQ quantity? A) less than or equal to $300 B) greater than $300 but less than or equal to $500 C) greater than $500 but less than or equal to $700 D) greater than $700 Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, inventory holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

25) Use the information in Scenario 9.4. What is the annual ordering costs if Mwongola orders using the EOQ quantity? A) less than or equal to $200 B) greater than $200 but less than or equal to $350 C) greater than $350 but less than or equal to $500 D) greater than $500 Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity, ordering cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

26) Use the information in Scenario 9.4. What is the total annual holding and ordering costs if Mwongola orders using the EOQ quantity? A) greater than $1,500 B) greater than $1,000 but less than or equal to $1,500 C) greater than $750 but less than or equal to $1,000 D) less than or equal to $750 Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, total inventory holding and ordering costs Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

27) Use the information in Scenario 9.4. What is the cycle length (time between orders) when orders are placed using the EOQ quantity? A) less than or equal to 5 days B) greater than 5 days but less than or equal to 10 days C) greater than 10 days but less than or equal to 15 days D) greater than 15 days Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity, cycle length, TBO Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

28) Use the information in Scenario 9.4. How many times per year must Mwongola order the Smooth Shifter when orders are placed using the EOQ quantity? A) less than or equal to 10 times per year B) more than 10 times but fewer than or equal to 20 times per year C) more than 20 times but fewer than or equal to 30 times per year D) more than 30 times per year Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, orders per year Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

29) Use the information in Scenario 9.4. The purchasing manager decides that, in order to save purchasing time, orders for the Smooth Shifter will be placed once a month, or twelve times per year. How much does this approach cost Mwongola in additional annual holding and ordering costs (instead of Mwongola ordering using the EOQ quantity)? A) more than $500 B) more than $200 but less than or equal to $500 C) more than $50 but less than or equal to $200 D) less than or equal to $50 Answer: D Difficulty: Challenging Keywords: EOQ, economic order quantity, total inventory holding and ordering costs Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.5 The manager of an auto parts store is reviewing the inventory policy for one of their fastest selling products — car batteries. The store sells an average of 40 car batteries every week. The cost to hold one battery in inventory for a year is $15. The ordering cost per order is estimated at $50. The store operates all 52 weeks in a year. 30) Use the information in Scenario 9.5. If the manager decides to order at the economic order quantity, what is the sum of the annual ordering cost and holding cost? A) less than or equal to $1500 B) greater than $1500 but less than or equal to $1800 C) greater than $1800 but less than or equal to $2100 D) greater than $2100 Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, total cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

31) Use the information in Scenario 9.5. If the manager cuts the ordering cost in half by implementing a streamlined processing system. How many fewer units should he now order at EOQ each time he places an order? A) between 0 and 15 units B) between 16 and 30 units C) between 30 and 45 units D) The order quantity will decrease by more than 45 units Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, ordering cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

32) Use the information in Scenario 9.5. If the manager orders once every quarter (i.e. once every 13 weeks or 4 times a year), how much higher are the total (ordering and holding) costs compared to total costs incurred if he ordered at his EOQ? A) less than or equal to $1000 B) greater than $1000 but less than or equal to $2000 C) greater than $2000 but less than or equal to $3000 D) greater than $3000 Answer: C Difficulty: Challenging Keywords: EOQ, economic order quantity, total cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

33) Use the information in Scenario 9.5. If the manager orders at the economic order quantity, how many units do they order at a time? A) less than or equal to 75 units B) greater than 75 but less than or equal to 150 units C) greater than 150 but less than or equal to 250 units D) greater than 250 units Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

34) Use the information in Scenario 9.5. If the manager orders such that their annual holding cost is twice their annual ordering cost, how many units should they be ordering at one time as per the EOQ? A) less than or equal to 75 units B) greater than 75 but less than or equal to 100 units C) greater than 100 but less than or equal to 125 units D) greater than 125 units Answer: A Difficulty: Challenging Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

35) A neighborhood electronics store sells the latest smartphone for $400 each. Being the latest model with desirable features, the phones are in high demand: 200 phones are sold per week. The ordering cost is $25 per order, and the annual holding cost is 25% of the selling price. If the store operates 52 weeks a year, what can you say about the current lot size of 50 compared to the EOQ? A) too large B) too small C) just right D) cannot tell from the information given Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

36) An item experiences an annual demand of 3,600 units. It costs $10 to hold an item in inventory for one year and $20 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year. A) less than 1 week B) greater than 1 week but less than or equal to 2 weeks C) greater than 2 weeks but less than or equal to 3 weeks D) greater than 3 weeks Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, time between orders Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.6 Consider the following data for an independent-demand item maintained by Angie Bonpensiero, the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/unit/year Weeks in a year = 50 37) Use the information in Scenario 9.6. If Bonpensiero uses the EOQ model, how frequently must she place orders for this item? A) every week B) every 2 weeks C) every 3 weeks D) every 4 weeks Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, time between orders Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

38) Use the information in Scenario 9.6. Due to new ordering procedures initiated by Bonpensiero, the ordering cost is drops to $4 per order. At the same time, the weekly demand increases to 64 units per week due to an increase in business. What effect do these changes have on the EOQ quantity for this item? A) The EOQ quantity remains unchanged. B) The EOQ quantity increases by 20%. C) The EOQ quantity decreases by 20%. D) Sufficient information is not available to answering this question. Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.7 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. 39) Use the information in Scenario 9.7. What is the EOQ for these papers? A) less than or equal to 3,000 units B) greater than 3,000 units but less than or equal to 4,000 units C) greater than 4,000 units but less than or equal to 5,000 units D) greater than 5,000 units Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.8 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. 40) Use the information in Scenario 9.8. What is the economic order quantity (EOQ) for this item? A) less than or equal to 175 units B) greater than 175 units but less than or equal to 200 units C) greater than 200 units but less than or equal to 225 units D) greater than 225 units Answer: A Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

Scenario 9.9 "Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" at the top. He pondered a different approach to shopping for the furry little darlings, reviewed his shopping records, and discovered the following. The price of cat food has held steady at 89 cents per can. Despite feigning indifference, each of the seven cats nibbles their way through an average of one can per day, three hundred sixty five days a year. The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store. The cost to hold a can of cat food is 10% of the unit price. 41) Using the information in Scenario 9.9 determine the economic order quantity for cat food. A) 634 cans B) 448 cans C) 239 cans D) 169 cans Answer: A Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

42) Use the information in Scenario 9.9 to determine the average number of orders per year if Geoff adopts an EOQ policy. A) 3 orders per year B) 4 orders per year C) five orders per year D) six orders per year Answer: B Difficulty: Moderate Keywords: EOQ, economic order quantity, orders per year Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

43) Use the information in Scenario 9.9 to determine the annual setup cost if Geoff follows an EOQ policy to obtain cat food. A) $112 B) $14 C) $28 D) $56 Answer: C Difficulty: Moderate Keywords: EOQ, economic order quantity, ordering cost, lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

44) Use the information in Scenario 9.9 to determine the combined cost of goods and inventory if Geoff decides to follow the economic order quantity model? A) $2,415 B) $2,218 C) $2,274 D) $2,330 Answer: D Difficulty: Moderate Keywords: EOQ, economic order quantity, total cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

45) Use the information in Scenario 9.9 to determine the amount of time in-between trips to the cat food store if Geoff wisely elects to follow an EOQ policy for obtaining cat food. A) about three months B) about three weeks C) about six months D) about three days Answer: A Difficulty: Moderate Keywords: EOQ, economic order quantity, orders per year Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

46) Use the information in Scenario 9.9 to determine the average pantry space occupied by cat food if each can takes up 13 cubic inches and Geoff obeys an EOQ policy for managing the cat food purchase process. A) 2.4 cubic feet B) 24 cubic feet C) 4.8 cubic feet D) 12 cubic feet Answer: A Difficulty: Challenging Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

47) The number of setups (or orders) per year is determined by the annual demand and ________. Answer: order quantity Difficulty: Moderate Keywords: setups per year, orders per year, order quantity, EOQ Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

48) The ________ determines the frequency and quantity to order. Answer: lot size Difficulty: Moderate Keywords: lot size Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

49) A(n) ________ is an incentive to order larger quantities, where the price per unit decreases when the order is sufficiently large. Answer: quantity discount Difficulty: Moderate Keywords: inventory, pressure for large inventories, payments to suppliers Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

50) If an item is ordered using an EOQ policy, as the annual demand for an item decreases, the EOQ for the item ________. Answer: decreases Difficulty: Easy Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

51) In an EOQ model, as the annual demand for an item increases, the EOQ for the item ________. Answer: increases Difficulty: Easy Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

52) In an EOQ model, as the ordering cost for an item decreases, the EOQ for the item ________. Answer: decreases Difficulty: Easy Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

53) In an EOQ model, as the annual holding cost for an item increases, the EOQ for the item ________. Answer: decreases Difficulty: Easy Keywords: EOQ, economic order quantity, annual demand, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

54) The ________ is the average elapsed time between receiving replenishment orders of Q units for a particular lot size. Answer: TBO, time between orders Difficulty: Moderate Keywords: TBO, time between orders Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

55) What assumptions are made in calculating the economic order quantity? Which of these assumptions is the least realistic? Why? Answer: The assumptions are constant demand known with certainty, no constraints on the size of each lot, only two relevant costs, decisions made independently, and no uncertainty in lead-time and supply. Answers will vary as to the least realistic assumption. Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

56) What production strategies should not employ an EOQ approach to ordering? Why? Answer: The EOQ model should not be used if the firm uses a make-to-order strategy and if the entire order must be delivered in one shipment. If the order size is constrained by capacity limitations such as the size of the firm's productive resources or delivery trucks, then EOQ should not be used. Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

57) Sketch the EOQ cost curves and describe their derivation. Answer: The annual holding cost for this amount of inventory, which increases linearly with Q, as Figure 9.6(a) shows, is Annual holding cost = (Average cycle inventory)(Unit holding cost)

The annual ordering cost is: Annual ordering cost = (Number of orders/Year)(Ordering or setup cost) The average number of orders per year equals annual demand divided by Q. For example, if 1,200 units must be ordered each year and the average lot size is 100 units, then 12 orders will be placed during the year. The annual ordering or setup cost decreases nonlinearly as Q increases, as shown in Figure 9.6(b), because fewer orders are placed. The total annual cycle-inventory cost, as graphed in Figure 9.6(c), is the sum of the two cost components: Total cost = Annual holding cost + Annual ordering or setup cost Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

58) A Theory of Constraints (TOC) advocate visits your factory and seems bemused by your use of EOQ to set your batch sizes. You launch into a brilliant defense of the EOQ. The TOC advocate grabs a piece of chalk and proceeds to sketch two sets of inventory cost curves on your pristine shop floor. What will his two different sets of cost curves look like and why? Answer: One possible problem with your use of EOQ might arise if the TOC advocate (or the student answering the question) has read the supplement on special inventory models and realizes that production rate and consumption rate should be used to tweak the basic EOQ analysis. If the TOC disciple and the students haven't read that section, then their analysis should proceed as follows. The two sets of curves will have radically different values for S (setup cost) depending on whether they represent bottleneck machines or non-bottlenecks. A bottleneck machine will have an absurdly high S since it governs flow (and ultimately profit) for the entire plant. A non-bottleneck machine will have a miniscule S since it has excess capacity and can be idle for some time with no real impact on throughput. The high S will dictate larger lot sizes and provide significant pressure to reduce setup times; the low S will dictate small lot sizes and no pressure to reduce setup times. Difficulty: Challenging Keywords: EOQ, economic order quantity, TOC, theory of constraints, bottleneck, non-bottleneck Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the economic order quantity and apply it to various situations.

59) A company governed by an EOQ system decides to move in a more lean direction and hopes to reduce their Q as much as possible. What specific steps might be taken to help them in their journey towards a Q = 1? Answer: Starting with the EOQ equation, the company can reduce D and S while increasing H (they can't do much about 2). Of these three parameters, reducing D is probably the least attractive option if it represents a decline in demand for their products. Reducing S is an excellent way to proceed; making it easier for orders to be placed by working with suppliers, implementing automated ordering systems, blanket purchase orders, etc., can significantly reduce S and Q. Increasing H is a more philosophical move; if the company president broadcasts the sentiment that inventory is evil and there will be consequences for holding it, then the value of H has been virtually raised without playing financial games. Removing storage space or entire warehouses would make it more expensive to hold inventory. Difficulty: Moderate Keywords: EOQ, economic order quantity Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

60) An assistant manager is reviewing the costs associated with the store's best-selling product. The data available follows. Demand = 500 units/year Order cost = $40/order Holding cost = $7/unit/year a. What is the EOQ and its associated ordering and holding costs? b. If annual demand doubles and all other costs remain the same, what is the new EOQ and total annual cost? Answer: a. Qopt =

= 75.59 units

Holding cost =

7 = $264.575

Ordering cost =

(40) = $264.575

b. Qopt = H+

= S=

= 106.9 units 7+

40 = $748.33

Difficulty: Moderate Keywords: EOQ, economic order quantity, ordering cost, holding cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

61) An assistant manager is reviewing the costs associated with one of the store's better-selling products. The data available follows. Demand = 400 units/year Order cost = $25/order Holding cost = 50¢/unit/year a. They currently order a one-year supply. What are the total annual ordering cost and holding cost for this order size? b. What would be the EOQ and its associated ordering and holding costs? Answer: a. Holding cost =

0.5 = $100

Ordering cost =

(25) = $25

Total cost =

H+

0.5 +

25 = $125

b. Qopt =

= 200

Holding cost =

0.5 = $50

Ordering cost =

(25) = $50

Difficulty: Moderate Keywords: economic order quantity, holding cost, ordering, cost Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

62) A store has collected the following information on one of its products: Demand = 5,000 units/year Ordering costs = $12/order Holding costs = $4/unit/year Lead-time = 5 days weeks Unit cost = $748/unit Number of weeks per year = 50 weeks a. The firm currently orders 500 units per order. What is the total cost of ordering and holding these goods under this system? b. Determine their economic order quantity and cost of ordering and holding goods using the EOQ. c. Form the ratio of the order quantities under the old policy and EOQ. Form the ratio of the EOQ to the old order quantity. Then form the ratio of their total system costs under the two ordering policies. Average these two ratios and compare this number with the ratio of the old total cost with the total cost under an EOQ policy. d. How do they compare? Answer: a. Holding cost at Q = 500:

H+

4 = $1,000

Ordering cost at Q = 500:

(12) = $120

TC = $1,120 b. Qopt =

Qopt = 173.21 Holding cost at Q = 173.21:

4 = $346.41

Ordering cost at Q = 173.21:

(12) = $346.41

TC = $692.82 c. Q/Q* = 500/173.21 = 2.89 Q*/Q = 173.21/500 = 0.346 (2.89 + 0.346)/2 = 1.62 TC/TC* = 1,120/692.82 = 1.62 The average of the two Q ratios is the same as the TC/TC* ratio. Difficulty: Moderate Keywords: continuous review, order quantity, reorder quantity, reorder point, time between orders (TBO), target inventory level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the economic order quantity and apply it to various situations.

9.6 Continuous Review System 1) If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is the sum of the three, or 300 units. Answer: FALSE Difficulty: Moderate Keywords: continuous review system, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

2) If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is 100 units. Answer: TRUE Difficulty: Moderate Keywords: continuous review system, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

3) A continuous review system is sometimes called a reorder point system. Answer: TRUE Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

4) A continuous review system is sometimes called a fixed interval reorder system. Answer: FALSE Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

5) The scheduled receipts are customer orders received but are backordered. Answer: FALSE Difficulty: Moderate Keywords: scheduled receipt Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

6) A higher service level corresponds to a higher probability of stocking out during an inventory cycle. Answer: FALSE Difficulty: Moderate Keywords: service level, stockout Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

7) The two-bin inventory system is a type of visual system. Answer: TRUE Difficulty: Moderate Keywords: two-bin, visual system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

8) Which one of the following statements concerning a continuous review system is best? A) The inventory position (IP) of an item measures the item's ability to satisfy future demand, relying only on the on-hand inventory. B) An item's inventory position under a continuous review system increases by Q units as soon as an order is received. C) An item's on-hand inventory increases by Q units as soon as an order is placed. D) Under a continuous review system, an item's inventory position corresponds to the on-hand inventory unless there are backorders or one or more scheduled receipts. Answer: D Difficulty: Moderate Keywords: continuous review system, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

9) Which one of the following descriptions best defines the cycle-service level as a measure of customer service? A) the preferred proportion of annual demand instantaneously filled from stock B) the number of stockouts tolerated per year C) the preferred proportion of days in the year when an item is in stock D) the desired probability of not running out of stock in any one inventory cycle Answer: D Difficulty: Moderate Keywords: cycle-service level, customer service Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

10) Which one of the following statements is best? A) The level of safety stock maintained decreases when the desired cycle-service level increases. B) The level of safety stock maintained decreases when the standard deviation of demand during leadtime increases. C) When no safety stock is maintained, stockouts will occur during approximately 50% of the cycles. D) The level of safety stock maintained is greater if mean absolute deviation (MAD) is used rather than standard deviation in estimating forecast errors. Answer: C Difficulty: Moderate Keywords: safety stock, stockout Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

11) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 40 units Open orders (scheduled receipts): Backorders: 60 units

100 units

What is Hess's inventory position for this item? A) 200 units B) 140 units C) 80 units D) 40 units Answer: C Difficulty: Easy Keywords: inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

12) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: Open orders (scheduled receipts): Backorders: Reorder point: Quantity per order:

40 units 100 units 60 units 100 units 50 units

Which of the following statements best describes Hess's situation regarding inventory replenishment? A) No action is required, since a scheduled receipt is due to be delivered to Hess. B) To cover its backorders, Hess should order two lots of 50 units. C) Because it is incurring backorders, Hess should increase its reorder point. D) Hess should place an order for 50 units, since the inventory position is less than the reorder point. Answer: D Difficulty: Moderate Keywords: inventory position, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

13) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: Open orders (scheduled receipts): Backorders:

80 units 100 units 20 units

What is Hess's inventory position for this item? A) 200 units B) 160 units C) 180 units D) 80 units Answer: B Difficulty: Easy Keywords: inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

14) Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: Open orders (scheduled receipts): Backorders: Reorder point: Quantity per order:

80 units 100 units 20 units 150 units 50 units

Which of the following statements best describes Hess's situation regarding inventory replenishment? A) No action is required, since Hess's inventory position is greater than the reorder point. B) Hess should order one lot of 50 units to cover its backorders. C) Because it is incurring backorders, Hess should increase its reorder point. D) Hess should place an order for 50 units, since their inventory position is less than the reorder point. Answer: A Difficulty: Moderate Keywords: inventory position, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

Scenario 9.10 A distributor of computer monitors purchases the monitors from an overseas supplier under a continuous review system. The average demand for a popular computer monitor is normally distributed with a mean of 50 units a day and a standard deviation of 10 units a day. It costs $75 to process each order and there is a 16 day lead time. The holding cost for each monitor is $20 per year and the distributor wishes to maintain a 90% service level. The distributor operates 300 days in a year. 15) Use the information in Scenario 9.10. What is the reorder point R to satisfy a 90% cycle-service level? A) less than or equal to 750 units B) greater than 750 units but less than or equal to 1,000 units C) greater than 1,000 units but less than or equal to 1,250 units D) greater than 1,250 units Answer: B Difficulty: Moderate Keywords: reorder point, cycle-service level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

16) Use the information in Scenario 9.10. What service level does a reorder point of 825 imply? A) less than or equal to 70% B) greater than 70% but less than or equal to 75% C) greater than 75% but less than or equal to 80% D) greater than 80% Answer: B Difficulty: Moderate Keywords: service level, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

17) Use the information in Scenario 9.10. If lead-time increases by nine days, what is the reorder point needed to maintain a 90% service level? A) less than or equal to 750 units B) greater than 750 units but less than or equal to 1,000 units C) greater than 1,000 units but less than or equal to 1,250 units D) greater than 1,250 units Answer: B Difficulty: Moderate Keywords: lead time, reorder point, service level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

18) Use the information in Scenario 9.10. What is the annual cost of holding the safety stock necessary to maintain the 90% service level? A) less than or equal to $900 B) greater than $900 but less than $1,000 C) greater than $1,000 but less than $1,100 D) greater than $1,100 Answer: C Difficulty: Moderate Keywords: safety stock, service level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

19) Use the information in Scenario 9.10. What is the standard deviation of demand throughout the sixteen-day lead-time period? A) 40 units B) 65 units C) 100 units D) 160 units Answer: A Difficulty: Moderate Keywords: standard deviation of demand, lead time Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

20) Use the information in Scenario 9.10. What is the safety stock required to satisfy a 90% cycle-service level? A) about 35 units B) about 51 units C) about 67 units D) about 102 units Answer: B Difficulty: Moderate Keywords: reorder point, cycle-service level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

Scenario 9.11 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. 21) Use the information in Scenario 9.11. What is the desired safety stock level if the company has a policy of maintaining a 90% cycle-service level? A) less than or equal to 50 units B) greater than 50 but less than or equal to 100 units C) greater than 100 but less than or equal to 150 units D) greater than 150 units Answer: B Difficulty: Moderate Keywords: safety stock, cycle-service level, reorder Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

22) Use the information in Scenario 9.11. What is the reorder point if the company finally decides to implement a 95 percent cycle-service level? A) less than or equal to 300 units B) greater than 300 but less than or equal to 325 units C) greater than 325 but less than or equal to 350 units D) greater than 350 units Answer: D Difficulty: Moderate Keywords: reorder point, safety stock, cycle-service level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

Scenario 9.12 The Dolly Llama Farm keeps an average of 50 of those funny creatures on hand and each consumes a pound of grain a day, 365 days per year. Grain costs $12 for a 50 pound bag and it costs the farm $10 to make a run to the feed store to pick up an order, regardless of order size. It takes the feed store four days to acquire, mix, and bag the special blend of grains necessary to make the feed the Dolly Llama Farm prefers. Storage costs for the feed runs 15% of the unit cost as the cost of money, loss due to critters, and spoilage all add up. 23) Refer to Scenario 9.12. What should the reorder point be if demand and lead time are invariant and the farm desires a 90% service level? A) two bags B) four bags C) six bags D) eight bags Answer: B Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

24) Refer to Scenario 9.12. The actual usage for grain depends on which llamas show up at feeding time, thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds. The farm is willing to tolerate a 5% chance of running out of feed before they can get some more hauled in. The llamas would prefer a 0% chance, but they don't get a vote. What reorder point achieves the farm's objectives? A) 4.32 bags B) 5.16 bags C) 6.28 bags D) 7.80 bags Answer: A Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

25) Refer to Scenario 9.12. The actual usage for grain depends on which llamas show up at feeding time, thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds. In addition, there is some variability in how long it takes the feed store to whip up a batch of llama feed. The standard deviation of the feed prep is one day. The farm is willing to tolerate a 2% chance of running out of feed before they can get some more hauled in. The llamas would prefer a 0% chance, but they don't get a vote. What reorder point achieves the farm's objectives? A) three bags B) four bags C) five bags D) six bags Answer: D Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

26) Refer to Scenario 9.12. There is some variability in how long it takes the feed store to whip up a batch of llama feed. The standard deviation of the feed prep is one day. The farm is willing to tolerate a 5% chance of running out of feed before they can get some more hauled in. The llamas would prefer a 0% chance, but they don't get a vote. What reorder point achieves the farm's objectives? A) 246 pounds B) 282 pounds C) 304 pounds D) 316 pounds Answer: B Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

27) Refer to Scenario 9.12. The actual usage for grain depends on which llamas show up at feeding time, thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds. In addition, there is some variability in how long it takes the feed store to whip up a batch of llama feed. The standard deviation of the feed prep is one day. The farm is willing to tolerate a 2% chance of running out of feed before they can get some more hauled in. Which adjustment to their system would have the greatest impact on the reorder point? A) lower the standard deviation of the lead time to one half of a day B) decrease the service level to 90% C) increase the standard deviation of daily demand to 10 pounds D) reduce the average daily demand to 45 pounds Answer: A Difficulty: Challenging Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

Scenario 9.13 Demand = 50,000 units/week Standard deviation of weekly demand = 15,000 units Average lead time = 8 weeks Standard deviation of lead time: 3 weeks Cycle-service level = 80% A continuous review system is used to control inventory. 28) Use the information in Scenario 9.13. What is the standard deviation of demand during lead time? A) greater than 0 but less than or equal to 100,000 units B) greater than 100,000 units but less than or equal to 200,000 units C) greater than 200,000 units but less than or equal to 300,000 units D) greater than 300,000 units Answer: B Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, standard deviation during lead time Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

29) Use the information in Scenario 9.13. What safety stock should the firm use for this product? A) greater than 0 but less than or equal to 50,000 units B) greater than 50,000 units but less than or equal to 100,000 units C) greater than 100,000 units but less than or equal to 150,000 units D) greater than 150,000 units but less than or equal to 200,000 units E) greater than 200,000 units Answer: C Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

30) Use the information in Scenario 9.13. What reorder point should the firm use for this product? A) greater than 0 but less than or equal to 150,000 units B) greater than 150,000 units but less than or equal to 300,000 units C) greater than 300,000 units but less than or equal to 400,000 units D) greater than 400,000 units but less than or equal to 500,000 units E) greater than 500,000 units Answer: E Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

31) Use the information in Scenario 9.13. If the firm decides to increase its cycle-service level to 90%, what is the new reorder point if all other parameters remain the same for this product? A) greater than 550,000 units B) greater than 400,000 units but less than or equal to 550,000 units C) greater than 250,000 units but less than or equal to 400,000 units D) greater than 150,000 units but less than or equal to 250,000 units E) greater than 0 but less than or equal to 150,000 units Answer: A Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

Scenario 9.14 Demand = 100,000 units/year Number of days per year = 250 weeks Standard deviation of weekly demand = 50 units Average lead time = 5 days Standard deviation of lead time: 2 days Cycle-service level = 99% A continuous review system is used to control inventory. 32) Use the information in Scenario 9.14. What is the standard deviation of demand during lead time? A) greater than 0 but less than or equal to 500 units B) greater than 500 units but less than or equal to 1,500 units C) greater than 1,500 units but less than or equal to 2,500 units D) greater than 2,500 units Answer: B Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, standard deviation during lead time Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

33) Use the information in Scenario 9.14. What safety stock should the firm use for this product? A) greater than 0 but less than or equal to 500 units B) greater than 500 units but less than or equal to 1,500 units C) greater than 1,500 units but less than or equal to 2,500 units D) greater than 2,500 units Answer: C Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

34) Use the information in Scenario 9.14. If the firm decides to reduce its cycle-service level to 95%, what is the new reorder point if all other parameters remain the same for this product? A) greater than 4,500 units B) greater than 3,500 units but less than or equal to 4,500 units C) greater than 2,500 units but less than or equal to 3,500 units D) greater than 1,500 units but less than or equal to 2,500 units E) greater than 0 but less than or equal to 1,500 units Answer: B Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

35) A(n) ________ system is a system designed to track the remaining inventory of an item each time a withdrawal is made to determine whether to replenish the item. Answer: continuous review, reorder-point Difficulty: Moderate Keywords: continuous review, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

36) The ________ is the measurement of an item's ability to satisfy future demand. Answer: inventory position, IP Difficulty: Moderate Keywords: IP, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

37) ________ are orders that have been placed but not yet received. Answer: Scheduled receipts, SR Difficulty: Moderate Keywords: scheduled receipts, SR Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

38) The ________ is the predetermined minimum level that an inventory position must reach before a fixed quantity (Q) is ordered. Answer: reorder point, ROP Difficulty: Moderate Keywords: reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

39) A(n) ________ is an inventory control system that issues a replenishment order, Q, each time a withdrawal is made, for the same amount of the withdrawal. Answer: base-stock system Difficulty: Moderate Keywords: base-stock system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

40) A(n) ________ system is a visual system in which an item's inventory is stored at two different locations. Answer: two-bin Difficulty: Moderate Keywords: two-bin, bin Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

41) When considering reorder points and inventory position, if an item has an inventory position of 200 units, an order will be placed only if the reorder point is ________. Answer: less than or equal to 200 units Difficulty: Moderate Keywords: reorder point, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

42) Apply your understanding of forecasting to the idea of developing a reorder point for uncertain demand. What could be done to make a reorder point more accurate? Answer: The reorder point is determined by the average demand during lead time plus the amount of safety stock needed. Safety stock is a function of the service level and the variance in both the demand and the lead time. Reducing variance in demand and lead time will reduce the amount of safety stock required and make a reorder point calculation less of a guess. In general, forecasts farther in the future are less accurate than forecasts in the immediate future. Ability to delay orders or ship more quickly would mitigate the impact of this variance. Forecasts for aggregated products are more accurate than forecasts for individual items, so some degree of standardization would result in better performance for a reorder point. Difficulty: Challenging Keywords: reorder point, forecast Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

43) Compare and contrast the Q and P systems of inventory control. Answer: The primary advantages of the P system are: the convenience of administration of the system because replenishments are made at fixed intervals, that orders for multiple items from the same supplier can be combined, and that the inventory position needs only to be known when the review is made for the order. The primary advantages of the Q system are that the review frequency of each item is individualized, leading to reduction in ordering and holding costs; the fixed lot size that, if large enough, may qualify for quantity discounts; and lower safety stock. Difficulty: Challenging Keywords: P system, Q system, inventory control Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

44) What is a base-stock system? Answer: A base-stock system issues a replenishment order each time a withdrawal is made, for the same amount as the withdrawal. Difficulty: Moderate Keywords: base-stock system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

45) What is a two-bin system and how does it work? Answer: A two-bin system is a visual version of the Q system, in which an item's inventory is stored at two different locations. Inventory is first withdrawn from one bin. If this bin is empty, the second bin provides backup to cover demand until a replenishment order arrives. An empty first bin signals the need to place a new order. Difficulty: Moderate Keywords: two-bin system, visual control Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

46) Jimmy's Egg is a specialty restaurant featuring 47 different kinds of omelettes in three different sizes. They use 60 dozen cases of eggs a day that they order from an egg factory with a lead time of five days. One fine day they stock their chiller and note that there are only 25 dozen cases of eggs remaining. They have a backorder of 15 cases and an open order of 200 cases. What is their inventory position? Should they place an order? Answer: IP = OH + SR - BO IP = 25 + 200 - 15 IP = 210 R = Demand during lead time R = 60 × 5 = 300 with no safety stock Their inventory position falls short of their reorder point so they should place an order. Difficulty: Moderate Keywords: order quantity, reorder point, inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

47) A store has collected the following information on one of its products: Demand = 4,500 units/year Standard deviation of weekly demand = 12 units Ordering costs = $40/order Holding costs = $3/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 2 weeks Number of weeks per year = 52 weeks a. If a firm uses the continuous review system to control the inventory, what would be the order quantity and reorder point? b. The firm decided to change to the periodic review system to control the item's inventory. For the most recent review, an inventory clerk checked the inventory of this item and found 300 units. There were no scheduled receipts or backorders at the time. How many units should be ordered? (Hint: Use the EOQ model to derive P, the time between reviews.) Answer: a. Qopt = R=

= 346.4 → 346 units

+ zσ dLT = (4,500/52)2 + 1.28(12

) = 173.08 + 21.72 = 194.8

→ 195 units b. TBOEOQ =

(52 weeks/year) =

T = (P + L) + zσP+L =

(52) = 4.00 weeks

(4 + 2) + 1.28(12)

= 519.23 + 37.62 = 556.85

→ 557 Order quantity = T - IP = 557 - 300 = 257 units Difficulty: Challenging Keywords: continuous review, order quantity, reorder quantity, reorder point, time between orders (TBO), target inventory level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

48) A store has collected the following information on one of its products: Demand = 10,000 units/year Standard deviation of weekly demand = 25 units Ordering costs = $30/order Holding costs = $4/unit/year Cycle-service level = 95% (z for 95% = 1.65) Lead-time = 2 weeks Number of weeks per year = 50 weeks a. If a firm uses the continuous review system to control the inventory, what would be the order quantity and reorder point? b. The firm decided to change to the periodic review system to control the item's inventory. For the most recent review, an inventory clerk checked the inventory of this item and found 200 units. There were no scheduled receipts or backorders at the time. How many units should be ordered? (Hint: Use the EOQ model to derive P, the time between reviews.) Answer: a. Qopt =

= 387.30 → 387 units

+ zσdLT = (10,000/50)2 + 1.65(25

) = 400.00 + 58.34 = 458.34 → 458 units

b. TBOEOQ =

(50 weeks/year) =

T = (P + L) + zσP+L =

(50) = 1.94 weeks → 2 weeks

(2 + 2) + 1.65(25)

= 800.00 + 82.50 = 883.00 units

Order quantity = T - IP = 883 - 200 = 683 units Difficulty: Challenging Keywords: continuous review, order quantity, reorder quantity, reorder point, time between orders (TBO), target inventory level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

49) A store has collected the following information on one of its products: Demand = 4,000 units/year Ordering costs = $15/order Holding costs = $2/unit/year Lead-time = 5 days weeks Number of weeks per year = 50 weeks If a firm uses the continuous review system to control the inventory, what would be the order quantity? Answer: Qopt =

Qopt = 244.95 Difficulty: Moderate Keywords: continuous review, order quantity, reorder quantity, reorder point, time between orders (TBO), target inventory level Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

50) The Hastings Company is a nation-wide wholesaler for small electronic devices. One of its most popular items is a new GPS unit called the WAMI-1,000. Hastings has gathered the following information, and has asked you to develop a continuous review inventory control system for this item: Order quantity for each order placed with manufacturer = 10,000 units Average demand = 1,000 units/week Standard deviation of weekly demand = 200 units Average lead time = 5 weeks Standard deviation of lead time: 1.5 weeks Cycle-service level = 90% (z for 90% = 1.28) a. What is the standard deviation of demand during lead time? b. What is the safety stock level that should be carried for the WAMI-1,000? c. What is the reorder point for the WAMI-1,000? d. Summarize the actions Hastings should take using your new inventory system. e. If Hastings decides to increase its cycle-service level from 90% to 95% (z for 95% = 1.65), how does this change the actions that should be taken? Answer: a. σdLT =

= 1,565.25 →1,565 units

b. Safety Stock = z ∙ σdLT = (1.28)(1,565) = 2,003 units c. Reorder Point =

∙

+ Safety Stock = (1,000) (5) + 2,003 = 7,003 units

d. When the inventory level of the model WAMI-1,000 reaches the reorder point of 7,003 units, Hastings should place an order with the manufacturer for 10,000 units. e. At cycle-service level of 95%, z = 1.65 New Safety Stock = z ∙ σdLT = (1.65)(1,565) = 2,582 units New Reorder Point =

∙

+ Safety Stock = (1,000)(5) + 2,582 = 7,582 units

Hastings should now place a new order with the manufacturer for 10,000 units when the inventory level of the WAMI-1,000 reaches the higher reorder point of 7,582 units. Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, standard deviation during lead time, safety stock, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

51) The medical staff on Shudder Island uses an average of 60 vials of thorazine every day. This demand is normally distributed with a standard deviation of 15 vials. Since this is an important item, they have decided on a 98% service level. Ferries run infrequently, so the lead time for delivery is 12 days on average with a standard deviation of 2 days. Lead time is also normally distributed. a. What is the expected demand during lead time? b. What is the standard deviation of demand during lead time? c. What is the average safety stock? d. What is the reorder point? e. If the company desired to lower the reorder point, which of these initiatives would lower it by the greatest amount — reducing the lead time by 10%, reducing the standard deviation of lead time by 10%, or reducing the service level by 10%? Answer: a. Expected demand during lead time = 60 × 12 = 720

b. σdLT =

= 130.77 → 131 units

c. Safety Stock = z ∙ σdLT = (2.05)(131) = 268.55 units d. Reorder Point =

∙

+ Safety Stock = (720) + 268.5 = 988.5 units

e. Reducing the service level from 98% to 88% lowers the ROP to 874. If service level is lowered to 88.2%, the ROP is essentially the same. The other reductions are not as great; dropping the lead time from 12 to 10.8 results in an ROP of 914 and dropping the standard deviation of lead time 1.8 drops the ROP to 965.7. Difficulty: Challenging Keywords: continuous review system, variable demand, variable lead time, standard deviation during lead time, safety stock, reorder point Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

52) The Hastings Company is a nation-wide wholesaler for small electronic devices. One of its most popular items is a new GPS unit called the WAMI-1,000. Hastings has gathered the following information, and has asked you to develop a continuous review inventory control system for this item: Order quantity for each order placed with manufacturer = 50,000 units Average demand = 5,000 units/week Standard deviation of weekly demand = 1,000 units Average lead time = 4 weeks Standard deviation of lead time: 1 week Cycle-service level = 90% (z for 90% = 1.28) a. What is the standard deviation of demand during lead time? b. What is the safety stock level that should be carried for the WAMI-1,000? c. What is the reorder point for the WAMI-1,000? d. Summarize the actions Hastings should take using your new inventory system. e. If Hastings decides to increase its cycle-service level to from 90% to 99% (z for 99% = 2.33), how does this change the actions that should be taken? Answer: a. σdLT =

= 5,385.16 → 5,385 units

b. Safety Stock = z ∙ σdLT = (1.28)(5,385) = 6,893 units c. Reorder Point =

∙

+ Safety Stock = (5,000)(4) + 6,893 = 26,893 units

d. When the inventory level of the model WAMI-1,000 reaches the reorder point of 26,893 units, Hastings should place an order with the manufacturer for 50,000 units. e. At cycle-service level of 99%, z = 2.33 New Safety Stock = z ∙ σdLT = (2.33)(5,385) = 12,547 units New Reorder Point =

∙

+ Safety Stock = (5,000)(4) + 12,547 = 32,547 units

Hastings should now place a new order with the manufacturer for 50,000 units when the inventory level of the WAMI-1,000 reaches the higher reorder point of 32,547 units. Difficulty: Moderate Keywords: continuous review system, variable demand, variable lead time, safety stock Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the order quantity and reorder point for a continuous review inventory control system.

9.7 Periodic Review System 1) A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously. Answer: TRUE Difficulty: Easy Keywords: periodic review, continuous Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

2) A mom and pop gas station near a remote lake popular with anglers is more likely to use a periodic review system than a chain of department stores. Answer: TRUE Difficulty: Moderate Keywords: periodic review, continuous Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

3) An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions? A) Under a Q system, a fixed quantity is ordered every P time period. B) Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R. C) Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R. D) Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods. Answer: D Difficulty: Moderate Keywords: Q system, P system, inventory target level (T), inventory position Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

4) Which one of the following statements is best? A) A P system requires more safety stock than a Q system. B) A P system lends itself more to quantity discounts than does a Q system. C) A P system requires more administrative control and computer support than does a Q system. D) In a periodic review system, the value of Q is kept the same from one cycle to another. Answer: A Difficulty: Moderate Keywords: P system, Q system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

5) Which one of the following statements represents an advantage of the P system over the Q system? A) Less safety stock is carried to achieve the same service level. B) The replenishment intervals can be more easily individualized for items. C) Orders can be more easily combined to the same supplier. D) A P system is more suitable for quantity discounts and capacity limitations. Answer: C Difficulty: Moderate Keywords: P system, Q system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

6) Which one of the following statements represents an advantage of a Q system over the P system? A) A perpetual inventory system is not mandatory. B) Orders for multiple items from the same supplier can be combined more easily. C) Fixed replenishment intervals are possible, which can be, administratively, quite convenient. D) The Q system is more suited for quantity discounts and physical limitations. Answer: D Difficulty: Moderate Keywords: Q system, P system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

7) Which one of the following statements about inventory control systems is best? A) A single-bin system is essentially a P system, with the target inventory and current inventory position established visually. B) A base-stock system minimizes ordering and setup costs by placing orders more infrequently. C) The base-stock system is mostly used for inexpensive items because it maximizes cycle inventory costs. D) Visual systems are intended for use with high-value items, such as jet engines, that don't experience a steady demand. Answer: A Difficulty: Moderate Keywords: inventory control, single-bin system, P system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

Scenario 9.15 A distributor of computer monitors purchases the monitors from an overseas supplier under a continuous review system. The average demand for a popular computer monitor is normally distributed with a mean of 50 units a day and a standard deviation of 10 units a day. It costs $75 to process each order and there is a 16 day lead time. The holding cost for each monitor is $20 per year and the distributor wishes to maintain a 90% service level. The distributor operates 300 days in a year. The distributor would like to use a periodic review inventory system to manage their inventory. 8) Use the information in Scenario 9.15. What should the length of time between reviews (P) be if P is set equal to the average time between orders for the EOQ? A) less than or equal to 4 days B) greater than 4 days but less than or equal to 7 days C) greater than 7 days but less than or equal to 10 days D) greater than 10 days Answer: B Difficulty: Moderate Keywords: periodic review, length of time between reviews Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

9) Use the information in Scenario 9.15. What is the standard deviation of demand over the protection interval? A) less than or equal to 30 units B) greater than 30 units but less than or equal to 40 units C) greater than 40 units but less than or equal to 50 units D) greater than 50 units Answer: C Difficulty: Moderate Keywords: periodic review, standard deviation of demand over protection interval Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

10) Use the information in Scenario 9.15. What is the safety stock needed to achieve a 90% service level? A) less than or equal to 45 units B) greater than 45 units but less than or equal to 55 units C) greater than 55 units but less than or equal to 65 units D) greater than 65 units Answer: C Difficulty: Moderate Keywords: periodic review, standard deviation of demand over protection interval Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

11) Use the information in Scenario 9.15. What is the target inventory level needed to achieve a 90% service level? A) less than or equal to 1000 units B) greater than 1000 units but less than or equal to 1250 units C) greater than 1250 units but less than or equal to 1500 units D) greater than 1500 units Answer: B Difficulty: Moderate Keywords: periodic review, standard deviation of demand over protection interval Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

12) A(n) ________ is a system of inventory control in which a maximum level is marked on the storage bin or shelf, and the inventory is brought up to the mark periodically. Answer: single-bin system Difficulty: Moderate Keywords: single-bin system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

13) A(n) ________ is a system of inventory control in which the inventory records are always current. Answer: perpetual inventory system Difficulty: Moderate Keywords: perpetual inventory system Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the review interval and target inventory level for a periodic review inventory control system.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 10 Operations Planning and Scheduling 10.1 Levels in Operations Planning and Scheduling 1) The purpose of operations planning and scheduling is to make sure that 100% of the forecasted demand is fulfilled all the time. Answer: FALSE Difficulty: Moderate Keywords: operations planning and scheduling, demand, supply Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

2) The terms "aggregate plan" and "sales and operations plan" are synonymous. Answer: TRUE Difficulty: Easy Keywords: sales and operations plan, aggregate plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

3) When performing sales and operations planning, companies can aggregate products or services but not members of their workforce. Answer: FALSE Difficulty: Moderate Keywords: aggregation, clustering Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

4) A product family is a group of customers, services, or products that have similar demand requirements and common processes, labor, and materials requirements. Answer: TRUE Difficulty: Moderate Keywords: product family Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

5) For the student advisement service at a university, business majors and education majors would constitute two different product families. Answer: TRUE Difficulty: Moderate Keywords: product family Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

6) Sales and operations planning is part of a multi-year strategic planning framework. Answer: FALSE Difficulty: Moderate Keywords: sales and operations plan, planning horizon Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

7) A manufacturing firm's sales and operations plan generates only a production plan and not a staffing plan. Answer: FALSE Difficulty: Moderate Keywords: sales and operations plan, production plan, staffing plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

8) A services firm's sales and operations plan generates only a production plan and not a staffing plan. Answer: TRUE Difficulty: Moderate Keywords: sales and operations plan, production plan, staffing plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

9) A master production schedule is a schedule that specifies the timing, size, and sequence of production for aggregated product families. Answer: FALSE Difficulty: Moderate Keywords: master production schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

10) A sales and operations plan for a service firm is: A) a staffing plan. B) a process plan. C) a marketing plan. D) a production plan. Answer: A Difficulty: Easy Keywords: staffing, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

11) A sales and operations plan for a manufacturing firm that centers on manufacturing rates and inventory holdings is: A) a staffing plan. B) a production plan. C) a marketing plan. D) a process plan. Answer: B Difficulty: Easy Keywords: production, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

12) Which one of the following statements about sales and operations planning is best? A) A production plan generally focuses on production rates and inventory holdings, whereas a staffing plan focuses on staffing and other labor-related factors. B) Supply options are actions that adjust demand patterns. C) Operations and marketing are the only two functional areas that supply inputs for developing production and staffing plans. D) A level strategy stabilizes inventory levels by adjusting production rates or staff levels to match demand levels over the planning horizon. Answer: A Difficulty: Moderate Keywords: production plan, staffing plan, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

13) The employees of Global Bike Incorporated specialized in either their mountain bike or touring bike line, but there were a few workers that were equally adept at assembling either product. For sales and operations planning purposes, the latter group could be: A) aggregated. B) reassigned. C) subcontracted. D) overtimed. Answer: A Difficulty: Moderate Keywords: aggregation, clustering Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

14) Which one of the following statements about managerial inputs to production and staffing plans is best? A) Finance provides labor and machine standards. B) Human resources provide the training capacity and labor-market conditions. C) Marketing provides the schedule of sales associates. D) Materials provide the current staffing level. Answer: B Difficulty: Moderate Keywords: production plan, staffing plan, sales and operations plan, managerial inputs Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

15) Which one of the following statements concerning production and staffing plans is best? A) Aggregation can be performed along three dimensions: product families, labor, and time. B) A staffing plan is the intermediate link between the business plan and the master production schedule. C) Production plans are based primarily on information from the master production plan. D) A master production schedule is a projected statement of income, costs, and profits. Answer: A Difficulty: Moderate Keywords: production plan, staffing plan, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

16) Companies perform aggregation along the three dimensions of: A) products, labor, customers. B) time, suppliers, services. C) products / services, labor, time. D) time, products, customers. Answer: C Difficulty: Moderate Keywords: product, service, labor, time, aggregate planning Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

17) The planning horizon for a sales and operations plan is typically: A) 0 - 3 months. B) 3 - 18 months. C) 18 - 36 months. D) 36 - 60 months. Answer: B Difficulty: Moderate Keywords: planning horizon Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

18) A financial assessment of a for-profit organization's near future (for one or two years ahead) is a(n): A) business plan. B) annual plan. C) resource plan. D) financial budget. Answer: A Difficulty: Easy Keywords: financial plan, business plan, for-profit organization Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

19) A financial assessment of a not-for-profit organization's near future (for one or two years ahead) is a(n): A) business plan. B) annual plan. C) resource plan. D) financial budget. Answer: B Difficulty: Easy Keywords: financial plan, business plan, not-for-profit organization Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

20) The intermediate link between the business plan and the MPS is the: A) annual plan. B) production plan. C) financial plan. D) workforce schedule. Answer: B Difficulty: Moderate Keywords: business plan, MPS, master production schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

21) The lowest planning level in a sales and operations plan is: A) resource planning. B) forecasting. C) scheduling. D) sales and operations planning. Answer: C Difficulty: Moderate Keywords: sales and operations plan, scheduling Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

22) The timing and size of production quantities for each product in the product family is specified by the: A) master production schedule. B) material requirements plan. C) resource plan. D) scheduling plan. Answer: A Difficulty: Moderate Keywords: master production schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

23) The plans for the components, purchased materials, and workstations are developed in the: A) master production scheduling process. B) material requirements planning process. C) scheduling process. D) constraint management process. Answer: B Difficulty: Moderate Keywords: material requirements planning (MRP) Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

24) A service firm's sales and operations plan, called a(n) ________, centers on staffing and other laborrelated factors. Answer: staffing plan Difficulty: Moderate Keywords: service firm, staffing plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

25) The process of making sure demand and supply plans are in balance is known as ________. Answer: operations planning and scheduling Difficulty: Moderate Keywords: operations planning and scheduling, demand, supply Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

26) A group of customers, services, or products that have similar demand requirements and common process, labor, and materials requirements is called a(n) ________. Answer: product family Difficulty: Moderate Keywords: product family, product group, common processes, labor, materials Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

27) A master production schedule specifies the ________ and ________ of production quantities for each product in the product families. Answer: timing, size Difficulty: Moderate Keywords: master production schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

28) The ________ is a schedule that specifies the timing and size of production quantities for each product in the product family. Answer: master production schedule Difficulty: Moderate Keywords: master production schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

29) The ________ takes the master production schedule and derives plans for components, purchased materials and workstations. Answer: material requirements plan Difficulty: Moderate Keywords: master production schedule, material requirements plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

30) A manufacturing firm's sales and operations plan generates both a(n) ________ plan and a(n) ________ plan. Answer: production, staffing Difficulty: Moderate Keywords: sales and operations plan, production plan, staffing plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

31) What is the impact of the sales and operations plan on the human resources and finance functions of a firm? Answer: A sales and operations plan specifies how the company will work for the next year or so toward its broad, long-term goals. From these medium-range plans, managers prepare detailed operating plans. One facet of the sales and operations plan is how the labor resources of a firm will be managed, what mix of skills will be required, and how much labor is needed. Human Resources is aware of labormarket conditions and training capacities that might impact a firm's ability to hire, train, and produce. The financial function seeks ways to minimize expenses and finance cash flows created by the sales and operations plan. Difficulty: Moderate Keywords: sales and operations plan, finance, human resources Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

32) How can the workforce be aggregated? Answer: The workforce can be aggregated in various ways depending on flexibility. If workers are cross-trained on several products, management can consider the workforce to be a single aggregate group even though the skills of individual workers may differ. Alternatively, management can aggregate employees along product family lines by splitting the workforce into subgroups and assigning a different group to the production of each product family. The workforce could also be aggregated on the basis of full-time or part-time. Difficulty: Moderate Keywords: workforce aggregation, sales and operations plan, labor flexibility Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

33) What is a product family? Answer: A product family is a group of products or services that has similar demand requirements and common processing, labor, and / or materials requirements. Difficulty: Moderate Keywords: product family Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

34) The Acme Company is a cosmetics manufacturing company with corporate offices in Indianapolis. Explain how corporate goals and objectives developed as a business plan in Indianapolis become the tangible plans and steps that are actually implemented in Acme's remote production plants located in Virginia, Ohio and Arizona. Answer: The Sales and Operations Plan is the vehicle that takes corporate goals and objectives and translates them into actionable steps at an outlying plant. Discussions may vary, but should consider the various levels shown in Figure 10.2 of the text. The business plan and operations strategy developed at high levels in the organization are inputs to the Sales and Operations Plan. Acme's Indianapolis management works with management at the remote plants, and helps them establish goals in the areas of workforce capacity and resource planning to satisfy the Sales and Operations Plan and, in turn, the corporate business plan. Difficulty: Moderate Keywords: sales and operations plan, business plan, operations strategy, workforce, resource planning Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the rationale behind the levels in the operations planning and scheduling process.

10.2 S&OP Supply Options 1) Some ways to manage demand include building anticipation inventories of goods and hiring or laying off employees. Answer: FALSE Difficulty: Moderate Keywords: anticipation inventory, workforce adjustments Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

2) Firms that are most likely to use backlogs tend to have a make-to-stock strategy. Answer: FALSE Difficulty: Moderate Keywords: backlog, demand management Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

3) A manufacturer facing seasonal demand can use anticipation inventory to absorb the uneven rates of demand. Answer: TRUE Difficulty: Moderate Keywords: anticipation inventory, seasonal demand Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

4) Since demand for tax preparation services is seasonal, a tax preparer can use anticipation inventory to absorb the uneven rates of demand. Answer: FALSE Difficulty: Moderate Keywords: anticipation inventory, seasonal demand Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

5) Overtime is the situation that occurs when employees do not have enough productive work for the regular-time workday or workweek. Answer: FALSE Difficulty: Easy Keywords: undertime, overtime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

6) Jake reports to the courier department Monday through Friday and stays from 9 am to 5 pm but many times does not have enough work to keep him busy. Regardless, he is paid for a full eight hours even on those days when he spends more time on social media than delivering supplies. This is an example of undertime. Answer: TRUE Difficulty: Easy Keywords: undertime, regular time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

7) A company is attempting to cope with seasonal demand patterns by managing its demand. Which one of the following will not help achieve this aim? A) complementary products or services B) adjusting workforce levels C) promotional campaigns D) creative pricing Answer: B Difficulty: Moderate Keywords: demand options, supply options Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

8) Acme expected demand for rocket-powered roller skates to pick up during Roadrunner Season, so they built hundreds of extra pairs and stored them out of season. The excess production is: A) buffer stock. B) throughput. C) lagniappe. D) anticipation inventory. Answer: D Difficulty: Moderate Keywords: production plan, staffing plan, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

9) The meaning of undertime is: A) employees work as usual, but they are paid at a lower rate. B) employees don't have enough productive work for the number of hours that they normally work. C) employees work more than normal hours, but they are not compensated. D) the workweek of some employees is permanently reduced. Answer: B Difficulty: Moderate Keywords: undertime, regular time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

10) The time that employees work that is longer than the regular workday or workweek for which they receive additional pay is: A) slack time. B) premium. C) overtime. D) the workweek. Answer: C Difficulty: Easy Keywords: overtime, regular time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

11) Which one of the following statements concerning supply options is best? A) Subcontracting can help overcome short-term capacity shortages by offloading work on other producers. B) Creating anticipation inventory increases customization and is particularly favored in the service industry. C) Adjusting workforce levels is preferred when the workforce is skilled and the labor pool is small. D) Using overtime capacity usually improves worker hourly productivity. Answer: A Difficulty: Moderate Keywords: supply options Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

12) Two basic types of decision alternatives are used to arrive at acceptable production or staffing plans: supply options and demand options. If an organization that faces seasonal demand uses a supply option approach, which one of the following actions is it most likely to implement? A) introduction of complementary products B) creating a stock of anticipation inventory C) advertising to generate demand during off-peak periods D) discounting products in off-peak periods Answer: B Difficulty: Moderate Keywords: supply options, demand options, anticipation inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

13) Which one of the following statements concerning sales and operations planning alternatives is best? A) Building anticipation inventory during the slack season is a demand management option a firm can follow to satisfy seasonal demand patterns. B) Adjusting workforce levels is an attractive reactive alternative when the cost of training and unemployment compensation is high. C) Creating anticipation inventory has the advantage of increasing customization. D) Using overtime is an undesirable option when the overtime wage premium is high and sustained levels of top worker productivity are important. Answer: D Difficulty: Challenging Keywords: sales and operations planning, overtime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

14) The university housekeeping and maintenance staff was cut by 50% during late December and early January when students were home breaking things and trashing their parents' houses instead of university property. This type of schedule for housekeeping and maintenance workers is a(n): A) vacation schedule. B) part time schedule. C) undertime schedule. D) seasonal schedule. Answer: A Difficulty: Moderate Keywords: vacation schedule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

15) ________ takes advantage of the tangible nature of manufactured goods to absorb uneven rates of supply and demand. Answer: Anticipation inventory Difficulty: Moderate Keywords: anticipation inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

16) ________ is the situation that occurs when employees work longer than the regular workday or workweek. Answer: Overtime Difficulty: Moderate Keywords: overtime, regular time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

17) An alternative to a workforce adjustment is a change in workforce utilization involving ________ and ________. Answer: overtime, undertime Difficulty: Moderate Keywords: overtime, undertime, workforce adjustment, workforce utilization Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

18) A company can meet short-term capacity shortages by arranging with ________ outside of their normal workforce to provide necessary services. Answer: subcontractors Difficulty: Moderate Keywords: subcontracting, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

19) Pick any manufacturing organization and describe some supply options at their disposal. Answer: Supply options are actions that respond to given demand patterns. Examples of organizations will vary. The supply options discussed in the text include anticipation inventory, workforce adjustment, workforce utilization, part time workers, subcontractors, and vacation schedules. Difficulty: Moderate Keywords: supply options Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

20) What is anticipation inventory and what are the benefits and drawbacks of having it? Answer: Anticipation inventory is inventory used to absorb uneven rates of supply or demand. A plant facing seasonal demand can produce at a constant rate year-round and merely store the production during the down phase of demand. A constant level of plant utilization is easier to manage. Anticipation inventory can be costly to hold depending on storage and spoilage rates and the company's cost of capital. Difficulty: Moderate Keywords: anticipation inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe the supply options used in sales and operations planning.

10.3 S&OP Strategies 1) A level strategy matches demand during the planning horizon by keeping the workforce level or the output rate constant. Answer: TRUE Difficulty: Moderate Keywords: level output strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

2) One type of cost considered when preparing a sales and operations plan is the materials purchase cost. Answer: FALSE Difficulty: Moderate Keywords: sales and operations planning, inventory holding cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

3) Investment return that is unrealized by stocking raw materials and finished goods can be classified as holding cost. Answer: TRUE Difficulty: Easy Keywords: holding cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

4) Once a sales and operations plan has been finalized, it is frozen and cannot be changed, since doing so would skew the process results. Answer: FALSE Difficulty: Easy Keywords: sales and operations planning process, demand forecast Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

5) As October came to a close, Geoff updated the sales and operations plan with figures for actual sales, production, inventory, costs, and constraints before turning the production staff's attention to November, a process known as: A) planning. B) rolling. C) closing out. D) pencil whipping. Answer: B Difficulty: Moderate Keywords: sales and operations plan, planning horizon Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

6) An aggressive advertising campaign was credited with K-Tel's inability to keep K-Fed's latest CD on the shelves. K-Tel continued to accept orders and promised to ship as soon as they could burn new discs. Customers weren't happy, but were willing to wait. This unfortunate situation can be described as a: A) stockout. B) backlog. C) backorder. D) lost sale. Answer: C Difficulty: Moderate Keywords: demand options, backorder Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

7) A customer is given a due date for their product order with: A) backlog. B) reservation. C) service on demand. D) appointment. Answer: A Difficulty: Easy Keywords: customer, demand options, backlog Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

8) Which one of the following conditions favors a level strategy for manufacturing firms? A) high availability of workers B) short shelf life of inventory C) highly automated equipment and a make-to-stock strategy D) high inventory-holding cost Answer: C Difficulty: Moderate Keywords: level strategy, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

9) Which one of the following statements regarding production and staffing plans is best? A) A producer of greeting cards for all occasions can use a level strategy to good advantage because of the complementary nature of the products and the workforce to produce many varieties of cards. B) The production plan outlines time-phased production rates, workforce levels, and inventories without considering capacity limitations. C) A decision to vertically integrate is one of the possible demand options a firm may employ when operating under uneven demand conditions. D) An advantage of employing demand options is that creative pricing and promotional campaigns increase the contribution margin. Answer: A Difficulty: Moderate Keywords: production plans, staffing plans, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

10) Which one of the following statements about sales and operations planning is best? A) When a firm wants to minimize its inventory investment, it should use a level production-planning strategy. B) When a firm wants to emphasize stability in its workforce, it should adopt a level production-planning strategy. C) A make-to-stock production plan that wants to emphasize plant utilization should adopt a chase production strategy. D) A make-to-stock production plan that wants to minimize changes in production rates should adopt a chase production-planning strategy. Answer: B Difficulty: Moderate Keywords: level strategy, sales and operations plan, stable workforce Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

11) Which one of the following actions applies to a level strategy? A) Hire workers to increase production output to match increases in demand requirements. B) Build anticipation inventory to meet the variability in demand. C) Decrease production output to match any decreases in demand requirements. D) Use promotional campaigns to boost demand. Answer: B Difficulty: Moderate Keywords: level strategy, anticipation inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

12) The sales and operations planning strategy to be used should be consistent with the business environment. Which one of the following pairs of business environment and strategy is consistent? A) skilled labor in short supply; adjust workforce levels B) low inventory holding cost; build anticipation inventory C) ample labor supply; increase backlog for short-term demand surges D) seasonal requirements and ample, unskilled labor supply; subcontracting Answer: B Difficulty: Moderate Keywords: sales and operations planning, anticipation inventory, inventory holding cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

13) Which one of the following statements about costs of sales and operations plans is best? A) Overtime wages are typically 50% of regular time wages, exclusive of fringe benefits. B) The cost of capital is not generally included in the inventory-holding cost. C) Fringe benefits, which are a part of regular-time costs, do not typically include health insurance and paid vacations. D) Hiring costs include the costs of advertising jobs, interviews, training programs for new employees, and initial paperwork. Answer: D Difficulty: Moderate Keywords: sales and operations plan, hiring costs Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

14) Which of these sales and operations planning levers is associated with interviews, training, and severance pay? A) backorders and stockouts B) hiring and layoffs C) use of overtime D) holding inventory Answer: B Difficulty: Moderate Keywords: sales and operations plan, physical constraint Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

15) Backorders and stockouts are most likely to cause expenses for: A) advertising costs. B) lost productivity. C) cost of capital. D) lost sales. Answer: D Difficulty: Moderate Keywords: sales and operations plan, physical constraint Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

16) Which of the following is the best example of a physical constraint on the sales and operations plan? A) inventory storage space B) level of backorders C) use of overtime D) safety stock levels Answer: A Difficulty: Moderate Keywords: sales and operations plan, physical constraint Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

17) Pilferage, obsolescence, and insurance costs are all elements of this cost category. A) staffing B) backorder and stockout C) production D) inventory holding Answer: D Difficulty: Moderate Keywords: holding cost, inventory, interest Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

18) ________ is the accumulation of customer orders that have been promised for delivery at some future date. Answer: Backlog Difficulty: Moderate Keywords: backlog, customer order Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

19) A(n) ________ is an order that cannot be satisfied when demanded and causes the customer to go elsewhere. Answer: stockout Difficulty: Moderate Keywords: stockout, lost order Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

20) A(n) ________ strategy involves hiring and laying off employees to match the demand forecast over the planning horizon. Answer: chase Difficulty: Moderate Keywords: chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

21) The chase strategy involves ________ and ________ employees to match the demand forecast over the planning horizon. Answer: hiring, laying off Difficulty: Moderate Keywords: chase strategy, hiring, laying off Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

22) The level strategy maintains a constant ________ level or ________ level during the planning horizon. Answer: workforce, output Difficulty: Moderate Keywords: level workforce, output level Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

23) A(n) ________ is a strategy that considers and implements a fuller range of supply options than a pure chase or level strategy. Answer: mixed strategy Difficulty: Moderate Keywords: mixed strategy, level strategy, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

24) How is the sales and operations planning process similar to the forecasting process? Answer: Sales and operations planning is presented as a six-step cyclical process consisting of gathering data, demand planning, updating S&OP spreadsheets, consensus meetings, executive S&OP meeting, and finalize and communicate, with this sixth step feeding back into the first (data gathering) step. The process is cyclical because S&OP is done with a time horizon that permits refinement of plans as time progresses. Demand forecasts, customer orders, capacity, and materials prices and availability that have been projected several months in advance may change over time and in time for the production planners to take action. The forecasting process discussed in chapter 13 is also cyclical; forecasts for several months in the future can be refined as the target time period draws near and more is learned about the forecasting arena. Both processes are data driven and quantitative in nature, with the output subject to adjustment by the manager/decision-maker responsible for implementation. Difficulty: Moderate Keywords: supply options, demand options Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

25) Choose any service and provide examples of how they can use a chase strategy for sales and operations planning. Answer: Student examples will vary, but a service typically hires temporary or seasonal workers or uses overtime to handle fluctuations in demand. Examples include universities' use of adjunct faculty, agriculture's use of migrant workers, and so on. Difficulty: Moderate Keywords: service, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

26) What is the difference between a chase strategy and a level strategy in sales and operations planning? Answer: A chase strategy involves hiring and laying off employees to match the demand forecast over the planning horizon. The output level varies as the employee count varies. The level strategy involves keeping the workforce constant and either varying utilization and/or varying level of inventory. Difficulty: Moderate Keywords: chase strategy, level strategy, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

27) What is a mixed-strategy approach to sales and operations planning? Answer: A mixed strategy takes the best combination of chase and level plans to determine output levels. As with most things, rarely is slavish adhesion to a level or chase plan the absolute best course of action in all circumstances. A mixed strategy allows the planner to take the best of both approaches to developing a sales and operations plan. Difficulty: Moderate Keywords: mixed strategy, sales and operations plan Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Compare the chase planning strategy to the level planning strategy for developing sales and operations plans.

10.4 Spreadsheets for Sales and Operations Planning 1) The inventory usually stays constant over the planning horizon in a sales and operations plan using a level strategy. Answer: FALSE Difficulty: Moderate Keywords: spreadsheet, sales and operations planning, inventory costs Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Use spreadsheets for sales and operations planning.

Table 10.1 A manufacturing firm uses a level utilization production-planning horizon of three months. They have developed a forecast for the coming three months that appears in the table. They can add no more than 5% of their production capacity as overtime and can order no more than 10% of a month's regular capacity via subcontractors. The company has a zero backorder policy but has space for a maximum of 250 items in their finished-goods inventory. All extra costs are shown in the table.

Forecasted Demand Regular Capacity Workforce level Overtime ($50/unit) Subcontracting ($120/unit) Inventory holding ($15/unit)

October 2,100 2,000

November 1,900 2,000

December 2,350 2,000

Total Cost 2) Use the information in Table 10.1. What is the total cost (overtime, subcontracting and inventory holding costs) for the month of October corresponding to the least cost production plan? A) $4,000 B) $5,000 C) $6,000 D) $7,500 Answer: B Difficulty: Moderate Keywords: sales and operations plan, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

3) Use the information in Table 10.1. What is the total cost (overtime, subcontracting and inventory holding costs) for the month of December corresponding to the least cost production plan? A) $8,000 B) $10,000 C) $11,000 D) $12,500 Answer: C Difficulty: Moderate Keywords: sales and operations plan, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

4) Use the information in Table 10.1. What is the total cost (overtime, subcontracting and inventory holding costs) over the planning horizon (i.e. for the months of October, November and December combined) corresponding to the least cost production plan? A) $20,000 B) $12,000 C) $24,000 D) $25,000 Answer: C Difficulty: Challenging Keywords: sales and operations plan, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

5) Use the information in Table 10.1. What is the ending inventory for the month of October corresponding to the least cost production plan? A) -100 units B) 0 units C) 100 units D) 200 units Answer: B Difficulty: Moderate Keywords: sales and operations plan, ending inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

6) Use the information in Table 10.1. What is the ending inventory for the month of November corresponding to the least cost production plan? A) -100 units B) 0 units C) 100 units D) 200 units Answer: D Difficulty: Moderate Keywords: sales and operations plan, ending inventory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

7) Use the information in Table 10.1. How many units are produced using overtime for the month of November corresponding to the least cost production plan? A) 0 units B) 50 units C) 100 units D) 200 units Answer: C Difficulty: Moderate Keywords: sales and operations plan, overtime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

8) Use the information in Table 10.1. How many units are produced using subcontracting for the month of November corresponding to the least cost production plan? A) 0 units B) 50 units C) 100 units D) 200 units Answer: A Difficulty: Moderate Keywords: sales and operations plan, subcontracting Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

9) Use the information in Table 10.1. How many units are produced using overtime for the month of December corresponding to the least cost production plan? A) 0 units B) 50 units C) 100 units D) 200 units Answer: C Difficulty: Moderate Keywords: sales and operations plan, overtime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

10) Use the information in Table 10.1. How many units are produced using subcontracting for the month of December corresponding to the least cost production plan? A) 0 units B) 50 units C) 100 units D) 200 units Answer: B Difficulty: Moderate Keywords: sales and operations plan, subcontracting Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

11) Use the information in Table 10.1. What is the total cost (overtime, subcontracting and inventory holding costs) for the month of November corresponding to the least cost production plan? A) $8,000 B) $10,000 C) $11,000 D) $12,500 Answer: A Difficulty: Moderate Keywords: sales and operations plan, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

Table 10.2 Archie Toys is a retailer operating out of Wichita, Kansas. It experiences a seasonal demand pattern for its services. Labor requirements over a typical six-month period follow. The workforce requirements (expressed as number of employees) are given in the following table for the next six periods.

Costs associated with operations are as follows: Wages = $800 per worker per month Hiring cost = $300 per worker Layoff cost = $200 per worker The current workforce level is nine workers, and the undertime is paid for. Use the spreadsheet approach and the preceding data to answer the following questions. 12) Use the information in Table 10.2. The total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs using a chase strategy with hiring and layoffs but no overtime, is: A) less than or equal to $42,000. B) greater than $42,000 but less than or equal to $43,000. C) greater than $43,000 but less than or equal to $44,000. D) greater than $44,000. Answer: D Difficulty: Moderate Keywords: sales and operations plan, staffing plan, total cost, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

13) Use the information in Table 10.2. The total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs, using a level strategy in which no overtime is allowed and the undertime paid for, is: A) less than or equal to $60,000. B) greater than $60,000 but less than or equal to $65,000. C) greater than $65,000 but less than or equal to $70,000. D) greater than $70,000. Answer: A Difficulty: Moderate Keywords: sales and operations plan, staffing plan, total cost, level strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

14) Use the information in Table 10.2. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages are 150% of the regular-time rate. The total cost of the level strategy with overtime and undertime, which also minimizes undertime, is: A) less than or equal to $60,000. B) greater than $60,000 but less than or equal to $65,000. C) greater than $65,000 but less than or equal to $70,000. D) greater than $70,000. Answer: A Difficulty: Challenging Keywords: sales and operations plan, staffing plan, total cost, level strategy, undertime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

Table 10.3 A large distribution center uses some part-time employees in its workforce. Each part-time employee works a maximum of 80 hours per month. The workforce requirements (expressed as the number of parttime employees working the maximum regular time of 80 hours per month) are given in the following table for the next six periods.

The relevant costs are: Wages = $350/month/worker Hiring cost = $100/worker Layoff cost = $50/worker Overtime cost = 150% of regular-time rate The current workforce level is 60, and overtime cannot exceed 25% of regular-time capacity. Use the spreadsheet approach to answer the following questions. 15) Use the information in Table 10.3. The total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs, using a chase strategy with hiring and layoffs but no overtime, is: A) less than or equal to $125,000. B) greater than $125,000 but less than or equal to $125,500. C) greater than $125,500 but less than or equal to $126,000. D) greater than $126,000. Answer: D Difficulty: Moderate Keywords: sales and operations plan, staffing plan, regular time, hiring, layoffs, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

16) Use the information in Table 10.3. Use a level strategy with overtime and undertime. Minimize undertime by maximizing overtime during the peak period. If the firm does not pay undertime, what is the total cost of the staffing plan including the cost of regular wages, hiring, and layoffs? A) less than or equal to $158,000 B) greater than $158,000 but less than or equal to $160,000 C) greater than $160,000 but less than or equal to $162,000 D) greater than $162,000 Answer: A Difficulty: Moderate Keywords: sales and operations plan, staffing plan, regular time, overtime, undertime, hiring, layoffs, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

17) Use the information in Table 10.3. Use a chase strategy with hiring and layoffs but no overtime. How many workers will be hired in month 3? A) fewer than or equal to zero B) greater than zero but fewer than or equal to 10 C) greater than 10 but fewer than or equal to 20 D) greater than 20 Answer: D Difficulty: Moderate Keywords: sales and operations plan, staffing plan, regular time, hiring, layoffs, chase strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

18) A manufacturing firm uses a level utilization production-planning horizon of three months. They have developed a forecast for the coming three months that appears in the table. They can add no more than 10% of their production capacity as overtime and can order no more than 10% of a month's regular capacity via subcontractors. The company has a zero backorder policy but has space for a maximum of 150 items in their finished-goods inventory. If all extra costs are shown in the table, what is the minimum cost sales and operations plan?

Forecasted Demand Regular Capacity Workforce level Overtime ($40/unit) Subcontracting ($100/unit) Inventory holding ($10/unit)

January February 1,100 950 1,000 1,000

March 1,350 1,000

Total Cost Answer: Quantities appear in the upper section of the spreadsheet; costs are totaled at the bottom of each column.

Forecasted Demand Regular Capacity Workforce level Overtime ($40/unit) Subcontracting ($100/unit) Inventory holding ($10/unit) Total Cost

January February 1,100 950 1,000 1,000 1,000 1,000 100 95 0 0 0 145 4,000

5,250

March 1,350 1,000 1,000 135 70 0 12,400

Difficulty: Moderate Keywords: sales and operations plan, level strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

19) A retailer experiences a seasonal demand pattern for its services. Labor requirements over a typical six-month period follow. Period Requirement

1 7

2 8

3 9

4 11

5 12

6 7

Costs associated with operations are as follows: Wages = $2,000 per worker per month Hiring cost = $1,000 per worker Layoff cost = $1,500 per worker The current workforce level is 10 workers. Use the spreadsheet approach and the preceding data to answer the following questions: a. What is the total cost of a staffing plan, including the cost of regular wages, hiring, and layoffs using a chase strategy with hiring and layoffs, but no overtime? b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed and the undertime paid for? c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages are 150% of the regular-time rate. What is the total cost of the level strategy with overtime and undertime that also minimizes undertime?

Answer: a.

c. To minimize undertime, take maximum requirements divided by the quantity one plus the percent of overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.

Difficulty: Moderate Keywords: sales and operations plan, staffing plan, level strategy, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

20) A retailer experiences a seasonal demand pattern for its services. Labor requirements over a typical six-month period follow. Period Requirement

1 12

2 10

3 12

4 8

5 9

6 8

Costs associated with operations are as follows: Wages = $1,500 per worker per month Hiring cost = $1,500 per worker Layoff cost = $1,500 per worker The current workforce level is 11 workers. Use the spreadsheet approach and the preceding data to answer the following questions. a. What is the total cost of the staffing plan, including the cost of regular wages, hiring, and layoffs using a chase strategy with hiring and layoffs, but no overtime? b. What is the total cost of the staffing plan, using a level strategy in which no overtime is allowed, and the undertime paid for? c. Suppose that overtime is allowed up to 25% of the regular-time capacity, and that overtime wages are 150% of the regular-time rate. What is the total cost of the level strategy with overtime and undertime that also minimizes undertime?

Answer: a.

c. To minimize undertime, take maximum requirements divided by the quantity one plus the percent of overtime allowed. In this case, 12/1.25 = 9.6, so use a plan with 10 workers.

21) The demand forecast for the next four periods is 90, 100, 120, and 140 units respectively. The plant has a regular capacity of 100 units per period, an overtime capacity of 10 units per period, and a subcontractor capacity of 5 units per period. There is a $5 per unit charge for regular production, an $8 per unit charge for overtime production, and a $9 per unit charge for subcontracting. The holding cost is $3 per unit per period, no shortages are allowed and the company has 5 units in inventory at the start of the planning period. a. How many units should be produced using overtime? b. How many units should be produced using subcontracting? c. What is the total inventory holding cost? d. What is the lowest total plan cost? e. Fill out this table showing the number of units made by period using each type of production and the resulting inventory at the end of each period.

Forecast Regular Overtime Subcontracting Ending Inventory

Period 1 Period 2 Period 3 Period 4 Total Cost 90 100 120 140

Answer: a. 30 units made using overtime b. 15 units made using subcontracting c. $210 total holding cost (70 unit-periods) d. $2,585 total plan cost e. table appears below:

Forecast Regular ($5) Overtime ($8) Subcontracting ($9) Ending Inventory ($3)

Period 1 Period 2 Period 3 Period 4 Total Cost 90 100 120 140 100 100 100 100 $2,000 0 10 10 10 $240 0 5 5 5 $135 15 30 25 0 $210 $2,585

Difficulty: Moderate Keywords: sales and operations planning, overtime, subcontracting, inventory holding cost, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

22) A service firm uses a level utilization production-planning horizon of six months. They have developed a forecast for the coming six months that appears in the table. They can add no more than 33% of their production capacity as overtime. What is the minimum cost sales and operations plan?

Answer: Quantities appear in the upper section of the spreadsheet; costs are totaled at the bottom of each column.

23) A service firm uses a level utilization production-planning horizon of six months. They have developed a forecast for the coming three quarters that appears in the table. They can add no more than 15% of their production capacity as overtime. What is the minimum cost sales and operations plan? Can they deliver on their forecast?

Answer: Quantities appear in the upper section of the spreadsheet; costs are totaled at the bottom of each column.

They cannot meet their forecast during periods 3, 4, and 6. Difficulty: Challenging Keywords: sales and operations plan, level strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Use spreadsheets for sales and operations planning.

10.5 Workforce and Workstation Scheduling 1) Scheduling involves generating a work schedule for employees or sequences of jobs or customers at workstations. Answer: TRUE Difficulty: Easy Keywords: scheduling, work schedule, sequences of jobs Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

2) The Gantt chart can be used as a tool for sequencing work on machines and monitoring its progress. Answer: TRUE Difficulty: Easy Keywords: Gantt chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

3) A rotating schedule rotates employees through a series or workstations or tasks. Answer: FALSE Difficulty: Moderate Keywords: rotating schedule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

4) A fixed schedule gives each employee the next employee's schedule the following week. Answer: FALSE Difficulty: Easy Keywords: fixed schedule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

5) Jobs processed using the first-come-first-served priority rule still permits them to be expedited. Answer: TRUE Difficulty: Moderate Keywords: first-come-first-served, FCFS, priority rules, expediting Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

6) Earliest due date (EDD) is a priority-sequencing rule that states the job requiring the shortest processing time is the next job to be processed. Answer: FALSE Difficulty: Moderate Keywords: EDD, priority, sequence, early, due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

7) Flow time is only the time a job spends being processed, and excludes any time waiting to be processed, equipment set up time and time spent moving between operations. Answer: FALSE Difficulty: Moderate Keywords: flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

8) Advanced planning and scheduling systems (APS) seek to optimize resources across the supply chain and align daily operations with strategic goals. Answer: TRUE Difficulty: Moderate Keywords: APS, supply chain, strategic goals Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

9) The workforce schedule: A) determines when employees work. B) determines how many workers are needed over an extended horizon. C) determines the daily worker requirements. D) specifies the specific task each worker is to do and when. Answer: A Difficulty: Moderate Keywords: workforce scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

10) Gantt charts can be used to: A) monitor the progress of jobs but cannot be used to sequence work on each machine. B) sequence work on each machine but cannot be used to monitor the progress of each job. C) monitor the progress of jobs and sequence work on each machine. D) monitor the average number of defective parts generated by a machine on each job. Answer: C Difficulty: Moderate Keywords: Gantt chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

11) Job flow time is defined as the: A) time of completion of a job plus the time it was available in a work station. B) processing time to complete a particular job. C) time of completion of the last job of a group minus the starting time of the first job. D) amount of time by which a group of jobs missed their due dates. Answer: A Difficulty: Moderate Keywords: job flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

12) The purpose of a rotating schedule is to: A) assign each employee to work the same days and hours each week. B) assign senior employees more opportunity to have weekends off. C) deal with certain undesirable aspects of several individual workforce schedules. D) make sure the legal constraints imposed on workforce schedules are satisfied. Answer: C Difficulty: Moderate Keywords: rotating schedule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

Table 10.4 Gable Express Co. provides delivery service seven days a week. The daily requirements (in workers) are estimated as follows: Day Requirement

M 8

T 4

W 5

TH 3

F 7

S 3

SU 3

Each worker is required to work five days per week, and each must have two consecutive days off. 13) Use the information in Table 10.4. What is the minimum number of workers required if preference is given to the pair S-SU in case of a tie in the selection of off days? A) fewer than eight workers B) eight workers C) nine workers D) greater than nine workers Answer: B Difficulty: Moderate Keywords: workforce scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

14) Use the information in Table 10.4. How much total slack will be generated from the schedule? A) fewer than six days B) six days C) seven days D) greater than seven days Answer: C Difficulty: Moderate Keywords: workforce scheduling, total slack Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Table 10.5 The daily requirements for highway patrol officers at Park City over the week are: Day Requirement

M 11

T 9

W 6

TH 7

F 5

S 3

SU 2

Each officer works five days a week and must have two consecutive days off. 15) Use the information in Table 10.5. What is the minimum number of officers required if preference is given to the pair S-SU in case of a tie in the selection of off days? A) 9 B) 10 C) 11 D) 12 Answer: C Difficulty: Moderate Keywords: workforce scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

16) Use the information in Table 10.5. How much total slack is generated from the schedule? A) fewer than 9 days B) 10 days C) 11 days D) greater than 11 days Answer: D Difficulty: Moderate Keywords: workforce scheduling, total slack Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Table 10.6 Bluebird University provides tutoring services for undergraduate students seven days a week. The daily requirements for tutors are: Day Requirement

M 5

T 4

W 7

TH 3

F 6

S 3

SU 3

Each tutor works five days a week and must have two consecutive days off, according to the contract. 17) Use the information in Table 10.6. What is the minimum number of tutors required if preference is given to the pair S-SU in case of a tie in the selection off days? A) fewer than seven B) seven C) eight D) nine Answer: B Difficulty: Moderate Keywords: workforce scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

18) Use the information in Table 10.6. How many days will have slack capacity? A) fewer than three B) three C) four D) greater than four Answer: A Difficulty: Moderate Keywords: workforce scheduling, total slack Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Table 10.7 The framing department has six jobs waiting to be processed. It is now time zero and all jobs are ready to begin. Each has only one operation remaining. All jobs arrived at the same time, and FCFS begins with job A, then B, etc.

Job A B C D E F

Processing Time 5 7 8 3 9 12

Due Date 12 18 6 10 22 17

19) Using the information in Table 10.7 and the first-come, first-served (FCFS) rule, what is the average days past due? A) fewer than or equal to 6 days B) greater than 6 days but fewer than or equal to 10 days C) greater than 10 days but fewer than or equal to 14 days D) greater than 14 days Answer: C Difficulty: Moderate Keywords: first-come, first-served, FCFS, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

20) Using the information in Table 10.7 and the earliest due date (EDD) rule, what is the average days past due? A) fewer than or equal to 5 days B) greater than 5 days but fewer than or equal to 9 days C) greater than 9 days but fewer than or equal to 13 days D) greater than 13 days Answer: C Difficulty: Moderate Keywords: earliest due date, EDD, SPT, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Table 10.8 Suppose that the following six jobs must be scheduled through a computer repair facility (repair times are shown in days):

Customer A B C D E F

Time Since Order Arrived (days ago) 10 7 5 5 6 8

Repair Time 5 3 7 8 4 6

Due Date (days from now) 11 9 10 8 7 6

21) Use the information in Table 10.8 to answer this question. Which customer's computer is repaired the latest (the most past due) if an SPT sequence is obeyed? A) Customer F B) Customer D C) Customer A D) Customer C Answer: B Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

22) Use the information in Table 10.8 to answer this question. Which customer's computer is repaired the latest (the most past due) if an EDD sequence is obeyed? A) Customer F B) Customer A C) Customer B D) Customer E Answer: B Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

23) Use the information in Table 10.8 to answer this question. What is the flow time for customer A if an SPT sequence is obeyed? A) 10 days B) 17 days C) 20 days D) 22 days Answer: D Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

24) Use the information in Table 10.8 to answer this question. What is the flow time for customer D if an EDD sequence is obeyed? A) 23 days B) 15 days C) 20 days D) 9 days Answer: A Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

25) Use the information in Table 10.8 to answer this question. Which customers retain the same positions in both an EDD and an SPT sequence? A) Customers F and D B) Customers E and C C) Customers B and D D) Customers A and F Answer: B Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Table 10.10 A work center has the following six jobs waiting to be processed (all times are shown in days):

Job A B C D E F

Time Since Job Arrival (days ago) 6 5 4 3 2 1

Process Time 4 6 7 8 5 3

Due Date (days from now) 10 7 12 8 20 15

26) Use the information in Table 10.10. Which job will be the last one completed if scheduling is done using the earliest due date (EDD) rule? A) Job C B) Job D C) Job E D) Job A Answer: C Difficulty: Moderate Keywords: earliest due date, EDD Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

27) Use the information in Table 10.10. Which job will be the first one completed if scheduling is done using the earliest due date (EDD) rule? A) Job B B) Job C C) Job D D) Job E Answer: A Difficulty: Easy Keywords: earliest due date, EDD Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

28) Use the information in Table 10.10. What is the average past due (in days) using the FCFS rule? A) fewer than or equal to 5 days B) greater than 5 days but fewer than or equal to 7 days C) greater than 7 days but fewer than or equal to 9 days D) greater than 9 days Answer: C Difficulty: Moderate Keywords: average days past due, first-come, first-served, FCFS Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

29) Use the information in Table 10.10. What is the average past due (in days) using the EDD rule? A) fewer than or equal to 5 days B) greater than 5 days but fewer than or equal to 7 days C) greater than 7 days but fewer than or equal to 9 days D) greater than 9 days Answer: C Difficulty: Moderate Keywords: average days past due, earliest due date, EDD Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

30) Use the information in Table 10.10. What is the average flow time (in days) using the FCFS rule? A) fewer than or equal to 15 days B) greater than 15 days but fewer than or equal to 25 days C) greater than 25 days but fewer than or equal to 35 days D) greater than 35 days Answer: B Difficulty: Moderate Keywords: average flow time, first-come, first-served, FCFS Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

31) Use the information in Table 10.10. What is the average flow time (in days) using the EDD rule? A) fewer than or equal to 15 days B) greater than 15 days but fewer than or equal to 25 days C) greater than 25 days but fewer than or equal to 35 days D) greater than 35 days Answer: B Difficulty: Moderate Keywords: average flow time, earliest due date, EDD Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

32) ________ is the amount of time a job spends in the service or manufacturing system. Answer: Flow time Difficulty: Moderate Keywords: job flow Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

33) ________ is the amount of time by which a job missed its due date. Answer: Past due, Tardiness Difficulty: Moderate Keywords: past due, tardiness Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

34) A(n) ________ graphically displays the load on a productive resource of interest, i.e., when it is busy and when it is idle. Answer: Gantt workstation chart Difficulty: Moderate Keywords: Gantt workstation chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

35) A hospital must have a skeleton crew on hand during the undesirable work period from midnight to 8 o'clock. One way to make sure that all employees have the opportunity to work this shift is by adopting a(n) ________. Answer: rotating schedule Difficulty: Moderate Keywords: rotating schedule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

36) A(n) ________ seeks to optimize resources across the supply chain and align daily operations with strategic goals. Answer: advanced planning system, APS Difficulty: Moderate Keywords: APS, advanced planning system Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

37) How do Gantt charts assist schedulers in arriving at feasible schedules? Answer: The progress chart shows the current status of jobs already in progress in the shop. The machine chart shows the sequence of work scheduled at each machine. This chart can be used to determine if a new job can be inserted in the schedule of any machine without disrupting the progress of current jobs. In addition, the machine chart can be used to arrive at a different schedule of the current jobs by trial-and-error. Difficulty: Moderate Keywords: Gantt chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

38) What is a Gantt chart? What does Gantt stand for? Answer: Gantt charts come in two flavors; the progress chart and the workstation chart. The progress chart shows the current status of jobs already in progress in the shop. The workstation chart shows the sequence of work scheduled at each workstation. This chart can be used to determine if a new job can be inserted in the schedule of any workstation without disrupting the progress of current jobs. In addition, the workstation chart can be used to arrive at a different schedule of the current jobs by trial-and-error. Gantt is not an acronym but an operations pioneer's last name. Henry Gantt. Difficulty: Moderate Keywords: Gantt chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

39) Imagine you are the owner/operator of a custom printing business. One morning you arrive at work and discover you have five customer orders that have different requirements and different total processing times. You ponder the sequence for a while and then decide to run the printing jobs in firstcome, first-served order. What are some measures you could apply to your performance to measure whether you have done a good job? How is each measure calculated? Answer: The two measures discussed in the text are flow time and past due. These values can be calculated for each customer order and then an overall average flow time and average past due can be calculated for the FIFO sequence. Flow time is the finish time added to the time since the job arrived. Since the five customer orders are ready when you arrive that morning, then each job's flow time will be the job's finish time. The past due measurement is the amount of time by which the job has missed its due date. In this example, the value Due Time — Completion Time = Past Due. Again, these values can be calculated for each job and these values can then be averaged for an overall average past due measure. Difficulty: Moderate Keywords: scheduling performance measures, flow time, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

40) What does an advanced planning system do and what are the functions of the major components? Answer: An advanced planning system (APS) optimizes resources across the supply chain and aligns daily operations with strategic goals. The systems typically have these components: demand planning, supply network planning, available-to-promise, and manufacturing scheduling. The demand-planning module enables companies in a supply chain to share demand forecasts. The supply-network planner contains optimization models based on linear programming to make long-term decisions such as the number and location of plants and distribution centers. The available-to-promise module checks the availability of components and materials, enabling the firm to promise delivery. The manufacturing scheduling component determines an optimal grouping and sequencing of manufacturing orders. Difficulty: Moderate Keywords: advanced planning system APS Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Develop workforce and workstation schedules.

41) Jim's Restaurant operates seven days a week. The daily requirements (in workers) are estimated as follows:

Each worker is required to work five days per week, and each must have two consecutive days off. What is the minimum number of workers needed? Provide the days off that each worker receives. Answer:

Difficulty: Moderate Keywords: workforce scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

42) Wally's Bar operates seven days a week. The daily requirements (in workers) are estimated as follows:

Each worker is required to work five days per week, and each must have two consecutive days off. What is the minimum number of workers needed? Provide the days off that each worker receives. Answer:

43)

Job A B C D E F

Process Time (days) 2 8 4 10 5 12

Due Time (days) 7 16 4 17 15 18

Days Since Arrival 12 9 8 5 3 2

Use the information in the preceding table and sequence the six jobs using FCFS and EDD. The jobs are listed in the order of their arrival. Calculate the average flow time and average past due. It is now time zero. Answer:

Average Flow Time = 159 ÷ 6 = 26.5 Average Days Past Due = 54 ÷ 6 = 9.0

Average Flow Time = 146 ÷ 6 = 24.33 Average Days Past Due = 38 ÷ 6 = 6.33 Difficulty: Moderate Keywords: first come, first served, FCFS, earliest due date, EDD, average flow time, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

44)

Job A B C D E F

Process Time 5 9 7 2 3 8

Due Date 7 5 9 3 4 8

Days Since Arrival 11 9 9 7 5 2

Use the information in the preceding table and sequence the six jobs using first come, first served (FCFS) and earliest due date (EDD). Calculate the average flow time and average past due. It is now time zero. Answer:

Average Flow Time = 166 ÷ 6 = 27.67 Average Days Past Due = 89 ÷ 6 = 14.83

Average Flow Time = 144 ÷ 6 = 24.00 Average Days Past Due = 66 ÷ 6 = 11.00 Difficulty: Moderate Keywords: first come, first served, FCFS, earliest due date, EDD, average flow time, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

45)

Job Hepner Cheng Allison Miller Dickson Noel Bahouth

Days Since Arrival 0 4 1 2 4 5 4

Process Time 7 2 8 8 12 16 16

Due Date 1 3 10 10 11 2 3

Use the information in the preceding table and sequence the seven jobs using first come, first served (FCFS) and earliest due date (EDD). Calculate the average flow time and average past due. It is now time 5.

Answer: The FCFS sequence is:

Day Process Job Arrived Time Hepner 0 7 Allison 1 8 Miller 2 8 Cheng 4 2 Dickson 4 12 Bahouth 4 16 Noel 5 16

Due Date 1 10 10 3 11 3 2

Order first second third fourth fifth sixth seventh

FINISH 11 19 27 29 41 57 73

Days Waiting to Day 5 start of Flow Processing Time Late incl in Finish 11 10 3 16 9 4 23 17 1 28 26 1 40 30 1 56 54 0 73 71

FINISH 11 27 29 45 53 61 73

Days Waiting to Day 5 start of Processing incl in Finish 0 1 1 3 4 1

Average flow time is 35.29 Average past due is 31 The EDD sequence is:

Job Hepner Noel Cheng Bahouth Allison Miller Dickson

Day Arrived 0 5 4 4 1 2 4

Process Time 7 16 2 16 8 8 12

Due Date 1 2 3 3 10 10 11

Order first second third fourth fifth sixth seventh

Flow Time Late 11 10 27 25 28 26 44 42 50 43 57 51 72 62

Average flow time is 41.29 Average past due is 37 Difficulty: Moderate Keywords: first come, first served, FCFS, earliest due date, EDD, average flow time, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

46)

Job Hepner Cheng Allison Miller Dickson Noel Bahouth

Arrival Date 0 2 1 3 4 5 6

Process Time 17 15 2 8 13 12 16

Due Date 12 10 14 13 17 9 8

Answer: The FCFS sequence and results are:

Job Hepner Allison Cheng Miller Dickson Noel Bahouth

Arrival Date 0 1 2 3 4 5 6

Process Time 17 2 15 8 13 12 16

Due Date 12 14 10 13 17 9 8

Order first second third fourth fifth sixth seventh

Days Waiting to Day 8 start of Flow FINISH Processing Time Late 24 incl in Finish 24 12 26 6 20 12 41 5 36 31 49 4 45 36 62 3 59 45 74 2 72 65 90 1 89 82

Order first second third fourth fifth sixth seventh

Days Waiting to Day 8 start of Flow FINISH Processing Time Late 23 incl in Finish 23 15 35 2 33 26 50 5 45 40 67 1 66 55 75 4 71 62 77 6 71 63 90 3 87 73

Average Flow Time = 49.29 Average Days Past Due = 40.43 The EDD sequence and results are:

Job Bahouth Noel Cheng Hepner Miller Allison Dickson

Arrival Date 6 5 2 0 3 1 4

Process Time 16 12 15 17 8 2 13

Due Date 8 9 10 12 13 14 17

Average Flow Time = 56.57 Average Days Past Due = 47.71 Difficulty: Moderate Keywords: first come, first served, FCFS, earliest due date, EDD, average flow time, average days past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Develop workforce and workstation schedules.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 11 Resource Planning 11.1 Material Requirements Planning 1) Material requirements planning (MRP) is a system developed specifically to aid in managing the forecasted demand for independent demand inventory items. Answer: FALSE Difficulty: Moderate Keywords: material requirements planning (MRP) Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

2) In the context of material requirements planning (MRP), the wheel rim for a bicycle is an example of a component which is a parent. Answer: FALSE Difficulty: Moderate Keywords: parent, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

3) Dependent demand for an item occurs because the quantity required for it varies with the production plans of one or more parents. Answer: TRUE Difficulty: Moderate Keywords: dependent demand, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

4) A component is an item that may go through one or more operations to be transformed into or become part of one or more parents. Answer: TRUE Difficulty: Easy Keywords: component, parent, transform Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

5) If the demand for an independent demand item is continuous and uniform, so will the planned order releases of its components. Answer: FALSE Difficulty: Moderate Keywords: dependent demand, continuous Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

6) Which of the following is not an example of dependent demand items? A) shoelaces, shoes B) wheels, car C) carafes, coffeemakers D) ice skates, roller skates Answer: D Difficulty: Moderate Keywords: dependent demand Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

7) Any item manufactured from one or more components is a(n): A) parent. B) component. C) intermediate item. D) purchased item. Answer: A Difficulty: Moderate Keywords: parent, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

8) Under which one of the following circumstances can an MRP system be used to its best advantage? A) when the item's demand depends only on customer demand B) when the item's demand is uniform C) when the item's demand is constant D) when the item's demand depends on the production plans of its parent(s) Answer: D Difficulty: Moderate Keywords: material requirements planning (MRP) Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

9) The demand for an item that occurs because the quantity required varies with the production plan for other items is known as ________. Answer: dependent demand Difficulty: Moderate Keywords: dependent demand, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

10) In MRP, a(n) ________ is an item that may go through one or more operations to be transformed into or become part of one or more parents. Answer: component Difficulty: Moderate Keywords: component, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

11) ________ is a computerized information system developed specifically to aid in managing dependentdemand inventory and scheduling replenishment orders. Answer: MRP, material requirements planning Difficulty: Easy Keywords: MRP, material requirements planning, dependent demand Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

12) Explain the difference between independent and dependent demand and illustrate your explanation with an example. Answer: Examples will vary. The key difference between the two is whether the demand for item A is driven directly or by the demand for item B. End items are typically independent demand since their demand is subject only to customers' appetite. The components used to make up the end item have their demand determined by the number of end items that are required during any production period. Difficulty: Moderate Keywords: MRP, material requirements planning, input Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.

11.2 Master Production Scheduling 1) The master production schedule (MPS) is the part of the material requirements planning that specifies when components must be ordered or assembled. Answer: FALSE Difficulty: Moderate Keywords: master production schedule, MPS, material requirements plan Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

2) Available-to-promise, which is the inventory that marketing can promise to customers is computed as the difference between forecasted demand and planned production. Answer: FALSE Difficulty: Moderate Keywords: ATP, available to promise inventory, MPS, master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

3) The near-term portion of the master production schedule is often frozen to reduce forecasting requirements. Answer: TRUE Difficulty: Moderate Keywords: MPS, master production schedule, freezing Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

4) The projected on-hand inventory for a particular week in the MPS takes into account the MPS quantity and the booked customer orders for that week. Answer: FALSE Difficulty: Moderate Keywords: MPS, master production schedule, on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

5) The projected on-hand inventory in the MPS takes into account customer orders (booked) as well as the MPS quantities. Answer: TRUE Difficulty: Moderate Keywords: MPS, master production schedule, projected on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

6) Gross requirements are the total demand derived from all parent production plans. Answer: TRUE Difficulty: Moderate Keywords: gross requirements Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

7) Available-to-promise (ATP) quantities are only shown in the first period (if the projected on-hand inventory is greater than zero in the first period), and subsequently in periods when the MPS quantity is greater than 0. Answer: TRUE Difficulty: Moderate Keywords: available-to-promise quantities, ATP, MPS quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

Table 11.1 Sweet Holiday Cakes has developed the following forecast of demand and accepted orders for their holiday cakes as they enter the holiday season. They enter the planning period with 50 cakes in inventory as shown in Week 0. Week Forecast Customer Orders Projected onhand inventory MPS ATP

1 60

2 60

3 50

4 35

5 60

8) Use Table 11.1 to answer this question. If Sweet Holiday Cakes makes cakes in batches of 25, what should their MPS entry be for the first week of production? A) 25 B) 50 C) 60 D) 80 Answer: A Difficulty: Moderate Keywords: master production schedule, MPS quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

9) Use Table 11.1 to answer this question. What should their MPS entry be for the fourth week of production? A) 25 B) 50 C) 60 D) 80 Answer: B Difficulty: Moderate Keywords: master production schedule, MPS quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

10) Use Table 11.1 to answer this question. What is their projected on-hand inventory for week 4? A) 10 B) 20 C) 25 D) 50 Answer: B Difficulty: Moderate Keywords: master production schedule, projected on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

11) Use Table 11.1 to answer this question. What is the available-to-promise (ATP) quantity for week 1? A) 0 B) 5 C) 25 D) 50 Answer: B Difficulty: Moderate Keywords: master production schedule, available-to-promise, ATP Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

Table 11.2 Mutts Amazing Dogs has developed the following demand forecast for The Pitbull, a spicy concoction graced by pepperjack cheese, serrano, habanero, poblano and jalapeno peppers, onion, and a cilantrolime aioli. They enter the planning period with 20 hotdogs in inventory as shown in Week 0. A few customers have standing orders for hotdogs and they have booked catering events over the next two months. They buy their hotdogs in packages of ten just like you and me. Week Forecast Customer Orders Projected onhand inventory MPS ATP

1 70

2 80

3 90

4 100

5 120

6 140

7 170

8 220

12) Use Table 11.2 to answer this question. What should the MPS quantity be for week 5? A) 190 B) 120 C) 170 D) 160 Answer: B Difficulty: Moderate Keywords: master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

13) Use Table 11.2 to answer this question. What is their available to promise inventory for week 4? A) 30 B) 50 C) 70 D) 90 Answer: D Difficulty: Moderate Keywords: master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

14) Use Table 11.2 to answer this question. The sales manager realizes that he shifted a decimal point for week 3; instead of customer orders for 30, they actually have customer orders for 300. "My bad," he says to no one in particular. The production manager retreats to the sanctity of his office and after dismembering his sales-manager voodoo doll, sets about making things right. What's the proper MPS quantity for week 3 now that the orders are straightened out? A) 280 B) 270 C) 300 D) 290 Answer: C Difficulty: Moderate Keywords: master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

15) Use Table 11.2 to answer this question. Mutt decides to operate on a level MPS plan for weeks 1 through 4. What MPS quantity brings them into week 5 with the same ATP as if they had adopted a more traditional approach? A) 190 B) 150 C) 170 D) 160 Answer: A Difficulty: Challenging Keywords: master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

16) Operations produces a number of items in one production period. Those items that are not produced for a specific customer order are ________. Answer: available to promise inventory Difficulty: Moderate Keywords: available to promise, ATP Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

17) ________ is an estimate of the amount of inventory available each week after gross requirements have been satisfied. Answer: Projected on-hand inventory Difficulty: Moderate Keywords: projected on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

18) ________ is a part of the material requirements plan that details how many end items will be produced within specified periods of time. Answer: Master production schedule/ MPS Difficulty: Moderate Keywords: master production schedule, MPS Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

19) Complete the following MPS Record.

Answer:

Difficulty: Moderate Keywords: MPS, master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe the process of developing a master production schedule (MPS) and compute availableto-promise quantities.

20) Complete the following MPS Record.

Answer:

Difficulty: Moderate Keywords: MPS, master production schedule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Describe a master production schedule (MPS) and compute available-to-promise quantities.

11.3 MRP Explosion 1) A materials requirements planning (MRP) explosion occurs when the system is bombarded with too many orders to schedule at one time. Answer: FALSE Difficulty: Easy Keywords: material requirements planning (MRP) Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

2) A bill of materials is a listing of all the materials that needed to be ordered from a supplier to meet the forecasted customer demand. Answer: FALSE Difficulty: Easy Keywords: bill of materials, BOM Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

3) Part commonality tends to increase inventory costs. Answer: FALSE Difficulty: Moderate Keywords: part commonality, inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

4) Gross requirements are the total demand derived from all parent production plans. Answer: TRUE Difficulty: Moderate Keywords: gross requirements, demand, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

5) In the context of materials requirements planning, usage quantity is the amount by which the finished goods inventory is depleted based on booked customer orders. Answer: FALSE Difficulty: Moderate Keywords: BOM, bill of materials, usage quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

6) An intermediate item must have at least one parent and at least one component. Answer: TRUE Difficulty: Moderate Keywords: intermediate item, parent, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

7) Planned receipts are estimates of the amount of inventory available each week after gross requirements have been satisfied. Answer: FALSE Difficulty: Moderate Keywords: planned receipts, projected on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

8) For items manufactured in-house, one component of the planned lead time is waiting time. Answer: TRUE Difficulty: Moderate Keywords: planned lead time, waiting time Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

9) The periodic order quantity (POQ) rule tends to keep more inventory on hand than the lot-for-lot rule, but less inventory on hand than the fixed order quantity rule. Answer: TRUE Difficulty: Moderate Keywords: periodic order quantity rule, fixed order quantity rule, lot for lot rule, POQ, FOQ, L4L Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

10) Lot-for-lot (L4L) is a rule that maintains the same order quantity each time an order is issued. Answer: FALSE Difficulty: Moderate Keywords: lot-for-lot rule, L4L, order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

11) MRP II ties MRP to the company's financial system. Answer: TRUE Difficulty: Moderate Keywords: MRP, MRP II, material requirements planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

12) Which of the following statements about MRP is true? A) To be classified as a successful MRP user, a company must use either the L4L or POQ rules for lot sizing. B) MRP gross requirements for a parent item are equal to the planned order releases of its components. C) MRP logic is based on the logic of uniform, continuous demand, and item independence. D) MRP gross requirements for a component depend on the planned order releases of its immediate parents. Answer: D Difficulty: Moderate Keywords: MRP, material requirements planning, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

13) Which one of the following is an input to the MRP system? A) shop-floor schedules B) financial reports C) master production schedule D) purchasing orders Answer: C Difficulty: Moderate Keywords: MRP, material requirements planning, input Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

14) If a planned receipt for an item is due in week 6 and the item's lead time is two weeks, in which week will the corresponding planned order release occur? A) week 2 B) week 4 C) week 6 D) week 8 Answer: B Difficulty: Moderate Keywords: planned order receipt, planned order release Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

15) Which one of the following statements about lot-sizing rules is true? A) The periodic order quantity (POQ) rule seeks to create inventory remnants. B) If the POQ rule is used, an item's lot size can vary each time an order is placed. C) The lot-for-lot (L4L) rule is a special case of the fixed-order quantity (FOQ) rule. D) All lot-sizing rules seek to minimize inventory levels. Answer: B Difficulty: Moderate Keywords: lot, sizing, POQ, periodic order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

16) Which one of the following is an MRP lot-sizing rule that attempts to minimize the amount of average inventory? A) periodic order quantity (POQ), with P = 2 B) fixed order quantity (FOQ) C) economic order quantity (EOQ) D) lot for lot (L4L) Answer: D Difficulty: Moderate Keywords: MRP, material requirements planning, L4L Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

17) Which statement on MRP explosion is best? A) It calculates the total number of subassemblies, components, and raw materials needed for each parent item. B) It calculates the total number of raw materials to be purchased from all suppliers. C) It calculates the total number of parts to be produced for each parent item. D) It calculates the total number of parts needed to be produced less the number of parts on hand for each parent item. Answer: A Difficulty: Moderate Keywords: MRP, material requirements planning, explosion Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

18) Which of the following statements concerning MRP is true? A) Dependent-demand items tend to experience relatively constant demand rates. B) MRP systems use independent demands for each component item. C) Capacity requirements planning (CRP) uses open orders (scheduled receipts) and planned order releases to estimate capacity requirements for critical workstations. D) The most accurate way to forecast dependent demand is to examine past usage rates. Answer: C Difficulty: Moderate Keywords: MRP, material requirements planning, CRP, capacity requirements planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

19) Which one of the following is a feature of MRP II, but not available in basic MRP systems? A) financial projections B) action notices C) dispatch lists D) capacity reporting Answer: A Difficulty: Moderate Keywords: MRP, material requirements planning, MRP II Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

20) Which of the following statements about MRP II is best? A) It is computationally faster than regular MRP. B) It is limited only to aiding order-launching decisions. C) It incorporates informal systems through the use of expert systems technology. D) It provides more extensive information than MRP because it is tied to the company's financial system. Answer: D Difficulty: Moderate Keywords: MRP II, manufacturing resource planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

21) Use the following partially completed MRP record to answer the question.

What are the quantities of planned order releases for item ABC for the first five weeks (weeks 1, 2, 3, 4, and 5)? A) 30, 0, 60, 0, 145 B) 60, 0, 145, 0, 0 C) 0, 30, 60, 0, 0 D) 30, 0, 60, 145, 0 Answer: B Difficulty: Moderate Keywords: MRP, material requirements planning, planned order release Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

22) Use the following partially completed MRP record to answer the question.

What are the quantities of planned order releases for item XYZ for the first six weeks (weeks 1, 2, 3, 4, 5, and 6)? A) 20, 30, 0, 40, 20, 0 B) 35, 0, 60, 0, 0, 0 C) 5, 30, 0, 40, 20, 0 D) 35, 0, 0, 40, 20, 0 Answer: A Difficulty: Moderate Keywords: MRP, material requirements planning, planned order release Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

23) Use the following partially completed MRP record to answer the question.

What is the planned order release quantity in week 4? A) 0 units B) greater than 0 units but fewer than or equal to 50 units C) greater than 50 units but fewer than or equal to 100 units D) greater than 100 units Answer: D Difficulty: Moderate Keywords: MRP, material requirements planning, planned order release Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

24) Use the following MRP record to answer the question.

Which one of the statements concerning item LMN is true? A) The scheduled receipt of 80 units in week 3 should be expedited so that it is finished in week 2. B) The planned order release quantity in week 3 is 80 units. C) The planned receipt quantity in week 6 is 30 units. D) The projected on-hand inventory in week 8 is 70 units. Answer: A Difficulty: Challenging Keywords: scheduled receipt, planned order release, projected on-hand inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

25) Management wishes to use a POQ lot-sizing rule for an item that experiences an average demand of 30 units per week. If the desired average lot size is 120 units, what should P be? A) zero or one week B) two or three weeks C) four or five weeks D) more than five weeks Answer: C Difficulty: Moderate Keywords: lot sizing, POQ Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

26) Management wishes to use an FOQ lot-sizing rule for an item based on the economic order quantity. If the annual demand is 1,200 units, the holding cost is $10 per unit per year, and the setup cost is $50 per lot, which one of the following fixed-order quantities is most appropriate? A) 90 units B) 110 units C) 130 units D) 150 units Answer: B Difficulty: Moderate Keywords: lot sizing, FOQ Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

Scenario 11.1 Sunshine Manufacturing produces three products: X, Y, Z. The production of these end items is controlled by an MRP system. Each end item X is assembled with two components of A and one component of B. Each end item of Y is assembled with two components of C and one component of A. End item Z is assembled from one unit of D and one unit of C; D is manufactured from one unit of A; and C is manufactured from one unit of B. 27) Use the information in Scenario 11.1. Which of the following sequences is an acceptable way to process the inventory records for components A, B, C, and D? A) A, B, C, D B) D, A, B, C C) B, A, D, C D) C, B, D, A Answer: D Difficulty: Challenging Keywords: order processing Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

28) Use the information in Scenario 11.1. If item C has a manufacturing lead time of two weeks, and a planned receipt of 65 units is needed in week 4, which of the following statements is true? A) The planned order release in week 2 for item C is 130 units. B) The gross requirements for item B in week 4 is 65 units. C) The gross requirements for item B in week 2 is 130 units. D) The gross requirements for item B in week 2 is 65 units. Answer: D Difficulty: Challenging Keywords: gross requirements Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

Scenario 11.2 Use this bill of materials and inventory records to answer the questions.

Item A B C

Amount 15 20 10

Item D E F

Amount 0 20 15

Inventory amounts indicated in the table are available to produce the end item indicated in this bill of materials. 29) Use Scenario 11.2 to answer this question. How many additional units of D are needed to produce twenty end items? A) 50 B) 100 C) 125 D) 150 Answer: B Difficulty: Moderate Keywords: bill of materials, BOM Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

30) Use Scenario 11.2 to answer this question. How many additional units of E are needed to produce ten end items? A) 50 B) 85 C) 110 D) 130 Answer: C Difficulty: Moderate Keywords: bill of materials, BOM Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

31) Use Figure Scenario 11.2 to answer this question. How many additional units of F are needed to produce ten end items? A) 35 B) 45 C) 60 D) 100 Answer: B Difficulty: Moderate Keywords: bill of materials, BOM Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

32) Use Scenario 11.2 to answer this question. How many additional units of C are needed to produce fifteen end items? A) 50 B) 85 C) 110 D) 130 Answer: A Difficulty: Moderate Keywords: bill of materials, BOM Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

33) Which of the following is not used to derive an item's gross requirements? A) the MPS for immediate parents that are end items B) the planned order releases for immediate parents below the MPS level C) the MPS components that are not purchased items D) any other requirements not originating in the MPS, such as the demand for replacement parts Answer: C Difficulty: Moderate Keywords: gross requirements, MRP explosion Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

34) A computer-generated memo used by inventory planners to make decisions about releasing new orders and adjusting due dates of scheduled receipts is an: A) enterprise report. B) infinite capacity. C) action notice. D) input-output report. Answer: C Difficulty: Moderate Keywords: planned order release, scheduled receipt, action notice Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

Scenario 11.3 Use this bill of materials and inventory records to answer the questions.

Item A B C

Amount 0 10 15

Item D E F

Amount 5 25 10

Inventory amounts indicated in the table are available to produce the end item indicated in this bill of materials. 35) Use Scenario 11.3 to answer this question. How many additional units of D are required to produce 10 end items? A) 35 B) 45 C) 50 D) 65 Answer: B Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

36) Use Scenario 11.3 to answer this question. How many additional units of E are required to produce 20 end items? A) 150 B) 185 C) 215 D) 235 Answer: D Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

37) Use Scenario 11.3 to answer this question. How many additional units of F are required to produce 15 end items? A) 50 B) 80 C) 90 D) 110 Answer: B Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

38) Use Scenario 11.3 to answer this question. How many additional units of A are required to produce 25 end items? A) 50 B) 80 C) 90 D) 110 Answer: A Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

39) A technique used for projecting time-phased capacity requirements for workstations is called: A) capacity requirements planning. B) time-adjusted output control. C) input-output control. D) work center planning. Answer: A Difficulty: Moderate Keywords: capacity requirements planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

40) Which of the following is not one of the uses of MRP in promoting a healthy environment? A) An MRP system can track waste in a bill of materials as a component of an item. B) When the master production schedule is developed for a product, reports can be generated that project the quantity of waste. C) When the master production schedule is developed for a product, reports can be generated that project the timing of waste. D) The MRP system can be used to communicate directly with the International Organization for Standardization to file ISO 9000 documentation. Answer: D Difficulty: Easy Keywords: MRP, environment Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

41) Which best defines the gross requirements for a component item? A) the forecasted customer demand for the component B) the amount of safety stock needed to buffer against uncertainties C) the sum of gross requirements for all parents of the component D) the total demand for the component derived from all immediate parents Answer: D Difficulty: Moderate Keywords: component, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

Scenario 11.4 The table below provides part of the MRP record for an item.

42) Using the information in Scenario 11.4, what is the projected on-hand inventory at the end of period 3? A) 20 units B) 40 units C) 60 units D) 80 units Answer: B Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

43) Using the information in Scenario 11.4, what is the planned order release in week 4 if the FOQ rule is used? A) 50 units B) 75 units C) 100 units D) 200 units Answer: C Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

44) Using the information in Scenario 11.4, what is the projected on-hand inventory at the end of week 5 if the FOQ rule is used? A) 0 units B) 50 units C) 100 units D) 150 units Answer: A Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

45) Using the information in Scenario 11.4, what is the projected on-hand inventory at the end of week 6 if the FOQ rule is used? A) 0 units B) 40 units C) 50 units D) 80 units Answer: B Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

46) Using the information in Scenario 11.4, what is the projected on-hand inventory at the end of week 8 if the FOQ rule is used? A) 0 units B) 40 units C) 50 units D) 80 units Answer: D Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

47) MRP ________ is a process that converts the requirements of various final products into a material requirements plan that specifies the replenishment schedule of all the subassemblies, components, and raw materials needed by the final products. Answer: explosion Difficulty: Moderate Keywords: explosion, MRP, material requirements plan Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

48) The ________ is a record of all components of an item, the parent-component relationships, and usage quantities derived from engineering and process design. Answer: bill of materials, BOM Difficulty: Moderate Keywords: BOM, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

49) A(n) ________ item has one or more parents but no components. Answer: purchased Difficulty: Moderate Keywords: purchased item, parent, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

50) The L4L rule is a special case of the ________. Answer: POQ rule Difficulty: Moderate Keywords: POQ Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

51) Among the four core processes of an organization that link activities within and across firms in a supply chain, the ________ interacts with all of them either through its inputs or outputs. Answer: MRP system Difficulty: Moderate Keywords: MRP system, material requirements planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

52) A(n) ________ is an intermediate item that is assembled from one or more components. Answer: subassembly Difficulty: Moderate Keywords: subassembly, intermediate item, component Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

53) ________ is the degree to which a component has more than one immediate parent. Answer: Part commonality Difficulty: Moderate Keywords: part commonality, component, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

54) The sums of the quantities in the master production schedule must equal those in the ________. Answer: sales and operations plan Difficulty: Moderate Keywords: master production schedule, MPS, material requirements planning, MRP Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

55) A(n) ________ is a record that divides the future into time periods called time buckets. Answer: inventory record Difficulty: Moderate Keywords: inventory record, time bucket Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

56) One thing that an MRP II system has that an MRP system does not is ________. Answer: a linkage to the financial system Difficulty: Moderate Keywords: MRP II Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

57) ________ are the total demand derived from all parent production plans. Answer: Gross requirements Difficulty: Moderate Keywords: gross requirements, parent Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

58) ________ are orders that have been placed but not yet completed. Answer: Scheduled receipts Difficulty: Moderate Keywords: scheduled receipts, order Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

59) Waiting time and process time are two components of ________. Answer: lead time Difficulty: Moderate Keywords: waiting time, processing time, lead time Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

60) ________ is a lot-sizing rule under which the lot size ordered covers the gross requirements of a single week. Answer: Lot-for-lot, L4L Difficulty: Moderate Keywords: L4L, lot-for-lot sizing rule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

61) A(n) ________ is inventory carried into a week but too small to prevent a shortage. Answer: remnant Difficulty: Moderate Keywords: remnant, inventory Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

62) The lot-for-lot (L4L) rule minimizes inventory investment but it also maximizes the number of ________. Answer: orders, orders placed Difficulty: Moderate Keywords: lot-for-lot rule, L4L Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

63) ________ is a technique used for projecting time-phased capacity requirements for workstations. Answer: Capacity requirements planning, CRP Difficulty: Moderate Keywords: CRP, capacity requirements planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

64) ________ ties the basic MRP system to the company's financial system. Answer: Manufacturing resource planning, MRP II Difficulty: Moderate Keywords: MRP, material requirements planning, MRP II, manufacturing resource planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

65) What are the key inputs to an MRP system? Answer: The key inputs are the bill of materials, master production schedule, and inventory records. Difficulty: Moderate Keywords: MRP, material requirements planning, input Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

66) What is the explosion of the MPS and what are the outputs? Answer: MRP translates, or explodes, the MPS and other sources of demand into the requirements needed for all of the subassemblies, components, and raw materials the firm needs to produce parent items. This process generates the material requirements plan for each component item. An item's gross requirements are derived from three sources: 1. The MPS for immediate parents that are end items; 2. The planned order releases (not the gross requirements, scheduled receipts, or planned receipts) for immediate parents below the MPS level; 3. Any other requirements not originating in the MPS, such as the demand for replacement parts. Difficulty: Moderate Keywords: MRP, material requirements planning, input, MPS, explode Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

67) What information can be gleaned from a bill of materials? If you were asked to produce an item based solely on a copy of its BOM, what missing information would you need? Answer: A bill of materials is a record of all the components of an item, the parent component relationships, and the usage quantities derived from engineering and process designs. You would have a parts list, but would have no idea how long it might take to assemble an item, or receive the components from a supplier (lead times). You would also need to know what the levels of inventory were for each item listed in the BOM. Since the question is phrased as "produce an item" you might assume that only one end item was required, but if the interpretation is otherwise, you would need to know a production quantity. Difficulty: Moderate Keywords: MRP, material requirements planning, input Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

68) Explain the key differences between the FOQ, POQ, and L4L lot-sizing rules. Answer: A fixed-order-quantity (FOQ) rule maintains the same order quantity each time an order is issued but varies the time interval between orders. A periodic-order-quantity (POQ) rule allows a different order quantity to be specified but each order covers the requirements for a fixed number of time periods. A lot-for-lot (L4L) rule covers the gross requirements of a single week's production. POQ and L4L rules strive to avoid remnants and thus have smaller average inventory than FOQ. Because their average inventory is lower, they are less able to respond to last-minute changes in customer requests. Difficulty: Moderate Keywords: FOQ, POQ, L4L lot-sizing rules Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

69) Explain why, in a dependent demand environment, MRP does a better job of estimating the need to replenish inventory items than does the reorder point system. Answer: MRP works better for dependent-demand environments because statistical forecasting for components with lumpy demand results in large forecast errors. It also provides managers with information useful for planning capacities and estimating financial requirements, and it automatically updates the demand and inventory-replenishment schedules of components when the production schedule of parent items changes. Difficulty: Moderate Keywords: MRP, material requirements planning, lumpy demand Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

70) How can an MRP system be used in a firm's sustainability efforts? Answer: Companies can modify their MRP systems to help them track their wastes and plan for their disposal. The type and amount of waste associated with each item can be entered into its BOM by treating the waste much like you would a component of the item. When the MPS is developed for a product, reports can be generated that project the amount of waste expected during the production process and when it will occur. Although this approach can require that a firm's BOM be modified substantially, the benefits are also substantial. Firms can identify their waste problems in advance to eliminate them in some cases (through process improvement efforts) or plan for their proper disposal in others. It also gives the firm a way to generate any formal documentation required by the government to verify that it has complied with environmental laws and policies. Difficulty: Moderate Keywords: MRP, material requirements planning, lumpy demand Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

71) Complete the following MRP record using the POQ rule.

Answer:

Difficulty: Moderate Keywords: MRP record, POQ, periodic order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

72) Complete the following MRP record using the L4L rule:

Answer:

Difficulty: Moderate Keywords: MRP record, L4L, lot-for-lot rule Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

73) Complete the following MRP record using the FOQ rule:

Answer:

Difficulty: Moderate Keywords: MRP record, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

74) Complete the following MRP record using the FOQ rule:

Answer:

Difficulty: Moderate Keywords: MRP, material requirements planning, FOQ, fixed order quantity Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

75) Use the bill of materials and inventory records to determine the quantity of purchased items necessary to assemble 20 end items if the manufacturer uses lot-for-lot ordering. There are no end items currently on hand, and none of the components have any scheduled receipts. Component A B C

On-hand 5 75 10

Component D E F

On-hand 15 3 20

Answer: 20 End Items → 40 As less 5 on hand → 35 As 35 As → 70 Bs 35 As → 70 Ds less 15 Ds on hand → 55 Ds 20 End Items → 40 Cs less 10 on hand → 30 Cs 30 Cs → 30 Es less 3 on hand → 27 Es 30 Cs → 60 Fs less 20 on hand → 40 Fs 30 Cs → 90 Bs 90 Bs + 70 Bs →160 Bs less 75 on hand → 85 Bs Purchased Item B D E F

Qty to Order 85 55 27 40

Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

76) Use the bill of materials and inventory records to determine the additional quantities of purchased items necessary to assemble 15 end items if the manufacturer uses lot-for-lot ordering. There are no end items currently on hand, and none of the components have any scheduled receipts.

Item O P C

Amount 7 12 3

Item F U N

Amount 11 7 12

Item D E

Amount 2 8

Inventory amounts indicated in the table are available to produce the end item indicated in this bill of materials. Answer: Purchased Item Quantity to Order D 150 E 464 F 274 N 64 P 57 Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

77) Use the bill of materials and inventory records to determine the additional quantities of purchased items necessary to assemble 20 end items if the manufacturer uses lot-for-lot ordering. There are no end items currently on hand, and none of the components have any scheduled receipts.

Item O P C

Amount 5 14 7

Item F U N

Amount 17 3 10

Item D E

Amount 12 6

Inventory amounts indicated in the table are available to produce the end item indicated in this bill of materials. Answer: Purchased Item Quantity to Order D 216 E 618 F 142 N 104 P 91 Difficulty: Moderate Keywords: BOM, inventory record, bill of materials Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

78) Consider the MPS, BOM, and inventory data shown. Master Production Schedule: The following table shows the MPS start quantities for the next 10 weeks. Finished Item A

Finished Item A MPS Start

6 20

Bill of Material: - Item A uses 2 each of component D, 1 each of component C and 2 each of subassembly B. - Subassembly B uses 2 each of component E. Selected Inventory Data: Item Lot Sizing Rule B L4L C POQ = 3 D FOQ = 250 E L4L

Lead Time 1 2 1 2

Scheduled Receipts On-Hand 40 in period 1 40 100 160 in period 2

Construct the MRP schedule using the preceding information. Answer:

Difficulty: Challenging Keywords: MRP, material requirements planning, lot-for-lot, L4L, fixed order quantity, FOQ, periodic order quantity, POQ Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Analytical Thinking Learning Objective: Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.

11.4 Enterprise Resource Planning 1) An ERP system has multiple databases — one particularly for front-office operations like customer service and another for back-office operations such as manufacturing and payroll. Answer: FALSE Difficulty: Moderate Keywords: enterprise resource planning, ERP, database Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

2) Companies that fully customize their ERP implementation reap the greatest rewards from such systems since they can continue to use the same processes to which all employees are accustomed. Answer: FALSE Difficulty: Moderate Keywords: enterprise resource planning, ERP implementation Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

3) Futuristic ERP systems that are being built with functionality for data mining and handling large databases are called as "legacy systems." Answer: FALSE Difficulty: Easy Keywords: enterprise resource planning, legacy system Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

4) The companies SAP AG and Microsoft have the largest installed base of customers for ERP packages. Answer: FALSE Difficulty: Easy Keywords: enterprise resource planning, ERP Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

5) A companywide process that cuts across traditional functional areas, business units, geographic regions, and product lines is a(n): A) enterprise process. B) master production scheduling process. C) kinetic process. D) full-business process. Answer: A Difficulty: Easy Keywords: enterprise process Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

6) Entering new information in the database of an ERP system is a: A) data packet. B) transaction. C) record. D) file. Answer: B Difficulty: Easy Keywords: enterprise resource planning, transaction, ERP Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

7) A front-office module for an ERP system includes: A) manufacturing. B) accounting and finance. C) sales and marketing. D) human resources. Answer: C Difficulty: Easy Keywords: enterprise resource planning, ERP, front office Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

8) Which of the following is a back-office module in a typical ERP system? A) customer service B) sales C) marketing D) human resources Answer: D Difficulty: Easy Keywords: enterprise resource planning, ERP, back office Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

9) Which of the following statements about ERP systems is best? A) Recent studies have shown that the most successful ERP implementations use standardized systems. B) ERP systems written in XML require complete replacements of a company's legacy systems. C) A company must adapt their ERP system to their existing processes in order for all employees to gain a benefit from the new system. D) An ERP system requires a regular synchronization of all of the module databases, which is usually accomplished automatically when the organization is not conducting business. Answer: A Difficulty: Moderate Keywords: enterprise resource planning, ERP Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

10) A companywide process that cuts across functional areas, business units, geographic regions, and product lines is a(n) ________. Answer: enterprise process Difficulty: Moderate Keywords: enterprise process, ERP Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

11) Large, integrated systems that support many process and data storage needs across a business are known as ________. Answer: enterprise resource planning (ERP) systems Difficulty: Moderate Keywords: enterprise resource planning, ERP, data storage Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

12) What are the differences and similarities among material requirements planning, manufacturing resource planning, and enterprise resource planning systems? Answer: The materials requirement planning (MRP) system can be considered a subset of the manufacturing resource planning (MRP II) system, containing all of the production-related capabilities without the tie-in to the company's financial and other core and supporting process systems. The MRP II system could be considered a subset of an enterprise resource planning (ERP) system, containing everything an ERP system has without the single source of data, streamlined data flows, and availability of a wealth of real-time information for all employees. Difficulty: Moderate Keywords: MRP, material requirements planning Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

13) What is the basic idea behind an enterprise resource planning system? Answer: An enterprise resource planning system is a large, integrated information system that supports many, if not all, of a firm's processes and data storage needs. The organization can view its operations as a whole rather than guessing how activity in one area affects another. The common database eliminates multiple data entry and the mistakes that are inherent in multiple entry systems. Difficulty: Moderate Keywords: MRP, material requirements planning Learning Outcome: Describe the process and applications of enterprise resource planning (ERP) AACSB: Application of Knowledge Learning Objective: Explain how enterprise resource planning (ERP) systems can foster better resource planning.

11.5 Resource Planning for Service Providers 1) Since service processes generally do not involve tangible products, the bill of resources (BOR) for a service firm is a record of only the labor required to deliver the service to the customer. Answer: FALSE Difficulty: Moderate Keywords: BOR, bill of resources Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

2) Which of the following statements about service resource planning is true? A) The service analogy to the BOM in a manufacturing company is a bill of lading (BOL). B) One resource that every service provider manages is cash. C) There is no such thing as dependent demand in the service sector. D) As services are completed, the accounts receivable decrease. Answer: B Difficulty: Moderate Keywords: service, resource planning Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

3) An example of a dependent demand item for services is a(n): A) menu in a restaurant. B) jukebox in a club. C) operating suite at a hospital. D) pilot's checklist for an airline. Answer: C Difficulty: Moderate Keywords: dependent demand, service Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

4) Facilitating goods in a hotel's bill of resources would include a: A) housekeeper. B) fax machine. C) towel. D) front-desk clerk. Answer: C Difficulty: Moderate Keywords: facilitating goods, BOR, bill of resources Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

5) The service analogy to the bill of materials in a manufacturing company is the bill of: A) resources. B) services. C) sub-services. D) tender. Answer: A Difficulty: Moderate Keywords: BOR, bill of resources Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

6) A(n) ________ is a record of a service firm's parent-component relationships with all of the materials, equipment, time, staff, and other productive assets associated with them, including usage quantities. Answer: bill of resources Difficulty: Moderate Keywords: resource planning, service, bill of resources Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

7) The service analogy to the bill of materials in a manufacturing company is the ________. Answer: bill of resources Difficulty: Moderate Keywords: resource planning, service, bill of resources Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

8) Can MRP be adapted for use in services and, if so, how would it work? Answer: Service providers must also plan the use of resources and facilitating goods. A bill of resources (BOR) is a record of all the required materials, equipment, time, staff, and other resources needed to provide a service, the parent-component relationships, and the usage quantities. Naturally, the services themselves cannot be inventoried but must instead be supplied on demand. Difficulty: Moderate Keywords: BOR, bill of resources, facilitating goods Learning Outcome: Apply the process of materials requirements planning (MRP) AACSB: Application of Knowledge Learning Objective: Apply resource planning principles to the provision of services and distribution inventories.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 12 Supply Chain Design 12.1 Creating an Effective Supply Chain 1) The purpose of supply chain management is to synchronize a firm's processes exclusively with only those of its suppliers. Answer: FALSE Difficulty: Easy Keywords: supply chain management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

2) Supply chain management tries to match the flow of materials, services and information with demand. Answer: TRUE Difficulty: Easy Keywords: supply chain management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

3) The efficiency curve of supply chain performance shows the trade-offs between forecasted demand and realized demand for a supply chain. Answer: FALSE Difficulty: Easy Keywords: supply chain design, efficiency curve, supply chain performance Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

4) Which one of the following is true for supply chain management? A) Supply chain applies to both manufacturing and service organizations. B) Supply chain applies only to manufacturing because it deals with flow of materials. C) Supply chain is about suppliers and does not include distributors or customers. D) Supply chain includes any operation that deals with materials. Answer: A Difficulty: Easy Keywords: supply chain, service, manufacturing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

Figure 12.1 This figure represents the impact of supply chain performance on total costs.

5) Refer to Figure 12.1. The movement from point A to point B indicates the: A) increase in time it takes for your firm to deliver goods and services. B) decrease in time it takes for your firm to deliver goods and services. C) increase in performance. D) decrease in cost. Answer: D Difficulty: Moderate Keywords: supply chain, efficiency curve Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

6) Refer to Figure 12.1. The movement from point A to point B indicates the: A) increase in time it takes for your firm to deliver goods and services. B) increase in cost. C) increase in performance. D) decrease in cost. Answer: C Difficulty: Moderate Keywords: supply chain, efficiency curve Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

7) Refer to Figure 12.1. Which is the best statement if a company simultaneously moves from point A to point B and from point D to point C? A) The new supply chain efficiency curve is superior to the old one. B) The new costs are higher, but the performance is better. C) The new supply chain is still inferior to the supply chain efficiency curve. D) The new performance is worse, but the costs are lower. Answer: A Difficulty: Moderate Keywords: supply chain, efficiency curve Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

8) ________ is the synchronization of a firm's process with those of its suppliers and customers to match flow of materials, services and information with demand. Answer: Supply chain management Difficulty: Easy Keywords: supply chain management, supply chain design Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

9) ________ seeks to develop a firm's supply chain to meet the competitive priorities of the firm's operations strategy. Answer: Supply chain design Difficulty: Moderate Keywords: supply chain management, supply chain design Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

10) The ________ shows the trade-offs between costs and performance for the current supply chain design if the supply chain is operated as efficiently as it can be. Answer: efficiency curve Difficulty: Moderate Keywords: supply chain design, efficiency curve, supply chain performance Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

11) Compare and contrast efficient versus responsive supply chains. Answer: The purpose of efficient supply chains is to coordinate the flow of materials and services to minimize inventories and maximize the efficiency of the manufacturers and service providers in the chain. Responsive supply chains are designed to react quickly to market demands by positioning inventory and capacities to hedge against uncertainties in demand. Efficient supply chains work best where demand is predictable with low forecast errors; competitive priorities are low cost, consistent quality, and delivered on time; new-product introduction is low; and profit margins are low. Responsive supply chains work best when demand is unpredictable with high forecast errors. Competitive priorities are development speed, fast delivery times, customization, high-performance design quality; new product-introduction is frequent; contribution margins are high; and product variety is high. Efficient supply chains should use a make-to-stock or standardized services operations strategy, low-capacity cushion, and low inventory investment. They should shorten lead time without increasing costs and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality. Responsive supply chains should use assemble-to-order, make-to-order, or customized services emphasizing product or service variety; high-capacity cushions; and inventory levels set to enable fast delivery time. They should aggressively shorten lead time and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality. Difficulty: Challenging Keywords: efficient supply chain, responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the competitive pressures to consider when creating an effective supply chain.

12.2 Measuring Supply Chain Performance 1) With sales remaining constant, the weeks of supply measure will decrease with an increase in the average aggregate inventory value. Answer: FALSE Difficulty: Moderate Keywords: weeks of supply, inventory value Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

2) A lower inventory turnover value is a measure of superior supply chain performance. Answer: FALSE Difficulty: Moderate Keywords: inventory turnover, supply chain performance Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

3) Increasing inventory turns will reduce the working capital requirement. Answer: TRUE Difficulty: Moderate Keywords: inventory turnover, working capital Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

4) Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The average inventory levels are $1,152,000 and $2,725,000, respectively. In addition, finished goods inventory is $3,225,000, and sales (at cost) for the current year are expected to be about $24 million. The inventory turnover that Henderson Corporation is currently expecting is: A) less than 2.0. B) greater than 2.0 but less than 2.5. C) greater than 2.5 but less than 3.0. D) greater than 3.0. Answer: D Difficulty: Moderate Keywords: inventory, turnover Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

5) The average inventory at Hamilton Industries, comprising raw materials, work-in-process, and finished goods, was found to be $17.2 million last year. If the cost of goods sold per week averaged $1.32 million, what was the inventory turnover experienced by Hamilton Industries? Assume the company had 50 working weeks per year. A) less than or equal to 3.50 B) greater than 3.50 but less than 3.75 C) greater than 3.75 but less than 4.00 D) greater than 4.00 Answer: C Difficulty: Moderate Keywords: inventory, turnover Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

6) Acme averages $20 million worth of inventory in all of its worldwide locations. They operate 52 weeks a year and each week average $10 million in sales (at cost). Their inventory turnover is: A) 5 turns. B) 7.5 turns. C) 20 turns. D) 26 turns. Answer: D Difficulty: Moderate Keywords: inventory, turnover Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

7) Weeks of inventory and inventory turns are reflected in: A) working capital. B) operating expenses. C) cost of goods sold. D) cash flow. Answer: A Difficulty: Moderate Keywords: working capital Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

8) Some discount stores are able to sell items before they have to pay their suppliers, resulting in a negative: A) net profit. B) return on assets. C) number of inventory turns. D) cash-to-cash measure. Answer: D Difficulty: Moderate Keywords: cash flow, cash-to-cash Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

9) Shipments of Product Q from a plant to a wholesaler are made in lots of 400. The wholesaler's average demand for Q is 150 units per week. Lead time from plant to wholesaler is 5 weeks. The wholesaler pays for the shipments when they leave the plant. The plant has proposed several new lead time and lot size options to the wholesaler (see table below). If the wholesaler's goal is to minimize total cycle plus pipeline inventories, which option should the wholesaler select?

OPTION CURRENT 1 2 3

SHIPMENT LOT SIZE 400 500 800 1,000

PLANT-TO- WHOLESALER LEAD TIME 5 4 3 2

A) option #1 B) option #2 C) option #3 D) remain with the current option Answer: C Difficulty: Moderate Keywords: types of inventories, cycle inventory, pipeline inventory Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

10) ________ is an inventory measure obtained by dividing the average aggregate inventory value by sales per week at cost. Answer: Weeks of supply Difficulty: Moderate Keywords: weeks of supply measure Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

11) ________, the annual sales at cost divided by the average aggregate inventory value, is the number of times a year that a firm completely replenishes its inventory. Answer: Inventory turnover (turns) Difficulty: Moderate Keywords: turnover, sales, inventory Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

12) Bell Products moved to a 100% direct to consumer sales for their computer products. This enabled them to receive payments when the customer placed their orders. Bell Products then placed an order for components with their suppliers. Since Bell Products paid their suppliers only after receiving the shipment of components (and well after they charged their customers), Bell Product's ________ time was negative. Answer: cash-to-cash Difficulty: Moderate Keywords: cash flow, cash-to-cash Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

13) ________ is the money used to finance ongoing operations for a business. Answer: Working capital Difficulty: Moderate Keywords: working capital Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

14) The money spent by a firm to buy materials or services is expressed as ________. Answer: cost of goods sold Difficulty: Moderate Keywords: cost of goods sold Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

15) What are some financial measures of supply chain performance? Which one is the most important and why? Answer: The authors do not designate any single financial measure as the most important, so answers will vary. The financial measures discussed in this chapter are Total Revenue, Cost of Goods Sold, Operating Expenses, Cash Flow, Working Capital, and Return on Assets. Difficulty: Moderate Keywords: centralized placement, inventory pooling, service levels, forward placement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Calculate the critical supply chain performance measures.

16) Last year, RJT Enterprises had average inventories (raw materials, work-in-process, and finished goods) of $7.5 million. During this same year the cost of goods sold was $30 million. The company operates 50 weeks per year. a. What is their total inventory (measured as weeks of supply)? b. What is their inventory turnover? Answer: Weeks of supply = average aggregate inventory value/weekly sales at cost = 7.5 million/(30 million/50) = 12.5 weeks Inventory turnover = annual sales (at cost)/average aggregate inventory value = 30 million/7.5 million = 4 Difficulty: Moderate Keywords: turnover, weeks of supply, inventory value Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

17) Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The current inventory levels are $1,500,000 and $3,775,000, respectively. In addition, finished goods inventory is $3,500,000, and sales (at cost) for the current year are expected to be about $28 million. Assume they operate 50 weeks per year. a. What is their total inventory (measured as weeks of supply)? b. What is their inventory turnover? Answer: a. Weeks of supply = average aggregate inventory value/weekly sales at cost = (1,500,000 + 3,775,000 + 3,500,000)/(28,000,000/50) = 15.7 weeks b. Inventory turnover = annual sales (at cost)/average aggregate inventory value = 28 million/8.775 million = 3.19 Difficulty: Moderate Keywords: turnover, weeks of supply, inventory value Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

18) A television manufacturer would like to reduce its inventory. To this end, you are asked by the operations manager to assess its inventory level. You have the following information on average inventories from last year's financial statement: Raw materials Work-in-process Finished goods

$1,500,000 $1,200,000 $800,000

In addition, the cost of goods sold last year (50 weeks) was $20 million. a. What is its total inventory (measured as weeks of supply)? b. What is its inventory turnover? Answer: a. Weeks of supply = average aggregate inventory value/weekly sales at cost = (1,500,000 + 1,200,000 + 800,000)/(20,000,000/50) = 8.75 weeks b. Inventory turnover = annual sales (at cost)/average aggregate inventory value = 20 million/3.5 million = 5.71 Difficulty: Moderate Keywords: turnover, weeks of supply, aggregate inventory value Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

19) Champion Cooling Company remanufactures window air conditioners during the off-season months for sales during the scorching months of June, July, and August in the Oklahoma City area. Their average inventory of air conditioners is shown in the following table. The company operates 50 weeks a year and has average weekly sales of $3,750 and expects to sell $135,000 worth of product in a year. Avg. Inventory (at cost) Value of Each 65 $250 90 $350 50 $500

Unit Type 110 Volts 18,000 BTU or smaller 220 Volts Larger than 18,000 BTU

a. What is their average aggregate inventory value? b. What is their total inventory (measured as weeks of supply)? c. What is their inventory turnover? Answer: a. Avg Aggregate Inventory Value = Avg Aggregate Inventory Value = 65 × $250 + 90 × $350 + 50 × $500 = $72,750 b. Weeks of Supply = Weeks of Supply =

= 19.4 ≈ 20 weeks

c. Inventory Turnover = Inventory Turnover =

= 1.86

Difficulty: Moderate Keywords: turnover, weeks of supply, aggregate inventory value Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Calculate the critical supply chain performance measures.

12.3 Strategic Options for Supply Chain Design 1) Efficient supply chains work best when demand is unpredictable and characterized by high forecast errors. Answer: FALSE Difficulty: Moderate Keywords: efficient supply chains, unpredictable demand Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

2) Responsive supply chains provide for higher volume flexibility and customization ability. Answer: TRUE Difficulty: Easy Keywords: responsive supply chains, volume flexibility, customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

3) Efficient supply chains use higher capacity cushions. Answer: FALSE Difficulty: Moderate Keywords: efficient supply chains, capacity cushion Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

4) Responsive supply chains work best when firms offer a low variety of services or products and demand predictability is high. Answer: FALSE Difficulty: Moderate Keywords: responsive supply chains, variety, predictability Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

5) An efficient supply chain should be preferred when: A) product variety is high. B) competitive priority is customization. C) demand is highly predictable. D) demand is unpredictable. Answer: C Difficulty: Moderate Keywords: efficient supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

6) An efficient supply chain typically has: A) a high capacity cushion. B) high inventory turns. C) supply chain partners that emphasize fast high quality. D) supply chain partners that emphasize volume flexibility. Answer: B Difficulty: Moderate Keywords: efficient supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

7) A responsive supply chain typically has: A) a low capacity cushion. B) high inventory turns. C) supply chain partners that emphasize low prices. D) supply chain partners that emphasize volume flexibility. Answer: D Difficulty: Moderate Keywords: responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

8) Responsive supply chains should be preferred when: A) product variety is low. B) demand is predictable. C) contribution margins are low. D) product variety is high. Answer: D Difficulty: Moderate Keywords: responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

9) The type of goods for which a responsive supply chain is appropriate are: A) fashion goods. B) products with a long shelf life. C) inexpensive products. D) those with infrequent design changes. Answer: A Difficulty: Challenging Keywords: responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

10) It is desirable for a firm in a responsive supply chain to have: A) low-capacity cushions. B) delivery by railroad. C) high-capacity utilization consistent with high-volume delivery. D) inventory investments as needed to enable fast delivery times. Answer: D Difficulty: Moderate Keywords: responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

11) The objective of a firm in a responsive supply chain is likely to be realized if it has a: A) standardized product. B) short lead time. C) low-capacity cushion. D) line-flow process. Answer: B Difficulty: Moderate Keywords: responsive supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

12) When a customer orders an item that is a completely new and different product, the company's supply chain must be able to deliver an item that is ________-to-order. Answer: design Difficulty: Moderate Keywords: DTO, design-to-order Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

13) In ________, the product is built to customer specifications from a stock of existing components. Answer: assemble-to-order, ATO Difficulty: Moderate Keywords: assemble-to-order Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

14) Efficient supply chains work best when firms offer a(n) ________ level of variety for services or products and demand predictability is ________. Answer: low, high Difficulty: Moderate Keywords: efficient supply chains, variety, demand predictability Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

15) Customer clothing and the Boeing 787 Dreamliner aircraft are based on standard designs but component production and manufacture of the final product is ________. Answer: make-to-order Difficulty: Moderate Keywords: make-to-order, MTO Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the strategic options for supply chain design and how autonomous supply chains can play a role.

16) Discuss the idea of autonomous supply chains and how they can improve supply chain performance. Answer: Autonomous supply chain involve a digital transformation of supply chains by leveraging the latest digital technologies such as advanced analytics, artificial intelligence (AI) and machine learning, robotics and the Internet of Things (IoT) to collect and transmit data automatically to assist in or even automate decision making entirely. As traditional supply chains have grown more complex, the difficulty of coordinating across the supply chain with external entities has increased. Also getting access to the right data and using it to make informed decisions has become a major challenge. The digital transformation of supply chains with the use of technologies discussed above means that many of the routine tasks can be automated and the speed and quality of supply chain decisions can be vastly improved. This can also result in cost reductions. Difficulty: Moderate Keywords: autonomous supply chains, digital transformation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

12.4 Mass Customization 1) Channel assembly involves the customization of raw materials by suppliers to support a form's designto-order strategy. Answer: FALSE Difficulty: Moderate Keywords: channel assembly, mass customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

2) A firm may choose to use members of the distribution channel as if they were assembly stations in the factory. Such an approach is known as: A) backward integration. B) postponement. C) channel assembly. D) deferred delay. Answer: C Difficulty: Easy Keywords: channel assembly Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

3) Which of the following is not identified in the text as a competitive advantage of a mass customization strategy? A) improvement of the quality of parts produced B) management of customer relationships C) elimination of finished goods inventory D) an increase in perceived value of services or products Answer: A Difficulty: Easy Keywords: mass customization, competitive advantages Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

4) ________ uses a firm's flexible processes to generate a wide variety of personalized services or products at reasonably low costs. A) Mass customization B) Channel assembly C) Outsourcing D) Forward integration Answer: A Difficulty: Moderate Keywords: mass customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

5) A somewhat successful computer manufacturer makes a generic computer in five exciting colors. Once orders are received, the computer guts are encased in the customer's choice of colored case at the factory. This approach to production is known as: A) channel assembly. B) postponement. C) strategic sourcing. D) strategic production. Answer: B Difficulty: Moderate Keywords: postponement, delayed differentiation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

6) A producer of medical devices makes a single model that can be customized to talk in and display any of 47 different languages. This customization is performed in one of their five regional distribution centers as firm orders are received, providing an elegant example of: A) backward integration. B) forward integration C) channel assembly. D) offshoring. Answer: C Difficulty: Moderate Keywords: channel assembly Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

7) ________ is essentially standardization in chunks. Answer: Modular design Difficulty: Moderate Keywords: modular design, mass customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

8) ________ is a concept whereby some of the final activities in the provision of a service or product are delayed until the orders are received. Answer: Postponement Difficulty: Moderate Keywords: postponement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

9) ________ is the process of using members of the distribution channel as if they were assembly stations in the factory. Answer: Channel assembly Difficulty: Moderate Keywords: channel assembly Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

10) What is mass customization and what advantages does a producer benefit from if they can realize it? Answer: Mass customization is the ability of a producer to produce on demand a wide variety of customized services or products at reasonably low costs. The three important advantages are: Managing Customer Relationships. Mass customization requires detailed inputs from customers so that the ideal service or product can be produced. The firm can learn a lot about its customers from the data it receives. Once customers are in the database, the firm can keep track of them over time. A significant competitive advantage is realized through these close customer relationships based on a strategy of mass customization. Eliminating Finished Goods Inventory. Producing to a customer's order is more efficient than producing to a forecast because forecasts are not perfect. The trick is to have everything you need to produce the order quickly. Increasing Perceived Value of Services or Products. With mass customization, customers can have it their way. In general, mass customization often has a higher value in the mind of the customer than it actually costs to produce. This perception allows firms to charge prices that provide a nice margin. Difficulty: Easy Keywords: mass customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

11) What's the difference between postponement and channel assembly? Provide examples of both. Answer: Examples will vary. Postponement is a concept whereby some of the final activities in the provision of a product or service are delayed until the orders are received. Channel assembly takes this concept a step further and brings supply chain partners farther downstream into the postponement process. These supply chain partners, closer still to the customer, are responsible for making final differentiating modifications to the product. Difficulty: Moderate Keywords: postponement, channel assembly, mass customization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the strategy of mass customization and its implications for supply chain design.

12.5 Outsourcing Processes 1) The supply chain management department of a major manufacturer pondered a particularly weighty make or buy decision for weeks, ultimately deciding to make, rather than buy. This decision resulted in increased: A) outsourcing. B) offshoring. C) postponement. D) backward integration. Answer: D Difficulty: Moderate Keywords: make-or-buy decisions, integration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

Scenario 12.1 You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision. ALTERNATIVE Buy Make

FIXED COST $200,000 per year $50,000 per year

VARIABLE COST $15 per unit $20 per unit

2) Use Scenario 12.1 to answer the question. What is the break even quantity between buying and making? A) 30,000 units per year B) 40,000 units per year C) 50,000 units per year D) 60,000 units per year Answer: A Difficulty: Moderate Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

3) Use Scenario 12.1 to answer the question. What are total costs to buy an annual quantity of 40,000 units? A) $400,000 B) $500,000 C) $800,000 D) $850,000 Answer: C Difficulty: Easy Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

4) Use Scenario 12.1 to answer the question. What are total costs to make a quantity of 40,000 units per year? A) $400,000 B) $450,000 C) $800,000 D) $850,000 Answer: D Difficulty: Easy Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

5) Use Scenario 12.1 to answer the question. For what range of output would you prefer to buy? A) 0 - 10,000 units per year B) 30,001 or more units per year C) 10,001 - 20,000 units per year D) 20,001 - 30,000 units per year Answer: B Difficulty: Moderate Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

6) Use Scenario 12.1 to answer the question. For what range of output would you prefer to make? A) 40,001 or more units per year B) 35,001 - 40,000 units per year C) 30,001 to 35,000 units per year D) 0 - 30,000 units per year Answer: D Difficulty: Moderate Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

7) Use Scenario 12.1 to answer the question. What does the company save for the year by selecting the low-cost option at an annual requirement of 40,000 units? A) $150,000 B) $300,000 C) $50,000 D) $40,000 Answer: C Difficulty: Moderate Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

Scenario 12.2 SAGE Inc. receives too many applications each year for the Global MBA program so they turn to their network of partners for assistance. Nothing in this world is free, of course, so their partners provide quotes that include a per student cost as well as a facilities cost that SAGE would pay regardless of the number of students they sent there. The costs in Rupees (₹) are elegantly summarized in the table below.

Oklahoma Wisconsin England

Per student Cost ₹17 ₹13 ₹10

Facilities Cost ₹15,000 ₹22,000 ₹35,000

8) Use Scenario 12.2 to answer the question. At what volume of students does Wisconsin become preferred over an Oklahoma choice? A) 1,000 students B) 1,250 students C) 1,500 students D) 1,750 students Answer: D Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

9) Use Scenario 12.2 to answer the question. Which student makes England a more attractive option than Wisconsin for SAGE? A) the 4,334th student B) the 2,858th student C) the 1,751st student D) the 44,750th student Answer: A Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

10) Use Scenario 12.2 to answer the question. How much cheaper is the Wisconsin alternative when SAGE is indifferent between Oklahoma and England? A) about ₹3,221 B) about ₹2,967 C) about ₹4,428 D) about ₹3,967 Answer: C Difficulty: Challenging Keywords: break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

11) Use Scenario 12.2 to answer the question. What is the lowest variable cost that causes the Wisconsin option to never be the optimal location? A) about ₹14.91 B) about ₹14.56 C) about ₹14.83 D) about ₹14.71 Answer: B Difficulty: Challenging Keywords: break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

12) Which of the following is not a benefit of outsourcing? A) comparative labor costs B) increased logistics costs C) reduction of transaction costs through use of the Internet D) technology transfer to another country or company Answer: D Difficulty: Moderate Keywords: outsourcing, make-or-buy decisions Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

13) A U.S. company faced with spiraling costs in their customer care center recreated that service in Luxembourg at a fraction of the cost. This is an example of: A) offshoring. B) forward integration. C) backward integration. D) postponement. Answer: A Difficulty: Easy Keywords: offshoring, outsourcing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

14) One way to gain control over suppliers in a chain is to buy a controlling interest in them, known as ________. Answer: backward integration Difficulty: Moderate Keywords: backward integration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

15) When a company uses ________, it is acquiring more channels of distribution, such as its own distribution centers and retail stores. Answer: forward integration Difficulty: Easy Keywords: vertical integration, forward integration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

16) There was no reason to build a new call center and hire hundreds of customer service representatives when there were perfectly viable options thousands of miles away. Hence, the company decided to ________ this process. Answer: offshore or outsource Difficulty: Easy Keywords: vertical integration, offshoring Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

17) ________ is a supply chain strategy that involves locating process in close proximity to customer demand or product R&D. Answer: next-shoring Difficulty: Moderate Keywords: next-shoring Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

18) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $1,250,000 and the per-page cost was one cent. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $850,000 and charge three cents per page. At what point would the university be indifferent between owning their printers and leasing their printers? Answer: Q = Q= Q = 20,000,000 pages Difficulty: Moderate Keywords: outsourcing, break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

19) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $850,000 and the per-page cost was two cents. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $600,000 and charge ten cents per page. At what point would the university be indifferent between owning their printers and leasing their printers? Answer: Q = Q= x = 3,125,000 pages Difficulty: Moderate Keywords: outsourcing, break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

20) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action. The annual fixed cost of printing at the school was $850,000 and the per-page cost was one cent. Fortunately, his brother-in-law happened to own a company that would lease the printers to the university for only $600,000. The only issue to be decided was what the per-page cost would be for the leased printers. On average, the university had been printing about 10,000,000 pages per year. What would a break-even per-page printing cost be given the average printing volume? Answer: Q = 10,000,000 = x = $0.035 per page Difficulty: Moderate Keywords: outsourcing, break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

Scenario 12.3 SAGE Inc. receives too many applications each year for the Global MBA program so they turn to their network of partners for assistance. Nothing in this world is free, of course, so their partners provide quotes that include a per student cost as well as a facilities cost that SAGE would pay regardless of the number of students they sent there. The costs in Rupees (₹) are elegantly summarized in the table below.

Oklahoma Wisconsin England

Per student Cost ₹17 ₹13 ₹10

Facilities Cost ₹15,000 ₹22,000 ₹35,000

21) Use Scenario 12.3 to answer the question. Determine the ranges for which each alternative is preferable from a total cost standpoint. Answer: The Oklahoma alternative is superior for small volumes of students due to the comparatively low fixed cost. It is surpassed by Wisconsin as dictated by the intersection point of the equations: 15,000 + 17x = 22,000 + 13x 4x = 7,000 x = 1,750 Similarly, Wisconsin is preferred to England only to the point that England's low variable cost wins the day. Thus: 35,000 + 10x = 22,000 + 13x 13,000 = 3x x = 4,333.33 Oklahoma 0 - 1,750 students Wisconsin 1,751 - 4,333 students England 4,334 - infinite students Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insourcing AACSB: Analytical Thinking Learning Objective: Understand the considerations firms make when deciding which processes to outsource.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 13 Supply Chain Logistics Networks 13.1 Factors Affecting Location Decisions 1) If the customer must be physically present at the process, location is an important issue. Answer: TRUE Difficulty: Easy Keywords: location, physical presence, customer Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

2) Two conditions must be met by factors selected to evaluate location decisions: the factors must have a high impact on the company's ability to meet its goals and the factors themselves must be affected by the location decision. Answer: TRUE Difficulty: Easy Keywords: location decision, goal impact, labor, factor impact Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

3) When outbound transportation costs are a dominant factor, manufacturing facilities should be located close to suppliers and resources needed for production. Answer: FALSE Difficulty: Moderate Keywords: outbound transportation cost, suppliers, resources Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

4) One dominant factor in locating manufacturing facilities is a favorable labor climate. Answer: TRUE Difficulty: Moderate Keywords: labor climate, manufacturing location factor Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

5) Traffic flows are one dominant factor in locating manufacturing facilities. Answer: FALSE Difficulty: Moderate Keywords: traffic flow, manufacturing location factor Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

6) Service location decisions are driven primarily by the operating costs at the locations under consideration. Answer: FALSE Difficulty: Moderate Keywords: service location factor, cost, revenue Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

7) Many firms are concluding that large, centralized manufacturing facilities in low-cost countries with poorly trained workers are not sustainable. Answer: TRUE Difficulty: Moderate Keywords: offshoring, location factor, manufacturing Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

8) Critical mass is a situation whereby several competing firms cluster near one location, and thus attract more customers than the total number who would shop at the same stores in scattered locations. Answer: TRUE Difficulty: Moderate Keywords: critical mass, cluster of competing firms, attraction of customers Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

9) More than 80 percent of all relocations are within 10 miles of the first location, so usually the existing workforce is displaced. Answer: FALSE Difficulty: Moderate Keywords: relocation, workforce displacement Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

10) Repeated onsite expansion ultimately leads to economies of scale. Answer: FALSE Difficulty: Moderate Keywords: onsite expansion, diseconomies of scale Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

11) When comparing several sites, typically a company will pick specific available site locations, then broaden their choices to communities, and finally to alternate regions. Answer: FALSE Difficulty: Moderate Keywords: comparing several sites, alternative regions, alternative communities specific sites Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

12) On average, it is less expensive to relocate a service-oriented business than a manufacturing business. Answer: TRUE Difficulty: Easy Keywords: relocation expense, manufacturing business, service-oriented business Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

13) An important factor for locating new manufacturing plants is: A) proximity to customers. B) location of competitors. C) proximity to markets. D) favorable labor climate. Answer: D Difficulty: Moderate Keywords: location factors, labor climate Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

14) A favorable labor climate might include all of the following except: A) a good work ethic. B) no union presence. C) high average wages. D) an educated work force. Answer: C Difficulty: Easy Keywords: labor climate, wage rates Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

15) Quality of life issues include: A) proximity to markets. B) prevailing wage rates. C) local and state taxes. D) recreational facilities. Answer: D Difficulty: Moderate Keywords: quality of life, recreational facilities Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

16) Which of the following location factors was not found to dominate location decisions for new U.S. manufacturing plants? A) proximity to the parent company's facilities B) quality of life C) proximity to competitors' facilities D) favorable labor climate Answer: C Difficulty: Moderate Keywords: location factor, competitor's facilities Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

17) Which of the following statements about locating facilities in the service sector is best? A) The factors that apply to manufacturing firms often also apply to service facilities, but the impact of the location on sales and customer satisfaction is an important addition. B) Management should avoid locating facilities where competitors are already well established, as illustrated by new car showrooms. C) Creating a critical mass is a strategy that avoids locating near competing firms. D) "Site specific" factors are the main reason for locating warehousing and distribution operations near the customer. Answer: A Difficulty: Moderate Keywords: locating service facility, impact on sales, impact on customer satisfaction Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

18) ________ is a situation whereby several competing firms cluster near one location, and thus attract more customers than the total number who would shop at the same stores in scattered locations. Answer: Critical mass Difficulty: Moderate Keywords: critical mass, cluster of competing firms, attraction of customers Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

19) Repeated onsite expansion ultimately leads to________. Answer: diseconomies of scale Difficulty: Moderate Keywords: onsite expansion, diseconomies of scale Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices.

20) What are the dominant factors that a manufacturing firm must consider when making a location decision? Answer: The authors indicate that the dominant factors in manufacturing firms' location decisions are: favorable labor climate, proximity to markets, impact on environment, quality of life, proximity to suppliers and resources, proximity to parent company's facilities, expenses in utilities, taxes and real estate, and the nebulous "other factors". Difficulty: Easy Keywords: location factors Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

21) Consider any two factors that a service operation assigns the greatest weight when making a location decision. Using those two factors, identify one local service operation that likely used one of those factors as their top priority and a different service operation that likely used the other of your two factors as their dominant criterion. Briefly describe the business and justify your assignment of each factor as the overriding concern. Answer: Answers will vary. The factors identified by the authors as being critical for service operations include: proximity to customers, transportation costs and proximity to markets, location of competitors, and site-specific factors. Difficulty: Moderate Keywords: location factors Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Identify the factors affecting location choices within a supply chain logistics network.

13.2 Load-Distance Method 1) The center of gravity method considers a greater number of location factors than the break-even analysis. Answer: FALSE Difficulty: Easy Keywords: center of gravity method, break-even analysis Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

2) When using the load-distance method to select a new location, the decision maker can represent the number of trips to be made, the number of customers needing a physical presence, or number of tons per week, among other measures, as loads. Answer: TRUE Difficulty: Easy Keywords: load-distance method, location Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

3) A quantitative method used to evaluate single locations based primarily on proximity is: A) break-even analysis. B) the transportation method. C) a preference matrix. D) the load-distance method. Answer: D Difficulty: Moderate Keywords: load-distance method, quantitative evaluation method, single location Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

4) Which of these is most likely to be classified as a "load" when using the load-distance model? A) a process B) a supplier C) a shipment D) a customer Answer: C Difficulty: Moderate Keywords: load-distance method Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

5) The load-distance model is used to minimize the total: A) number of loads. B) distance traveled. C) cost of doing business. D) profit of competitors. Answer: B Difficulty: Easy Keywords: load-distance method Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

6) The center of gravity technique does not take into consideration the: A) total volume of product any given site receives. B) location of any given site. C) number of locations that must be served. D) balance of supply and demand. Answer: B Difficulty: Moderate Keywords: load-distance method Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Find the center of gravity using the load-distance method.

Table 13.1 Four departments are located in adjacent bays in the same loading dock. The distance between adjacent bays is 25 feet, the distance between bays separated by another (Alpha and Charlie, Bravo and Delta) is 50 feet, and the distance between Alpha and Delta is 75 feet. Material flows (loads) between departments are shown in the Table below.

From Alpha Bravo Charlie Delta

To Alpha 0 10 15 5

To Bravo 20 0 15 5

To Charlie 15 10 0 15

To Delta 25 10 5 0

7) Use the information from Table 13.1. Calculate the load distance for location Charlie. A) 2,300 B) 3,775 C) 3,250 D) 2,625 Answer: D Difficulty: Moderate Keywords: load-distance-method, load distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

8) Use the information from Table 13.1. Calculate the load distance for location Delta. A) 2,900 B) 3,500 C) 2,100 D) 3,200 Answer: B Difficulty: Moderate Keywords: load-distance-method, load distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

9) Use the information from Table 13.1. Calculate the total load distance for this layout. A) 4,250 B) 6,375 C) 7,500 D) 9,835 Answer: B Difficulty: Moderate Keywords: load-distance-method, total load distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.2 A single facility is needed to meet the demands of four markets. The locations and demands of these four markets are shown below. Market A B C D

Coordinates (4, 8) (9, 6) (5, 5) (7,8)

Demand 25 30 20 35

10) Use the information from Table 13.2. What are the x and y coordinates for the center of gravity? A) x ≥ 7, y ≥ 7 B) x ≥ 7, y < 7 C) x < 7, y ≥ 7 D) x < 7, y < 7 Answer: D Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

11) Use the information in Table 13.2. What is the total load-distance score if a warehouse is located at the center of gravity? (Use rectilinear distance.) A) less than 300 B) between 300 and 350 C) between 351 and 400 D) more than 400 Answer: B Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

12) Use the information in Table 13.2. If a decision is made to locate a warehouse at market A, what is the total load-distance score? (Use rectilinear distance.) A) less than 300 B) between 300 and 350 C) between 351 and 400 D) more than 400 Answer: C Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.3 Coffee Roasters has five main markets for the distribution of their premium coffee at the location coordinates given in the table below. The monthly demand at each distribution center (in 000's of lbs.) is also given. Coffee Roasters in interested in location a distribution center to serve these markets.

Markets A B C D E

Coordinates (20, 15) (10, 12) (15, 10) (15, 20) (12, 12)

Demand (‘000s lbs.) 75 50 60 80 50

13) Use the information in Table 13.3. What are the x and y coordinates for the center of gravity? A) x ≥ 14, y ≥ 15 B) x < 15, y < 15 C) x < 14, y < 15 D) x ≥ 14, y < 14 Answer: B Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

14) Use the information in Table 13.3. If the distribution center is located at the center of gravity, what is the load-distance score (measured in ‘000s), assuming rectilinear distance? A) less than or equal to 1,500 B) more than 1,500 but less than or equal to 1,600 C) more than 1,600 but less than or equal to 1,700 D) more than 1,700 Answer: D Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

15) Use the information in Table 13.3. If a decision is made to locate the distribution center at market B, what is the total load-distance score (measured in ‘000s)? (Use rectilinear distance.) A) less than 2000 B) between 2000 and 2250 C) between 2251 and 2500 D) more than 2500 Answer: D Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

16) Consider the location of four distribution centers, A, B, C, and D, with the following location coordinates and shipping requirements per week. Location A B C D

Coordinates (0, 100) (200, 300) (500, 600) (100, 200)

Tons 2 1 3 4

Management is considering locating a new plant at the site of one of the four distribution centers. What is the load-distance score if the plant is located at distribution center A? (Use rectilinear distance.) A) less than or equal to 4,500 B) greater than 4,500 but less than or equal to 5,000 C) greater than 5,000 but less than or equal to 5,500 D) greater than 5,500 Answer: A Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

17) Pinkerton Company has four distribution centers located at the location coordinates given. The monthly demand at each center is also given.

Distribution Coordinates Center location (Miles) A (100, 150) B (250, 250) C (150, 150) D (200, 300)

Demand 50 30 15 100

Assume that management is considering locating its new plant at distribution center A. What is the loaddistance score, assuming rectilinear distance? A) less than 33,000 B) greater than 33,000 but less than 33,500 C) greater than 33,500 but less than 34,000 D) greater than 34,000 Answer: B Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

18) A single facility is needed to meet the demand of four regions depicted as follows: Region Center A B C D

Coordinates (2, 10) (7, 10) (2, 2) (7, 4)

Demand 20 5 10 10

If the plant is located at A, what is the total load-distance score, assuming Euclidean (straight line) distance? A) less than or equal to 100 B) more than 100 but less than or equal to 140 C) more than 140 but less than or equal to 180 D) more than 180 Answer: C Difficulty: Challenging Keywords: center of gravity, load-distance score, Euclidean distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.4 Universal Industrial Supplies has the following demand forecasts with the (x,y) coordinates for the five markets that it serves:

Market A B C D E

Coordinates (5, 8) (3, 7) (10, 5) (4, 8) (6,9)

Demand Forecast (in ‘000s of units) 8 10 7 9 12

19) Use the information in Table 13.4. What are the (x,y) coordinates of the center of gravity? A) x ≤ 6, y > 7 B) x > 6, y ≤ 8 C) x ≤ 7, y > 8 D) x > 7, y > 8 Answer: A Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

20) Use the information in Table 13.4. What is the total load-distance score (measured in ‘000s) if Universal Industrial Supplies decides to locate a warehouse at the center of gravity? (Use rectilinear distance.) A) less than 100 B) between 100 and 125 C) between 126 and 150 D) more than 150 Answer: C Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

21) Use the information in Table 13.4. If Universal Industrial Supplies decides to locate a warehouse at market C, what is the total load-distance score (measured in ‘000s)? (Use rectilinear distance.) A) less than 300 B) between 300 and 350 C) between 351 and 400 D) more than 400 Answer: B Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.5 Paul's Pretzels manufactures and distributes gourmet pretzels for limited retail sales. Paul has determined the "demand points" and their relative locations as follows:

22) Use the information in Table 13.5. If Paul desires to locate a manufacturing facility at the center of gravity, what would be the x and y coordinates of the facility? A) x ≤ 14, y ≤ 14 B) x ≤ 14, y ≥ 14 C) x ≤ 15, y ≤ 14 D) x < 15, y ≥ 15 Answer: C Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

23) Use the information in Table 13.5. If a facility were to be located at (15,15), what would be the loaddistance score? (Assume rectilinear distance.) A) less than or equal to 5,000 B) more than 5,000 but less than or equal to 5,200 C) more than 5,200 but less than or equal to 5,400 D) more than 5,400 Answer: D Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.6 Union Fork, Inc. has five distribution centers located at the location coordinates given as follows. The demand at each center is also given. DC A B C D E

Coordinates (2, 4) (6, 2) (4, 10) (13, 4) (10, 5)

Demand 10 15 25 30 20

24) Use the information in Table 13.6. What are the x and y coordinates for the center of gravity? A) x ≥ 7.5, y ≥ 6 B) x ≥ 7.5, y ≤ 6 C) x ≤ 7.5, y ≥ 6 D) x ≤ 7.5, y ≤ 6 Answer: B Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

25) Use the information in Table 13.6. If a plant is located at a center of gravity, what is the load-distance score, assuming rectilinear distance? A) less than or equal to 500 B) more than 500 but less than or equal to 550 C) more than 550 but less than or equal to 600 D) more than 600 Answer: D Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

26) Use the information in Table 13.6. Assume that two plants, rather than one, are to be located. Plant 1 serves distribution centers A, B, and C. Plant 2 serves distribution centers D and E. What is the center of gravity for plant 1? A) x ≥ 4, y ≥ 7 B) x ≥ 4, y ≤ 7 C) x ≤ 4, y ≥ 7 D) x ≤ 4, y ≤ 7 Answer: B Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

27) Use the information in Table 13.6. What is the total load-distance score for the two plants if Plant 1 is located at the center of gravity serving distribution centers A, B, and C, and Plant 2 is located at the center of gravity serving D and E? (Assume rectilinear distance.) A) less than or equal to 300 B) more than 300 but less than or equal to 350 C) more than 350 but less than or equal to 400 D) more than 400 Answer: B Difficulty: Challenging Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

28) Use the information in Table 13.6. What is the total load-distance score for the two plants if Plant 1 is located at the center of gravity serving A, B, and C, and Plant 2 is at the center of gravity serving D and E? (Assume Euclidean, or straight line, distance.) A) less than or equal to 240 B) more than 240 but less than or equal to 260 C) more than 260 but less than or equal to 280 D) more than 280 Answer: C Difficulty: Challenging Keywords: center of gravity, load-distance score, Euclidean distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

29) The Burdell Company has four distribution centers located at the location coordinates given as follows. The monthly demand at each center is also given. DC A B C D

Coordinates (100, 150) (250, 250) (150, 150) (200, 300)

Demand 50 30 15 100

Management wants to build a new plant that would be located at the center of gravity of the four distribution centers. Which of the following options best represents the coordinates of the new plant location? A) x coordinate is greater than 150 but less than 170; y coordinate is greater than 210 but less than 230. B) x coordinate is greater than 150 but less than 170; y coordinate is greater than 230 but less than 250. C) x coordinate is greater than 170 but less than 190; y coordinate is greater than 210 but less than 230. D) x coordinate is greater than 170 but less than 190; y coordinate is greater than 230 but less than 250. Answer: D Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

30) Kiddie Clothes wishes to locate its warehouse so that it would serve its four different stores, described as follows. Based on the center of gravity, what are the x and y coordinates of the proposed warehouse location? Store A B C D

x 1 2 4 3

y 4 2 3 2

Trips / Day 5 1 2 3

A) x is less than or equal to 3; y is less than or equal to 2. B) x is less than or equal to 3; y is less than or equal to 2.5. C) x is greater than or equal to 2.5; y is greater than or equal to 3. D) x is less than or equal to 2.5; y is greater than or equal to 2.9. Answer: D Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

31) Bill Burns, district manager of the Pizza Palace, wishes to locate a new store in the metropolitan areas. Using the following information, what are the x and y coordinates for the center of gravity? Don't round your answer up or down before making your choice.

Market Grandview Heights Upper Arlington Bexley Worthington Medfield

Demand (pizzas/day) 250 100 150 350 500

x coordinate 2 4 7 4 4

y coordinate 2 5 3 9 3

A) x is less than or equal to 4; y is less or equal to than 4.5. B) x is greater than or equal to 5; y is greater than or equal to 3.5. C) x is less than or equal to 3.5; y is less than or equal to 4.5. D) x is less than or equal to 4; y is greater than or equal to 4.5. Answer: D Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

32) A national drugstore chain prefers to operate one outlet in a town that has four major market segments. The number of potential customers in each segment, along with the location coordinates, are given below.

Which would be the best location using the center of gravity method? A) x > 10, y < 5 B) x < 10, y > 5 C) x < 9, y < 6 D) x < 11, y > 8 Answer: B Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

33) A grower and shipper of fresh gourmet herbs has determined the following demand forecast for the five metropolitan markets that the firm serves. Based on your calculations of the center of gravity, where should the new herb farm be located?

A) x > 6, y > 8 B) x < 5, y > 5 C) x < 7, y > 6 D) x < 6, y > 6 Answer: A Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.7 Nuts-and-Bolts, Inc. wishes to find the best location for a plant that will satisfy customer demand in the following five areas.

Location A B C D E

x coordinate 3 5 8 2 5

y coordinate 1 0 7 3 4

Volume 35 90 15 20 55

34) Use the information in Table 13.7. What are the x and y coordinates for the center of gravity? A) x ≥ 9, y ≥ 14 B) x < 4, y ≥ 2 C) x ≥ 4.5, y ≤ 2 D) x ≤ 9, y ≤ 6 Answer: C Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

35) Use the information in Table 13.7. If the plant is located at the coordinates (5, 5), what is the total loaddistance score, assuming rectilinear distance? A) less than or equal to 600 B) more than 600 but less than or equal to 700 C) more than 700 but less than or equal to 800 D) more than 800 Answer: D Difficulty: Moderate Keywords: center of gravity, load-distance score, rectilinear distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

36) Use the information in Table 13.7. If the plant is located at the coordinates (5, 5), what is the total loaddistance score, assuming Euclidean (straight line) distance? A) less than or equal to 600 B) more than 600 but less than or equal to 700 C) more than 700 but less than or equal to 800 D) more than 800 Answer: C Difficulty: Challenging Keywords: center of gravity, load-distance score, Euclidean distance Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.8 Four departments are located in adjacent bays in the same loading dock. The distance between adjacent bays is 30 feet, the distance between bays separated by another (Alpha and Charlie, Bravo and Delta) is 60 feet, and the distance between Alpha and Delta is 90 feet. Material flows (loads) between departments are shown in the Table below.

From Alpha Bravo Charlie Delta

To Alpha 0 5 10 15

To Bravo 15 0 7 24

To Charlie 20 12 0 6

To Delta 30 8 4 0

37) Use the data in Table 13.8. What is the load distance score for locations Alpha, Bravo, Charlie and Delta? Once your calculation is complete, how might the assignment of departments be improved? Answer: I'm glad you asked! Using a To (column) then From (row) order below yields the following. Alpha: 0 × 0 + 30 × 5 + 60 × 10 + 90 × 15 + 0 × 0 + 30 × 15 + 60 × 20 + 30 × 90 = 6450 Bravo: 30 × 15 + 0 × 0 + 30 × 7 + 60 × 24 + 30 × 5 + 0 × 0 + 30 × 12 + 60 × 8 = 3090 Charlie: 60 × 20 + 30 × 12 + 0 × 0 + 30 × 6 + 60 × 10 + 30 × 7 + 0 × 0 + 30 × 4 = 2670 Delta: 90 × 30 + 60 × 8 + 30 × 4 + 0 × 0 + 90 × 15 + 60 × 24 + 30 × 6 + 0 × 0 = 6270 A and D have the greatest volume at 95 and 87 respectively, so ideally they would be located in the interior two positions occupied by B & C. There are more trips between B and D than B and A, and there are more trips between C and A than C and D, so put B outside of (and adjacent to) D and C outside of (and adjacent to) A. Doing so drops the total load distance from 18,480 to 13,440, and improvement of 27%. Not too shabby! Difficulty: Moderate Keywords: load-distance method, location Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

Table 13.9 A single facility is needed to meet the demands of four markets. The locations and demands of these four markets are shown below. Market A B C D

Coordinates (8, 6) (4, 12) (3, 2) (9,6)

Demand 10 15 10 6

38) Using the data in Table 13.9, identify an optimal location for the new facility. Answer: Using the center of gravity method, the x-coordinate is calculated as: (8 × 10 + 4 × 15 + 3 × 10 + 9 × 6)/41 = 224/41 = 5.46 The y-coordinate is calculated as: (6 × 10 + 12 × 15 + 2 × 10 + 6 × 6)/41 = 296/41 = 7.22 Thus the location of the new site should be (5.46, 7.22) Difficulty: Moderate Keywords: center of gravity method, center of gravity Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Find the center of gravity using the load-distance method.

13.3 Break-Even Analysis 1) A decision maker using break-even analysis must assume that suppliers do not provide discounts for large orders. Answer: TRUE Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

2) Break-even analysis can help a manager compare location alternatives on the basis of both qualitative and quantitative factors that can be expressed in terms of total cost. Answer: FALSE Difficulty: Moderate Keywords: break-even analysis, qualitative, quantitative factors Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

3) A quantitative method used to evaluate multiple locations based on total cost of production or service operations is called: A) break-even analysis. B) the transportation method. C) a preference matrix. D) the load-distance method. Answer: A Difficulty: Moderate Keywords: break-even analysis, quantitative evaluation method, multiple locations Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

4) Which of the following statements about break-even analysis is incorrect? A) No start-up costs exist. B) Economies of scale cannot be achieved. C) Variable costs vary as output changes. D) Fixed costs vary as output changes. Answer: D Difficulty: Moderate Keywords: break-even analysis, fixed cost Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

Table 13.10 An operations manager has narrowed down the search for a new plant to three locations. Fixed and variable costs are as in the table below: Location A B C

Fixed Cost $275,000 $200,000 $150,000

Variable Cost $12 $18 $23

5) Use the information in Table 13.10 to determine the best statement. A) Location A is the best one if volumes are quite low. B) Location C becomes the most expensive place to produce at volumes in excess of 5,000. C) Location A is the best one if volumes are quite high. D) The break-even quantity between A and B is more than 15,000 units. Answer: C Difficulty: Moderate Keywords: break-even analysis, break-even quantity, optimal ranges Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

6) An operations manager has narrowed down the search for a new King Kola plant to three locations. Fixed and variable costs follow. Location A B C

Fixed Cost $100,000 $150,000 $200,000

Variable Cost $10 $7 $5

Plot the total cost curves in the chart provided and identify the range over which each location would be best. Then use break-even analysis to calculate exactly the break-even quantity that defines each range.

Which of the following statements is correct? A) By inspection, it is apparent that only one site will be the best place to produce, even at dramatically different output volumes. B) Location A becomes the most expensive place to produce at volumes in excess of 2,000. C) The break-even quantity between A and B is less than or equal to 5,000 units. D) The break-even quantity between C and B is more than 20,000 units. Answer: D Difficulty: Moderate Keywords: break-even analysis, break-even quantity, optimal ranges Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

7) An operations manager has narrowed down the search for a new plant for McIntosh Enterprises to three locations. Fixed and variable costs follow: Location A B C

Fixed Cost $100,000 $150,000 $200,000

Variable Cost $10 $7 $5

Which of the following statements is correct? A) Location C is the best one if volumes are quite low. B) Location A becomes the most expensive place to produce at volumes less than 10,000. C) The break-even quantity between A and B is less than or equal to 17,000 units. D) The break-even quantity between C and B is more than 30,000 units. Answer: C Difficulty: Moderate Keywords: break-even analysis, break-even quantity, optimal ranges Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

8) Universal Industrial Supplies is planning to construct a new warehouse to serve their existing market. Locations A, B, and C are under consideration. Fixed and variable costs follow.

Location A B C

Fixed Cost per Variable Cost Year per Unit $2,000,000 $20 $2,500,000 $15 $3,250,000 $12

Which of the following statements is best? A) Location A is the best one if volumes are quite high. B) Location B is best over all volume levels. C) Location C is the best one if volumes are quite high. D) The break-even quantity between B and C is more than 150,000 units but fewer than 225,000 units. Answer: C Difficulty: Moderate Keywords: break-even analysis, break-even quantity, optimal ranges Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

Table 13.11 An operations manager has narrowed down the search for a new plant for Tim! to three locations. Fixed and variable costs follow. Location A B C

Fixed Cost $100,000 $150,000 $200,000

Variable Cost $10 $7 $5

9) Use the information in Table 13.11 to address this question. For what range of output is each location superior? Answer: Location A is preferred from an output volume of 0 through 16,666 units 100,000 + 10x = 150,000 + 7x 50,000 = 3x x = 16,666.66666 Location B is preferred from 16,667 to 25,000 units 150,000 + 7x = 200,000 + 5x 2x = 50,000 x = 25,000 Location C is preferred above 25,000 units Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

10) Excel Products is planning a new warehouse to serve the Southeast. Locations A, B, and C are under consideration. Fixed and variable costs follow.

Location A B C

Fixed Cost per Variable Cost Year per Unit $2,500,000 $7 1,500,000 19 2,000,000 13

For what range of volume is each location the best? Answer: B is preferred from a volume of 0 up to 83,333.33 units and which point A is preferred up to infinite production. Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use financial data with break-even analysis to identify the location of a facility.

13.4 Transportation Method 1) The transportation method provides optimal solutions for maximization of profits in multiple facility location problems. Answer: FALSE Difficulty: Moderate Keywords: transportation method, minimum shipping costs Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

2) A dummy plant is useful for problems where the sum of the plant capacities equals the sum of the demands. Answer: FALSE Difficulty: Moderate Keywords: dummy, plant Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

Table 13.12 Sagebrush Company has four warehouses (A, B, C, and D) that require monthly shipments of 250, 200, 300, and 200 units per month, respectively. Its three plants (1, 2, and 3) have monthly capacities of 300, 400, and 250, respectively. Plant capacities, warehouse needs and shipping costs (in $) are shown in the following initial transportation method tableau. For example, the shipping cost from Plant 1 to Warehouse A is $17 per unit.

3) Use the information in Table 13.12. What can be said about a plan that ships 200 units from 1 to A, 100 units from 1 to B, 100 units from 2 to B, 300 units from 2 to C, and 250 units from 3 to D? A) It is not feasible in terms of plant capacities. B) It is not feasible in terms of satisfying warehouse demands. C) It is feasible, but not the least-cost allocation pattern. D) It is the optimal solution. Answer: B Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

4) Use the information in Table 13.12. Which of these statements regarding the problem is correct? A) Another plant must be added to the tableau because there are more warehouses than plants. B) A dummy plant must be added due to production volumes. C) A dummy warehouse must be added to solve this problem. D) The simplex method can be used to solve this problem. Answer: D Difficulty: Moderate Keywords: transportation method, simplex method Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

5) Use the information in Table 13.12. What is the cost of a plan that ships 150 units from 1 to C, 150 units from 1 to D, 250 units from 2 to A, 150 units from 2 to C, 200 units from 3 to B, and 50 units from 3 to D? A) less than $15,000 B) more than $15,000 but less than $16,000 C) more than $16,000 but less than $17,000 D) more than $17,000 Answer: A Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

Table 13.13 Sagebrush Company has four warehouses (A, B, C, and D) that require monthly shipments of 250, 200, 300, and 200 units per month, respectively. Its three plants (1, 2, and 3) have monthly capacities of 300, 400, and 450, respectively. Plant capacities, warehouse needs and shipping costs (in $) are shown in the following initial transportation method tableau. For example, the shipping cost from Plant 1 to Warehouse A is $17 per unit. A second table showing POM for Windows results from running this transportation problem is shown below the tableau.

6) Use the information in Table 13.13. The low cost solution indicates a total cost of: A) $1,150. B) $950. C) $14,750. D) The low cost solution is not provided in Table 13.13. Answer: C Difficulty: Easy Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

7) Use the information in Table 13.13. Which of the following statements is false? A) The plants have 200 more units of capacity than the warehouses need. B) All of the four warehouses' needs are satisfied by the solution shown. C) Total production by the three plants is 950 units. D) The total production from plant #3 is 450 units. Answer: D Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

Table 13.14 The Neale Company has four distribution centers (A, B, C, and D) that require monthly shipments of 30,000, 24,000, 36,000, and 24,000 gallons of diesel fuel per month, respectively. Three wholesalers (1, 2, and 3) are willing to supply up to 36,000, 48,000 and 30,000 gallons, respectively. Total costs (in $) for both shipping and price per gallon follow. A transportation method tableau is provided below.

8) Use the information in Table 13.14. Which of the following statements about this scenario is not correct? A) A dummy warehouse is required to complete the analysis. B) It costs $2 per gallon to ship from Wholesaler 3 to Distribution Center D. C) It costs $2 per gallon to ship one gallon from Wholesaler 2 to Distribution Center C. D) It costs $2 per gallon to ship 20,000 gallons from Wholesaler 1 to Distribution Center D. Answer: A Difficulty: Moderate Keywords: transportation method, dummy warehouse Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

9) Use the information in Table 13.14. What can be said about a plan that ships 18,000 gallons from 1 to C; 18,000 gallons from 1 to D; 30,000 gallons from 2 to A; 18,000 gallons from 2 to C; 24,000 gallons from 3 to B; and 30,000 from 3 to D? A) It is not feasible in terms of wholesaler availabilities. B) It is not feasible in terms of satisfying distribution center demands. C) It is feasible, and the total monthly cost is less than $223,000. D) It is feasible, and the total monthly cost is greater than $227,000. Answer: A Difficulty: Moderate Keywords: transportation method, feasible solution, feasibility Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

10) Use the information in Table 13.14. What can be said about a plan that ships 30,000 gallons from 1 to A; 6,000 gallons from 1 to C; 24,000 gallons from 2 to B; 24,000 gallons from 2 to D; and 30,000 gallons from 3 to C? A) It is not feasible in terms of wholesaler availabilities. B) It is not feasible in terms of satisfying distribution center demands. C) It is feasible, and the total monthly cost is less than or equal to $260,000. D) It is feasible, and the total monthly cost is greater than $260,000. Answer: C Difficulty: Moderate Keywords: transportation method, feasible solution, feasibility Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

11) Which of the following is not a step in setting up a transportation tableau? A) Create a row for each plant being considered. B) Remove the lowest and highest cost intersections from consideration. C) Create a column for each warehouse being considered. D) Add a column and a row for plant capacities and total demands. Answer: B Difficulty: Moderate Keywords: transportation method, tableau Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

12) Which of the following invalidates any analysis using the transportation method? A) unequal supply and demand amounts B) more sources than destinations C) more destinations than sources D) A non-linear increase in shipping costs Answer: D Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

13) The Nelson Company has four distribution centers (A, B, C, and D) that require shipments of 20, 30, 40, and 10 units per week, respectively. Its three plants (1, 2, and 3) have monthly capacities of 40, 30, and 30, respectively. Shipping costs (in $) follow.

What can be said about a plant that ships 40 units from 1 to C, 30 units from 2 to B, 20 units from 3 to A, and 10 units from 3 to D? A) It is not feasible in terms of plant capacities. B) It is not feasible in terms of satisfying distribution center demands. C) It is feasible, and the weekly shipping cost is less than $1,600. D) It is feasible, and the weekly shipping cost is greater than $2,000. Answer: C Difficulty: Challenging Keywords: transportation method, feasible solution, feasibility, optimal solution Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

14) The transportation method of production planning is a special case of: A) linear programming. B) integer programming. C) queuing theory. D) goal programming. Answer: A Difficulty: Easy Keywords: transportation method, linear programming Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

15) If the total supply does not equal the total number of units demanded, then the modeler should use a(n) ________ warehouse as part of the transportation method. Answer: dummy Difficulty: Moderate Keywords: tableau, transportation method, dummy Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

16) Costs that are represented in each cell of a transportation tableau are based on ________. Answer: per unit or a single unit shipped from a factory to a warehouse Difficulty: Moderate Keywords: tableau, transportation method, cost Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

17) Each cell in the interior of a transportation tableau not in the requirements row or capacity column is a(n) ________. Answer: possible shipping route Difficulty: Moderate Keywords: tableau, transportation method, degeneracy Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

18) A(n) ________ is a standard matrix that is used to solve location problems using the transportation method. Answer: tableau Difficulty: Moderate Keywords: tableau, transportation method, location Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

19) What is a dummy plant or warehouse and when is it needed? Answer: The transportation method assigns product built at two or more factories to demand at two or more warehouses or commercial centers. If the total supply does not equal the total demand, then the modeler must create a dummy source of supply (or demand — whichever is lesser) to make the system supply match the system demand. Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

20) The transportation method is customarily used to minimize transportation costs between sources of supply and sinks of demand. How could this model be used in other areas of operations management to maximize profit? Provide examples. Answer: The logic of the transportation method would be reversed and the values in the tableau would need to be revenues, but it would be possible to use it to maximize values of interest. If certain markets were willing to pay a premium for some products, then high numbers would be desirable outcomes. Examples will vary. Difficulty: Moderate Keywords: transportation method Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Determine the location of a facility in a network using the transportation method.

21) Consider the transportation tableau shown below. What is the minimum cost of transporting the production from Ada, Bugtussle, and Choctaw to Durant, Edmond, and Foss if costs per unit are shown at the intersections of each location?

Ada Bugtussle Choctaw Requirements

Durant 5 3 8 250

Edmond 7 4 6 300

Foss 3 4 8 150

Capacity 200 300 200

Foss 150

Capacity 200 300 200

Answer: The optimal tableau is:

Ada Bugtussle Choctaw Requirements

Durant 50 200 250

Edmond 100 200 300

150

Total Cost = Total Cost = 50 × $5 + 200 × $3 + 100 × $4 + 200 × $6 + 150 × $3 = $2,900 Difficulty: Moderate Keywords: transportation method, tableau Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

22) A national firm has coffee roasting facilities in Locations 1, 2, 3, and 4. They ship to central distributors (represented as A, B, C, and D) handling four regions of the country. The per-unit shipping costs between each possible combination of locations are shown in the following table.

1 2 3 4

A $5 $3 $8 $2

B $10 $4 $6 $3

C $5 $4 $8 $5

D $4 $3 $2 $9

The processing facility locations are capable of monthly production (in tons) as follows: Location 1: 600 Location 2: 350 Location 3: 475 Location 4: 850 The central distributors have firm commitments for the following quantities: Distributor A: 650 Distributor B: 725 Distributor C: 400 Distributor D: 500 What is the lowest-cost shipping arrangement that can be made between the plant locations and distributors and what is the annual shipping cost? Answer: The optimal tableau is:

Total Cost = Total Cost = 175 × $5 + 475 × $2 + 350 × $4 + 375 × $3 + 400 × $5 + 25 × $4 + 475 × $2 = $7,400 Difficulty: Moderate Keywords: transportation method, tableau Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

23) Five sources exist for the civet cat coffee favored by true coffee connoisseurs. The four processing centers for these coffee beans are scattered about the country, each with a different level of demand. The five sources all face different cost structures for transporting their beans, the prices in the table reflect a dollar cost per 50 pound bag of coffee beans. The total amounts supplied by each source and demanded by each destination are also shown in the table, and as luck would have it, the total supply equals the total demand. What is the optimal shipping scheme such that the total transportation cost is minimized?

Source 1 Source 2 Source 3 Source 4 Source 5 Demand

Destination 1 $5 $8 $11 $9 $7 500

Destination 2 $7 $6 $15 $6 $9 350

Destination 3 $2 $3 $18 $4 $11 250

Destination 4 $9 $4 $11 $3 $8 400

Destination 3 250 0 0 0 0

Destination 4 0 50 150 200 0

Supply 400 400 300 200 200 1,500

Answer: The optimal tableau is:

Source 1 Source 2 Source 3 Source 4 Source 5

Destination 1 150 0 150 0 200

Destination 2 0 350 0 0 0

The total cost of this solution is $8,850 Difficulty: Moderate Keywords: transportation method, tableau Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

24) As legend has it, Buddhist monks trained monkeys to deftly gather the youngest leaves from the tops of wild tea trees. The monkey-harvested leaves are unbroken and evenly sized to create the finest oolong tea in the world. There are five plantations that use monkeys for this task and four tea centers where the leaves must be shipped. The cost to send a kilogram of leaves from each plantation to each tea center is shown in the table. Note that supply equals demand in this scenario. What is the optimal shipping scheme such that the total transportation cost is minimized?

Monkey 1 Monkey 2 Monkey 3 Monkey 4 Monkey 5 Demand

Tea House 1 $12 $6 $6 $8 $21 500

Tea House 2 $13 $17 $14 $10 $22 350

Tea House 3 $23 $11 $13 $6 $5 250

Tea House 4 $15 $4 $19 $8 $21 400

Tea House 3 0 0 0 50 200

Tea House 4 0 400 0 0 0

Supply 400 400 300 200 200 1,500

Answer: The optimal tableau is:

Monkey 1 Monkey 2 Monkey 3 Monkey 4 Monkey 5

Tea House 1 50 0 300 150 0

Tea House 2 350 0 0 0 0

The monks' total cost of this solution is $11,050. Difficulty: Moderate Keywords: transportation method, tableau Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Determine the location of a facility in a network using the transportation method.

13.5 Geographical Information Systems 1) A geographic information system contains demographic information. Answer: TRUE Difficulty: Easy Keywords: GIS, geographic information system, demographic information Learning Outcome: Evaluate major decision-making tools AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

2) Geographical Information System (GIS) can be used to solve both single-facility location and multiplefacility location problems. Answer: TRUE Difficulty: Easy Keywords: facility network, GIS, single-facility locations, multiple-facility locations Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

3) When using Geographical Information System (GIS) tools to solve multiple-facility location problems, an analyst may also use load-distance scores and center of gravity data to arrive at trial locations. Answer: TRUE Difficulty: Moderate Keywords: facility network, multiple-facility locations, GIS, load-distance method, center of gravity method Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

4) Geographical Information System (GIS) tools can include both quantitative data and qualitative data like a firm's managerial criteria, such as proximity to major metropolitan areas, for facility location decisions. Answer: TRUE Difficulty: Easy Keywords: facility network, GIS, managerial criteria Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

5) Which of these is not identified as a component of a geographical information system? A) hardware B) data C) software D) network Answer: D Difficulty: Moderate Keywords: GIS, geographical information system Learning Outcome: Evaluate major decision-making tools AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

6) Which of these is not a common functionality of a GIS? A) data storage B) communication C) map display D) modeling Answer: B Difficulty: Moderate Keywords: GIS, geographical information system Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

7) Which of the following statements concerning the use of the Geographical Information System (GIS) method for locating multiple facilities is true? A) GIS helps with general facility locations, but is not able to identify specific locations because the transportation structure of roads and interstate highways can't be included in the GIS databases. B) Load-distance scores and center of gravity data can be merged with customer databases to arrive at trial locations for facilities. C) When locating two new facilities, the entire operating area is split into four subregions, two for each new facility, so the best two locations from the four subregions can be selected. D) One weakness of the GIS method is that it is slow and cumbersome, and significant time must be allowed in order to reach a reasonable multiple-facility location decision. Answer: B Difficulty: Moderate Keywords: Geographical Information System, GIS, multiple-facility location decisions Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

8) Which of the following is an example of an organization using the Geographical Information System (GIS) method for locating multiple facilities? A) A company that is searching for a location for its combination manufacturing plant and warehouse to better serve several geographical regions of the country. B) Load-distance scores and center of gravity data being used to locate a facility to provide better customer service for multiple customers. C) A company that is searching for a manufacturing plant location that provides enough space for the plant to double in size over the next five years. D) A hospital network that wants to locate several satellite medical facilities in outlying areas to better serve a major metropolitan area. Answer: D Difficulty: Moderate Keywords: Geographical Information System, GIS, multiple-facility location decisions Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

9) When using Geographical Information System (GIS) tools to solve multiple-facility location problems, an analyst may also use ________ and ________ to arrive at trial locations. Answer: load-distance scores, center of gravity data Difficulty: Moderate Keywords: facility network, multiple-facility locations, GIS, load-distance method, center of gravity method Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

10) What are the components and capabilities of a geographical information system? Answer: A geographical information system (GIS) is a system of computer software, hardware, and data that the firm's personnel can use to manipulate, analyze, and present information relevant to a location decision. A GIS can also integrate different systems to create a visual representation of a firm's location choices. Among other things, it can be used to (1) store databases, (2) display maps, and (3) create models that can take information from existing datasets, apply analytic functions, and write results into newly derived datasets. Together, these three functionalities of data storage, map displays, and modeling are critical parts of an intelligent GIS and are used to a varying extent in all GIS applications. Difficulty: Easy Keywords: GIS, geographical information system Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Application of Knowledge Learning Objective: Understand the role of geographical information systems in making location decisions.

13.6 Warehouse Strategy in Logistics Networks 1) One disadvantage of centralized placement is increased shipping costs from the distribution center to the customer. Answer: TRUE Difficulty: Moderate Keywords: centralized placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

2) Forward placement is a reduction in inventory and safety stock because of the merging of variable demands from customers. Answer: FALSE Difficulty: Moderate Keywords: forward placement, inventory Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

3) Which one of the following statements on inventory placement of finished goods is best? A) Forward placement might help reduce transportation cost. B) Forward placement is consistent with a competitive priority that calls for customization. C) Inventory pooling should be avoided when demand in various regions fluctuates month to month. D) Backward placement is consistent with a competitive priority that calls for fast delivery times. Answer: A Difficulty: Moderate Keywords: inventory, forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

4) Which location shift would qualify as forward placement? A) from the manufacturer to a distribution center B) from the retailer to the wholesaler C) from the wholesaler to the manufacturer D) from the retailer to the manufacturer Answer: A Difficulty: Moderate Keywords: inventory, forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

5) The auto supply stores in the metroplex use a common database to track inventory and actually have very little in each location. Instead, customer requests are typically met with the reply, "We have some in our depot and can get it here by truck after 5 pm." This is an example of: A) forward placement. B) centralized placement. C) backward placement. D) depot placement. Answer: B Difficulty: Moderate Keywords: centralized placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

6) What does this diagram represent?

A) forward placement B) inventory pooling C) a geographical information system D) interchangeable parts Answer: A Difficulty: Moderate Keywords: forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

7) Cornelius Controlfreak insisted that his manufacturing plant also be the sole location for all finished goods inventory. If any customer placed an order, they knew it would come from the only place on Earth that had a ready supply, Cornelius' plant warehouse. ________ was alive and well thanks to this approach. Answer: Centralized placement Difficulty: Moderate Keywords: centralized placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

8) ________ is a reduction in inventory and safety stock because of the merging of variable demands from customers. Answer: Inventory pooling Difficulty: Moderate Keywords: inventory pooling, merging Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

9) ________ involves locating the stock closer to customers at a warehouse, distribution center, or retailer. Answer: Forward placement Difficulty: Moderate Keywords: forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

10) Discuss the trade-offs with locating the inventory at the factory versus locating it closer to the customer at a warehouse, distribution center, wholesaler, or retailers. Answer: Locating inventory at a company's factory or warehouse constitutes centralized placement, thereby allowing a firm to take advantage of inventory pooling. Inventory pooling permits the producer to reduce the total inventory in the system, yet retain high service levels since one customer's high demand may be offset by another customer's low demand. The disadvantage of holding inventory in one location is the additional expense and time required to get the product in the hands of the customer. Another approach to inventory location is forward placement. Forward placement reduces delivery times and puts the inventory closer to the customer so that in some cases (when it is located at a retailer), it can be seen and might trigger a purchase. The disadvantages of forward placement run counter to the advantages of pooling. Difficulty: Moderate Keywords: centralized placement, inventory pooling, service levels, forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the implications of warehouse strategy as it relates to inventory placement and autonomous warehouse operations.

13.7 A Systematic Location Selection Process 1) Widgets, Inc. wishes to locate two new manufacturing facilities. Based on the following subjective criteria, where should the new facilities be located? (Excellent = 5, Very good = 4, Good = 3, Fair = 2, Poor = 1)

A) B and D B) A and D C) C and D D) D and E Answer: B Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

Scenario 13.1 McKenna Restaurant wishes to open a new store. The table below provides the subjective criteria for the location decision with the respective weights and the factor evaluation for each location.

Factor Proximity to Markets Quality of Life Access to Transportation Access for Suppliers

Factor Evaluation By Location Weight A B C D 20 25

6 7

3 8

8 7

5 8

2) Based on the information in Scenario 13.1, what is the weighted score for location A? A) 600 B) 645 C) 675 D) 725 Answer: B Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

3) Based on the information in Scenario 13.1, which two locations have the same (equal) weighted scores? A) Locations A and D B) Locations A and C C) Locations B and C D) Locations B and D Answer: C Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

4) Based on the information in Scenario 13.1, which location has the lowest weighted score? A) Location A B) Location B C) Location C D) Location D Answer: A Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

5) Based on the information in Scenario 13.1, where should the new store be located? A) Location A B) Location B C) Location C D) Location D Answer: D Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

Scenario 13.2 The point has been reached where a biotechnology research and development company must expand by building a new facility. The search has been narrowed to four locations, all of which are acceptable to management. The assessment of these sites is being made on the basis of the six subjective location factors as in the table below. Management has agreed to use a five-point scale (Excellent = 5, Very good = 4, Good = 3, Fair = 2, Poor = 1) to quantify and compare their subjective opinions about the relative goodness of the sites. The weight reflects the importance of each factor in the decision.

6) Based on the information in Scenario 13.2, what is the weighted score for location A? A) 300 B) 275 C) 290 D) 250 Answer: C Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

7) Based on the information in Scenario 13.2, which two locations have the same (equal) weighted scores? A) Locations A and D B) Locations A and C C) Locations B and C D) Locations B and D Answer: B Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

8) Based on the information in Scenario 13.2, which location has the lowest weighted score? A) Location A B) Location B C) Location C D) Location D Answer: D Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

9) Based on the information in Scenario 13.2, where should the new store be located? A) Location A B) Location B C) Location C D) Location D Answer: B Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

10) Acme Fasteners desires to locate a new facility. Based on preliminary analysis, the choice has been reduced to four locations: A, B, C, and D. These four locations were rated on a scale from 1 (worst) to 10 (best) on each of four criteria. Each criterion was also weighted to indicate its importance (i.e., the higher the weight, the more important). The list of ratings and weights follows.

Based on weighted scores, where should Acme locate its new facility? A) A B) B C) C D) D Answer: A Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

11) Sweet Candy, Inc. wishes to open two new stores. Based on the following subjective criteria, where should the new stores be located? The higher the score, the better.

A) A and B B) B and C C) B and D D) B and E Answer: D Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

12) The Hunan Restaurant wishes to locate a new facility. Based on the following subjective criteria, where should the new facility be located? (Very good = 5, Good = 4, Fair = 3, Poor = 2, and Very poor = 1)

A) A B) B C) C D) D Answer: B Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

13) Sweet Sweet Candy, Inc. wishes to open two new stores. Based on the following subjective criteria, where should the new stores be located? The higher the score, the better.

Answer: B at 410 and E at 380 are the highest scores and therefore the locations of choice. Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

14) The Dhaba Restaurant wishes to locate a new facility. Based on the following subjective criteria, where should the new facility be located? (Very good = 5, Good = 4, Fair = 3, Poor = 2, and Very poor = 1)

Answer: Location B at a score of 405 is the best location. Difficulty: Moderate Keywords: location factors, preference matrix, weighted score Learning Outcome: Discuss factors affecting location decision and describe common methods for location selection AACSB: Analytical Thinking Learning Objective: Use a preference matrix to evaluate proposed locations as part of a systematic location selection process.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 14 Supply Chain Integration 14.1 Supply Chain Disruptions 1) Supply chain integration is the effective coordination of supply chain processes through the seamless flow of information to suppliers, but does not include customers, such as distributors and retailers. Answer: FALSE Difficulty: Easy Keywords: supply chain integration, supplier, customer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

2) Supply chain integration is the effective coordination of supply chain processes through the seamless flow of information to suppliers, up and down the supply chain. Answer: TRUE Difficulty: Easy Keywords: supply chain integration, supplier, customer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

3) A supply chain can be thought of as a river that flows from raw material suppliers to consumers. Answer: TRUE Difficulty: Easy Keywords: supply chain, river, raw material supplier, consumer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

4) The finished goods of one firm may actually be the raw materials for another firm. Answer: TRUE Difficulty: Easy Keywords: finished goods, raw materials Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

5) The bullwhip effect says that in any supply chain, the ordering patterns experience increasing variance as you move closer to the end customer. Answer: FALSE Difficulty: Moderate Keywords: bullwhip effect, variation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

6) A common disruption of the external supply chain is product and service mix changes. Answer: TRUE Difficulty: Moderate Keywords: disruption, external supply chain, mix Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

7) A common disruption of the external supply chain is engineering changes. Answer: FALSE Difficulty: Moderate Keywords: external supply chain, engineering change Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

8) A common disruption of the supply chain resulting from internal causes is order batching. Answer: TRUE Difficulty: Moderate Keywords: disruption, internal supply chain, mix Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

9) A common disruption of the supply chain resulting from internal causes is demand volume changes. Answer: FALSE Difficulty: Moderate Keywords: disruption, internal supply chain, mix Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

10) The SCOR model provides guidelines for how materials are to be delivered along a supply chain. Answer: FALSE Difficulty: Moderate Keywords: SCOR, supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

11) The SCOR model focuses on the supply chain processes of planning, making, sourcing, delivering, and returning. Answer: TRUE Difficulty: Moderate Keywords: SCOR, supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

12) Which of the following is not a component of the supply chain? A) order fulfillment B) materials C) customer relationship D) competitors Answer: D Difficulty: Easy Keywords: supply chain, component Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

13) The bullwhip effect is characterized by: A) ordering patterns that experience increasing variance as you proceed downstream in the chain. B) ordering patterns that experience increasing variance as you proceed upstream in the chain. C) purchasing patterns that experience increasing variance downstream in the chain. D) purchasing patterns that experience decreasing variance as you proceed upstream in the chain. Answer: B Difficulty: Moderate Keywords: bullwhip effect, variation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

14) Which of the following changes would decrease the likelihood of the bullwhip effect? A) changing the mix of items in an order B) sending partial shipments of an order C) instituting a policy of no discounts or promotions D) sending late deliveries of an order Answer: C Difficulty: Moderate Keywords: bullwhip effect, variation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

15) Which of the following changes would increase the likelihood of a supply chain experiencing the bullwhip effect? A) engineering changes to the design of a product B) instituting a more accurate materials management information system C) closely coordinating promotions with the internal marketing department and suppliers D) using a more reliable delivery company Answer: A Difficulty: Easy Keywords: bullwhip effect, variation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

16) Which of the following is not an internal cause of supply chain disruptions? A) engineering changes B) batching of orders C) service or product promotions D) underfilled shipments Answer: D Difficulty: Easy Keywords: internal cause, supply chain disruptions Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

17) Which of the following is not an external cause of supply chain disruptions? A) late deliveries B) new service or product introductions C) customer service or product mix changes D) underfilled shipments Answer: B Difficulty: Easy Keywords: external cause, supply chain disruptions Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

18) An internal cause of disruption in the supply chain is: A) forecast error. B) underfilled shipments. C) volume changes. D) late deliveries. Answer: A Difficulty: Easy Keywords: internal supply chain, disruption Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

19) An external cause of disruption caused in the supply chain is: A) product or sales promotions. B) new product or service introduction. C) late deliveries. D) engineering changes. Answer: C Difficulty: Moderate Keywords: external supply chain, disruption Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

20) Possible internal causes of supply chain disruptions are: A) late deliveries. B) machine breakdowns or inexperienced workers. C) product and service mix changes. D) underfilled shipments. Answer: B Difficulty: Moderate Keywords: disruption, internal supply chain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

21) The SCOR model focuses on the basic supply chain processes of: A) source, control, operate, return. B) plan source, make deliver, return. C) purchase, operate, control, logistics. D) operations, marketing, finance. Answer: B Difficulty: Moderate Keywords: SCOR Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

22) The SCOR model requires a: A) three-tier supply chain. B) point of reference. C) make-to-order or assemble-to-order product. D) process view. Answer: B Difficulty: Moderate Keywords: SCOR Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

23) The bullwhip effect results in greater demand variability at the ________ end of the supply chain and lesser demand variability at the ________ end of the supply chain. Answer: factory or upstream, customer or downstream Difficulty: Moderate Keywords: bullwhip effect Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

24) The ________ model focuses on the supply chain processes plan, source, make, deliver, and return. Answer: SCOR (supply chain operations reference) Difficulty: Moderate Keywords: SCOR, supply chain operations reference model Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

25) Draw a graph illustrating the bullwhip effect and discuss its impact on the measures of supply chain performance. Answer: Sketches will vary slightly, but should illustrate increased variability upstream in the supply chain. The inventory measures of supply chain performance, average aggregate inventory value, weeks of supply, and inventory turnover, will fluctuate as the whip is cracked. At times, the measures may be deceptively strong, but at other times in the bullwhip cycle the measures will be abysmal. Process measures relating to customer relationship, order fulfillment, and supplier relationship will also fluctuate although measures like "customer satisfaction" may deteriorate as customers tire of the rollercoaster performance of the supply chain. Financial measures like ROA, CGS, total revenue, cash flow, and working capital will also behave cyclically but will be weaker than a supply chain operating sans bullwhip effect. At times, members of the supply chain will be caught holding the bag on inventory and forced to dump it at bargain prices and at other times supply chain members will be unable to acquire the inventory they need or will have to pay exorbitant costs to acquire it. Difficulty: Moderate Keywords: bullwhip effect, inventory measures Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

26) List and describe external causes of disruptions to supply chains. Answer: Typical disruptions include volume changes, product and service mix changes, late deliveries, and underfilled shipments. Volume changes occur when customers change the quantity of the product or service they have ordered for a specific date or unexpectedly demand more of a standard product or service. Product or service mix changes occur when customers change the mix of items in an order and cause a ripple effect throughout the supply chain. Late deliveries of materials or delays in essential services can force a firm to switch its schedule from production of one product model to another. Finally, suppliers that send partial shipments do so because of disruptions at their own plants. Difficulty: Moderate Keywords: external supply chains, disruptions Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

27) List and describe internal causes of disruptions to supply chains. Answer: Typical disruptions include internally generated shortages, engineering changes, new product or service introductions, product or service promotions, and information errors. Internally generated shortages are the shortage of parts that result from machine breakdowns or inexperienced workers. Engineering changes are changes to designs. The introduction of new products or services can cause disruptions. Product or service promotions are a common practice of firms producing standard products or services and can cause a spike in demand. Finally, information errors, such as demand-forecast errors or physical count errors, can cause disruptions. Difficulty: Moderate Keywords: internal supply chain, disruption Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

28) What are the elements of the SCOR model? Answer: The SCOR model focuses on basic supply chain plan, source, make, deliver, and return processes, repeated again and again along the supply chain. Difficulty: Moderate Keywords: SCOR Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the major causes of disruptions in a supply chain.

14.2 Supply Chain Risk Management 1) Production shifting is a form of low-cost hopping. Answer: FALSE Difficulty: Moderate Keywords: risk management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

2) One way to mitigate the bullwhip effect is to refuse to offer discounts and promotions. Answer: TRUE Difficulty: Moderate Keywords: risk management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

3) A company adopts the supply chain strategy of contracting with a number of geographically dispersed suppliers just in case prices rise in one part of the world. This approach is known as: A) price hopping. B) hedging. C) outsourcing. D) futures. Answer: B Difficulty: Moderate Keywords: hedging Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

4) One electronics manufacturer manages risk by making agreements with factories well in advance to guarantee productive capacity at an agreed price. If their product is popular, then they can use that productive capacity during an otherwise busy season at a lower cost. Such an agreement could best be described as: A) a futures contract. B) low-cost hopping. C) theory of constraints management. D) the bullwhip effect. Answer: A Difficulty: Moderate Keywords: futures contract Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

5) When I signed on at Seagate, they gave me an ID card that was dutifully checked each morning as I stumbled in to the office at 7:30. This process could best be described as ________. Answer: access control Difficulty: Moderate Keywords: risk management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

6) The standard for supply chain security management is ________. Answer: ISO 28000:2007 Difficulty: Moderate Keywords: risk management Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

7) What are five ways to minimize the bullwhip effect in supply chains? Answer: The authors provide nine ways, listed below. Strategic alignment—once an appropriate design is determined for the supply chain, make sure that all partners adhere to competitive priorities that are consistent with its strategic thrust. Misalignment of priorities, goals, and objectives can cause delays or disruptions in flows in a supply chain. Internal business functions should similarly be aligned. Upstream/downstream supply chain integration—working closely with customers and suppliers in CDP and the new service or product design collaboration process improves information flows and reduces surprises from demand spikes due to promotions or supply hang-ups because of poorly designed services or products. The integration should extend as far upstream in the supply chain as possible, beyond first and second-tier suppliers. Visibility—one source of dynamics in supply chains is the lack of visibility of end-user demand by suppliers upstream in the supply chain. To facilitate planning at all levels in the supply chain, point- ofsale (POS) data, which records actual customer purchases of the final service or product, can be shared with all suppliers. RFID can also be used to track quantities of inventory throughout the supply chain. Many firms have outsourced their customer service processes, particularly if the service can be transacted over the phone. Flexibility and redundancy—develop the right level of flexibility and redundancy across the supply chain to be able to absorb disruptions and adapt to change. Seek dual sources of critical materials and components, build in adequate capacity cushions, and adjust safety stocks and inventory levels to maintain desired flows. Short replenishment lead times—improving internal processes and working with suppliers to reduce lead times allows the firm to react quickly to a change in demand levels, thereby mitigating the bullwhip effect. In addition, shorter lead times leads to smaller pipeline inventories. Small order lot sizes—working on ways to reduce the costs associated with ordering, transporting and receiving inventory throughout the supply chain will reduce order lot sizes and thereby decrease the amount of fluctuation in the size of orders in the supply chain. Rationing short supplies—when a shortage exists, customers sometimes artificially inflate their orders to protect themselves, only to cancel them later when the shortage is relieved. To counteract this behavior, suppliers can ration short supplies to customers on the basis of their past sales, rather than their current orders. Everyday low pricing (EDLP)—promotional or discount pricing encourages spikes in demand. Using a stable pricing program such as EDLP, as is done by Walmart, discourages customers from buying excess stock at discounted prices so they can offer price promotions, a practice called forward buying. EDLP levels the demand spikes that are driven by price fluctuations. Cooperation and trustworthiness—being cooperative in solving supply issues and providing information that can be trusted serves to reduce costs for all members of the supply chain and mitigates the deleterious effects of supply chain dynamics. Difficulty: Moderate Keywords: break-even, fixed cost Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

14.3 Cloud Computing and Blockchains 1) Due to geographically dispersed servers in a cloud computing arrangement, different participants in the supply chain cannot have access to the same real-time data and instead have to rely on periodic data updates to sync the information across the supply chain. Answer: FALSE Difficulty: Moderate Keywords: cloud computing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

2) Cloud computing makes use of a network of local interconnected servers to store, manage, and process data. Answer: FALSE Difficulty: Moderate Keywords: cloud computing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

3) Data security and privacy are major shortcomings related to cloud computing. Answer: TRUE Difficulty: Easy Keywords: cloud computing, data security, privacy Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

4) Blockchains used in supply chains are usually publicly accessible to provide ease of access and use. Answer: FALSE Difficulty: Moderate Keywords: blockchain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

5) Blockchains make use of centralized databases to enhance data security. Answer: FALSE Difficulty: Moderate Keywords: blockchain, decentralization Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

6) Every authorized user updating data in a blockchain can be tracked and traced using their contact information like a phone number or email address for transparency and accountability. Answer: FALSE Difficulty: Moderate Keywords: blockchain, transparency Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

7) The flexibility of blockchains allows a user to go back and change the data they have entered to rectify a mistake. Answer: FALSE Difficulty: Moderate Keywords: blockchain, immutability Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

8) What level of supply chain coordination involves providing access to sales orders, invoices and payment information for different businesses across a supply chain? A) transaction integration B) management information C) strategic collaboration D) vertical integration Answer: A Difficulty: Moderate Keywords: supply chain coordination, transaction integration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

9) What level of supply chain coordination involves the sharing of forecasts, shipping plans, bill of material (BOM) and inventory levels among multiple entities across a supply chain? A) transaction integration B) management information C) strategic collaboration D) vertical integration Answer: B Difficulty: Moderate Keywords: supply chain coordination, management information Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

10) What level of supply chain coordination involves working with other participants across the supply chain to improve forecast accuracy, resolve critical supply chain events, creating unified pricing plans, and improving production capacities? A) transaction integration B) management information C) strategic collaboration D) vertical integration Answer: C Difficulty: Moderate Keywords: supply chain coordination, strategic collaboration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

11) A retailer uses sensors to continuously monitor the temperature of produce being shipped by the suppliers to their distribution centers and have the ability to receive alerts when the temperature of the perishable produce rises above a compliance limit. When this happens, the retailer automatically rejects the delivery of the shipment and penalizes the supplier for not meeting contractual obligations. The retailer in this case is making use of: A) INCOTERMS. B) smart contracts. C) insurance allowances. D) control charts. Answer: B Difficulty: Moderate Keywords: blockchain, smart contracts Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

12) ________ is the practice of using a network of remote servers hosted on the Internet to store, manage, and process data. Answer: Cloud computing Difficulty: Moderate Keywords: cloud computing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

13) ________ involves providing access to sales orders, invoices and payment information for different businesses across a supply chain. Answer: Transaction integration Difficulty: Moderate Keywords: supply chain coordination, transaction integration Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

14) ________ is a digital record of transactions in which individual records are linked together in a single list. Answer: Blockchain Difficulty: Moderate Keywords: blockchain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

15) Blockchain is a digital record of transactions in which individual records, called ________, are linked together in a single list, called a(n) ________. Answer: blocks, chain Difficulty: Moderate Keywords: blockchain Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

16) ________ is a method for identifying items through the use of radio signals from a tag attached to an item. Answer: Radio frequency identification (RFID) Difficulty: Moderate Keywords: radio frequency identification, RFID Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

17) ________ are codified agreements that self-execute when the conditions are met. Answer: Smart contracts Difficulty: Moderate Keywords: smart contracts Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe how cloud computing and blockchains can be used to integrate supply chains.

14.4 New Service or Product Development Process 1) Concurrent engineering is the term used to describe a firm's development of a new product after it has been discovered that a competitor is engineering a similar product for launch. Answer: FALSE Difficulty: Moderate Keywords: concurrent engineering, product development Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

2) Concurrent engineering helps firms avoid the costly mismatch between the design of a new offering and the capability of the processes required to produce it. Answer: TRUE Difficulty: Moderate Keywords: concurrent engineering, product development Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

3) The ramp-up stage of the development process precedes the full launch stage. Answer: FALSE Difficulty: Moderate Keywords: development, stage, launch stage, ramp-up Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

4) A strain is placed on the supply chain during the ramp-up stage of the development process due to changing volumes, quality issues and last minute design changes. Answer: TRUE Difficulty: Moderate Keywords: development process, ramp-up stage Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

5) Which of the following is not a stage in the New Service / Product Development Process? A) development B) design C) maintenance D) analysis Answer: C Difficulty: Easy Keywords: stage, New Service / Product Development Process Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

6) The stage of new product or service development that links the creation of new services or products to the corporate strategy of the firm is called: A) design. B) analysis. C) development. D) full launch. Answer: A Difficulty: Moderate Keywords: stage, development, new, corporate strategy Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

7) The product development team ensures compatibility of the proposed product with corporate strategy and regulatory standards in the: A) design stage. B) analysis stage. C) development stage. D) full launch stage. Answer: B Difficulty: Moderate Keywords: product development team, corporate strategy, regulatory standards Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

8) The stage of new service or product development at which personnel are trained and some pilot runs can be conducted to look for possible problems in production is called: A) design. B) analysis. C) development. D) full launch. Answer: C Difficulty: Moderate Keywords: development, stage, new, service, product Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

9) A new product development team that is composed of product and process engineers, marketers, quality specialists, and buyers that work together to make sure the new product can actually be built is engaging in: A) concurrent engineering. B) joint application development. C) reverse logistics. D) core process design. Answer: A Difficulty: Easy Keywords: development, stage, new, service, product Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

10) ________ brings product engineers, process engineers, marketers, buyers, information specialists, quality specialists and suppliers together to work jointly to design a product and all its processes. Answer: Concurrent engineering Difficulty: Moderate Keywords: concurrent engineering, design, new Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Describe the four major nested processes in the new service or product development process.

14.5 Supply Relationship Process 1) In presourcing, suppliers are selected early in the concept-development stage. Answer: TRUE Difficulty: Moderate Keywords: presourcing, development Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

2) Once certified, a supplier can be used by the purchasing department without the purchaser having to make background checks. Answer: TRUE Difficulty: Moderate Keywords: certified, supplier, background checks Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

3) Value analysis is a systematic effort to reduce the cost or improve the performance of a service or product. Answer: TRUE Difficulty: Moderate Keywords: value analysis, systematic, reduce, improve Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

4) Electronic Data Interchange enables the transmission of routine, standardized business documents from computer to computer over telephone or direct leased lines. Answer: TRUE Difficulty: Moderate Keywords: EDI, transmission, standardized business documents Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

5) Green purchasing involves identifying, assessing, and managing the flow of environmental waste and finding ways to reduce it and minimize its impact on the environment. Answer: TRUE Difficulty: Moderate Keywords: green purchasing, environmental waste Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

6) The competitive orientation to supplier relations is that the buyer and supplier are partners. Answer: FALSE Difficulty: Moderate Keywords: competitive orientation, supplier, buyer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

7) In a competitive orientation to negotiations between buyer and supplier, the buyer does not always possess the power in the relationship—the supplier sometimes holds the power and can exercise this power during negotiations with the buyer. Answer: TRUE Difficulty: Moderate Keywords: competitive orientation, supplier, buyer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

8) The traditional form of e-purchasing today is electronic data interchange. Answer: TRUE Difficulty: Moderate Keywords: e-purchasing, electronic data interchange Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

9) A catalog hub is a central distribution point where buyers may purchase items directly from manufacturers before the items are shipped to retailers. Answer: FALSE Difficulty: Easy Keywords: catalog hub, central distribution point Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

10) An electronic market that brings together textbook sellers, office supply companies, apparel vendors, and students is an example of an exchange. Answer: TRUE Difficulty: Easy Keywords: exchange, electronic, buyer, seller Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

11) Early supplier involvement is a program that allows suppliers to fill orders prior to the customer placing them. Answer: FALSE Difficulty: Moderate Keywords: early supplier involvement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

12) Which one of the following statements is true about sourcing? A) Purchasing's primary role is to satisfy the firm's long-term supply needs. B) Purchasing's primary role should be placing and tracking orders. C) Purchasing's primary role is to negotiate lower prices. D) Purchasing's primary role is to negotiate prices and delivery dates. Answer: A Difficulty: Moderate Keywords: purchasing, supply Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

Table 14.1 Alison's Accessories is a high volume worldwide fashion house with outlets in 65 countries. Khalil, the supply chain manager is conducting her usual thorough analysis of her final four candidates for supplier and has developed the following tables of pertinent costs and other shipping metrics. Regardless of supplier, Alison's Accessories will operate 220 days per year and has forecast annual demand of 250,000 units. Khalil has obtained quotes for three different shipment sizes (Freight Costs table). All costs are in US Dollars. Unit costs Supplier A B C D

Price/Unit 123 125 126 100

Carrying Cost 22 19 18 40

Freight Costs Supplier A B C D

15,000 units 380,000 615,000 285,000 380,000

25,000 units 260,000 547,000 240,000 260,000

Other Costs Supplier A B C D

Lead Time 30 15 7 90

Admin Costs 250,000 275,000 225,000 2,500,000

50,000 units 237,000 470,000 200,000 237,000

13) Use Table 14.1 to answer the question. Khalil believes that Alison's would benefit most from smaller shipments of accessories from their chosen supplier. Which supplier would result in the lowest total cost using this criterion? A) Supplier A B) Supplier B C) Supplier C D) Supplier D Answer: D Difficulty: Moderate Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

14) Use Table 14.1 to answer the question. Khalil believes that Alison's would benefit most from medium sized shipments of accessories from their chosen supplier. Which supplier would result in the lowest total cost using this criterion? A) Supplier A B) Supplier B C) Supplier C D) Supplier D Answer: A Difficulty: Moderate Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

15) Use Table 14.1 to answer the question. Khalil believes in buying in bulk, regardless of who the supplier is. Which supplier would result in the lowest total cost using this criterion? A) Supplier A B) Supplier B C) Supplier C D) Supplier D Answer: C Difficulty: Moderate Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

16) Use Table 14.1 to answer the question. Khalil has a sorority sister that works at Supplier A and would like to help her out by awarding the supply contract. Which shipping volume should she choose in order to rig the bid and give her sister's company the contract? A) 15,000 units B) 25,000 units C) 50,000 units D) None of these, the shipping volume would need to be higher than the table goes. Answer: B Difficulty: Challenging Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

17) Use Table 14.1 to answer the question. As shipping volume increases from 15,000 to 25,000 to 50,000, which supplier experiences the smallest percentage increase in inventory cost? A) Supplier A B) Supplier B C) Supplier C D) Supplier D Answer: D Difficulty: Challenging Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

18) Use Table 14.1 to answer the question. Khalil has a brother-in-law that works for Supplier B and as she will soon be an aunt for the first time, she'd like to choose a shipping volume that awards Supplier B with the contract with Alison Accessories. What shipping volume should she choose? A) 15,000 units B) 25,000 units C) 50,000 units D) Supplier B is never the best alternative. Answer: D Difficulty: Challenging Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

Use the following to answer the questions below. The Steele Bike Company has completed a total cost analysis for two suppliers of bicycle frames to support their business. They also consider on-time speed, top quality and customization in their selection process. Each criterion is given a weight (total = 100 points), and each supplier is scored on each criterion (1 = poor, 10 = excellent). The data are shown in the following table. CRITERION Total Cost On-Time Delivery Top Quality Customization

WEIGHT 15 20 30 35

ACME 8 5 7 4

STATE 4 7 6 6

19) Refer to the instruction above. Using the preference matrix approach for selecting suppliers, what is State's total weighted score? A) 570 B) 100 C) 23 D) 590 Answer: D Difficulty: Moderate Keywords: supplier relationship, sourcing, supplier selection, preference matrix Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

20) Refer to the instruction above. Using the preference matrix approach for selecting suppliers, what is Acme's total weighted score? A) 100 B) 570 C) 24 D) 590 Answer: B Difficulty: Moderate Keywords: supplier relationship, sourcing, supplier selection, preference matrix Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

21) Refer to the instruction above. Using the preference matrix (total weighted score) approach for selecting suppliers, which supplier should Steele select? A) State B) Acme C) Either is acceptable—their preference matrix scores are the same. D) More information is needed to make this decision. Answer: A Difficulty: Moderate Keywords: supplier relationship, sourcing, supplier selection, preference matrix Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

22) The practice of selecting suppliers and giving them significant responsibility for the design of certain components or systems of the product is called: A) value analysis. B) locus of control. C) presourcing. D) vendor-managed inventories. Answer: C Difficulty: Moderate Keywords: supply chain, design, collaboration, early supplier involvement, presourcing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

23) A systematic effort to reduce the cost or improve the performance of services or products is known as: A) presourcing. B) cooperative orientation. C) supplier certification. D) value analysis. Answer: D Difficulty: Moderate Keywords: supply chain, design, collaboration, early supplier involvement, value analysis Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

24) Suppliers can gain power from a number of sources in the buyer / supplier relationship. When a supplier values identification with a buyer, this is called a(n) ________ source of power. A) expert B) reward C) referent D) legal Answer: C Difficulty: Challenging Keywords: supply chain, negotiation, competitive, orientation, sources, power Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

25) Suppliers can gain power from a number of sources in the buyer / supplier relationship. When a buyer has access to knowledge, information and skills desired by the supplier, this is called a(n) ________ source of power. A) expert B) reward C) referent D) coercive Answer: A Difficulty: Challenging Keywords: supply chain, negotiation, competitive, orientation, sources, power Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

26) Suppliers can gain power from a number of sources in the buyer / supplier relationship. When a buyer can threaten to cancel future business unless the supplier adheres to the buyer's demands, this is called a ________ source of power. A) legal B) reward C) referent D) coercive Answer: D Difficulty: Challenging Keywords: supply chain, negotiation, competitive, orientation, sources, power Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

27) Approaches to e-purchasing include all of the following except: A) catalog hubs. B) radio frequency identification (RFID). C) exchanges. D) electronic data interchange (EDI). Answer: B Difficulty: Challenging Keywords: supply chain, buying, e-purchasing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

28) The practice whereby a manufacturer has inventories of materials on consignment from its suppliers falls under the scope of: A) inventory pooling control. B) virtual distribution. C) electronic inventory control. D) vendor-managed inventories. Answer: D Difficulty: Moderate Keywords: virtual, supply chain, traditional Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

29) One of the benefits of a cooperative orientation in supplier relationships is: A) the buyer sometimes suggests ways to improve the supplier's operations. B) the supplier implements its own quality standards. C) the buyer does not have to share much information with the supplier. D) the supplier has complete freedom in choosing the delivery time. Answer: A Difficulty: Moderate Keywords: cooperative orientation, supplier relationship Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

30) Which one of the following statements correctly represents a benefit of centralized buying? A) Local managers have more control over their business. B) Purchases and production schedules are meshed more easily. C) Customization to local preferences is simplified. D) Increased buying power can result in significant savings in purchasing costs. Answer: D Difficulty: Moderate Keywords: centralized buying, purchasing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

31) Which one of the following statements is true about a cooperative orientation in supplier relationships? A) It cannot be implemented in Western countries because competitive bidding is more effective in that culture. B) It cannot be implemented in the Western countries because it always benefits the supplier. C) It requires all parts and subassemblies to be purchased from the same supplier. D) It requires few suppliers for each item or service. Answer: D Difficulty: Moderate Keywords: cooperative orientation, supplier Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

32) ________ is the management of the acquisition process, which includes deciding which suppliers to use, negotiating contracts, and deciding whether to buy locally. Answer: Purchasing Difficulty: Moderate Keywords: purchasing, acquisition Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

33) ________ is a supplier relation in which the buyer and seller are partners, each helping the other as much as possible. Answer: Cooperative orientation Difficulty: Moderate Keywords: cooperative supplier orientation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

34) Steve-O engaged in ________ by using only suppliers that recycled and managed their flow of environmental waste. Answer: green purchasing Difficulty: Moderate Keywords: green purchasing, environmental waste Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

35) ________ programs verify that potential suppliers have the capability to provide materials or services which the buying firms require. Answer: Supplier certification Difficulty: Moderate Keywords: supplier, certification Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

36) ________ is the awarding of a contract for an item or service to only one supplier. Answer: Sole sourcing Difficulty: Moderate Keywords: sole sourcing, source Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

37) ________ is a systematic effort to reduce the cost or improve the performance of products and services, either purchased or produced. Answer: Value analysis Difficulty: Moderate Keywords: value analysis Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

38) Knoxville Industries had their supplier design the improved body armor for their new apparel. This level of supplier involvement, known as ________ was sure to result in a pain free season. Answer: presourcing Difficulty: Moderate Keywords: presourcing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

39) ________ are electronic marketplaces where buying and selling firms meet to do business, without protracted contract negotiations. Answer: Exchanges Difficulty: Moderate Keywords: exchange Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

40) ________ is the condition where the buyer has purchasing power when the purchasing volume represents a significant share of the supplier's sales. Answer: Economic dependency Difficulty: Moderate Keywords: economic dependency Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

41) What are some ways that supply chain partners can collaborate on product designs? How do these ways differ? Answer: An approach that many firms are using in their design collaboration process is called early supplier involvement, which is a program that includes suppliers in the design phase of a service or product. Suppliers provide suggestions for design changes and materials choices that will result in more efficient operations and higher quality. In the automotive industry, an even higher level of early supplier involvement is known as presourcing, whereby suppliers are selected early in a product's concept development stage and are given significant, if not total, responsibility for the design of certain components or systems of the product. Presourced suppliers also take responsibility for the cost, quality, and on-time delivery of the items they produce. Firms can also improve performance by engaging in value analysis, which is a systematic effort to reduce the cost or improve the performance of services or products, either purchased or produced. It is an intensive examination of the services, materials, processes, information systems, and flows of material involved in the production of a service or an item. Benefits include reduced production, materials, and distribution costs; improved profit margins; and increased customer satisfaction. Difficulty: Moderate Keywords: presourcing, value analysis, early supplier involvement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

42) The authors present four types of e-purchasing; what are they and how do they work? Which of these could be accomplished by the least IT-savvy supply chain? Why? Answer: The four approaches to e-purchasing presented in the text are: (1) electronic data interchange, (2) catalog hubs, (3) exchanges, and (4) auctions. Electronic data interchange (EDI) is a technology that enables the transmission of routine, standardized business documents from computer to computer over telephone or direct leased lines. Special communications software translates documents into and out of a generic form, allowing organizations to exchange information even if they have different hardware and software components. Invoices, purchase orders, and payments information are some of the routine documents that EDI can handle. Catalog hubs can be used to reduce the costs of placing orders to suppliers as well as the costs of the services or goods themselves. Suppliers post their catalog of items on the hub, and buyers select what they need and purchase them electronically. The hub connects the firm to potentially hundreds of suppliers through the Internet, saving the costs of EDI, which requires one-to-one connections to individual suppliers. Moreover, the buying firm can negotiate prices with individual suppliers for items such as office supplies, technical equipment, services, and so forth. The catalog that the buying firm's employees see consists only of the approved items and the prices the buyer has prenegotiated with its suppliers. Employees use their PCs to select the items they need, and the system generates the purchase orders, which are electronically dispatched to the suppliers. An exchange is an electronic marketplace where buying firms and selling firms come together to do business. The exchange maintains relationships with buyers and sellers, making it easy to do business without the aspect of contract negotiations or other types of long-term conditions. Exchanges are often used for "spot" purchases to satisfy an immediate need at the lowest possible cost. Commodity items such as oil, steel, or energy fit this category. An extension of the exchange is the auction, where firms place competitive bids to buy something. For example, a site may be formed for a particular industry, and firms with excess capacity or materials can offer them for sale to the highest bidder. Bids can either be closed or open to the competition. Answers will vary as to the least IT-intensive approach, however EDI would probably not be the best choice for this position piece. Difficulty: Moderate Keywords: presourcing, value analysis, early supplier involvement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

43) Compare and contrast competitive orientation versus cooperative orientation for supplier relations. Answer: Competitive orientation views supplier relations as a negotiation between buyer and seller. It is generally considered a zero-sum game–one side wins, the other loses. In cooperative orientation, the buyer and seller are partners, each one helping the other as much as possible. Generally, a cooperative orientation means long-term commitment, joint work on quality, and support by the buyer of the supplier's managerial, technological, and capacity development. Sharing of information takes place in both directions. Difficulty: Moderate Keywords: competitive orientation, cooperative orientation, supplier relations Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

44) The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry. Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation. The supplier will be selected based on total annual cost to supply Burdell's needs. Burdell's annual requirements are for 25,000 tires, and the company operates 250 days a year. The following data are available for two suppliers being considered.

SUPPLIER LEXINGTON TIRE IRMO AUTO

SHIPPING QUANTITY PER SHIPMENT

SHIPPING COSTS

INVENTORY PRICE / HOLD COSTS TIRE (p) (H)

LEAD TIME (DAYS)

ADMIN. COSTS

2,000 1,000

$18,000 $25,000

$30 $29

6 4

$15,000 $18,000

$6.00 $5.80

Using the Total Cost Analysis for Supplier Selection, which supplier should Burdell choose? Provide details to justify your answer. Answer: Irmo Auto Total Cost of $773,220 Vs. Lexington's cost of $792,600 Difficulty: Challenging Keywords: supplier relationship, sourcing, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

45) The Burdell Wheel and Tire Company has completed a total cost analysis for two suppliers of tires to support their business. They also consider delivery speed, consistent quality and volume flexibility in their selection process. Each criterion is given a weight (total = 100 points), and each supplier is scored on each criterion (1 = poor, 10 = excellent). The data are shown in the following table.

CRITERION Total Cost Delivery Speed Consistent Quality Environmental Sensitivity

WEIGHT 20 25 25 30

LEXINGTON TIRE 5 6 8 4

IRMO AUTO 6 5 6 7

Using the preference matrix approach for selecting suppliers, which supplier should Burdell select? Answer: Irmo Auto Difficulty: Moderate Keywords: supplier relationship, sourcing, supplier selection, preference matrix Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

46) The Bahouth Bike Company has completed an exhaustive analysis for four suppliers of bicycle frames to support their business. They considered on-time speed, top quality and customization in their selection process. Each criterion is given a weight (total = 100 points), and each supplier is scored on each criterion (1 = poor, 10 = excellent). The data are shown in the following table. CRITERION Sustainability Cost Quality On-time Delivery

WEIGHT 3 6 8 4

A 9 3 4 0

B 2 0 0 6

C 0 3 9 1

D 1 10 4 0

Using the preference matrix (total weighted score) approach for selecting suppliers, which supplier should Bahouth select? What is its total weighted score? Answer: Supplier D has a weighted score of 95 which is 5 higher than Supplier C, 18 higher than A, and 65 higher than B. Difficulty: Moderate Keywords: supplier relationship, sourcing, supplier selection, preference matrix Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

Table 14.2 Alison's Accessories is a high volume worldwide fashion house with outlets in 65 countries. Khalil, the supply chain manager is conducting her usual thorough analysis of her final four candidates for supplier and has developed the following tables of pertinent costs and other shipping metrics. Regardless of supplier, Alison's Accessories will operate 220 days per year and has forecast annual demand of 250,000 units. Khalil has obtained quotes for three different shipment sizes (Freight Costs table). All costs are in US Dollars. Unit costs Supplier A B C D

Price/Unit 123 125 126 100

Carrying Cost 22 19 18 40

Freight Costs Supplier A B C D

15,000 units 380,000 615,000 285,000 380,000

25,000 units 260,000 547,000 240,000 260,000

Other Costs Supplier A B C D

Lead Time 30 15 7 90

Admin Costs 250,000 275,000 225,000 2,500,000

50,000 units 237,000 470,000 200,000 237,000

47) Use the date in Table 14.2. Analyze costs and make recommendations regarding the shipping options and suppliers. Which combination of shipping amount and supplier yields the lowest total cost? Answer: Supplier C shipping 50,000 units at a time is the lowest total cost situation for Alison Accessories at $32,518,182 annually. All cost and supplier combinations are contained in the table. Bolded entries are the low cost options for each shipping quantity. Supplier A B C D

15,000 32,295,000 32,606,364 32,288,182 32,270,909

25,000 32,285,000 32,633,364 32,333,182 32,350,909

50,000 32,537,000 32,793,864 32,518,182 32,827,909

Difficulty: Challenging Keywords: total cost analysis, supplier selection Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.

14.6 Order Fulfillment Process 1) The order-fulfillment process involves the activities to deliver a product or service to the customer. Answer: TRUE Difficulty: Moderate Keywords: order-fulfillment, deliver, customer Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

2) Vendor-managed inventories are an example of the forward-placement tactic. Answer: TRUE Difficulty: Moderate Keywords: vendor-managed inventories, forward-placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

3) Using rail to move large quantities of goods is relatively cheap, but transit times are long and often variable. Answer: TRUE Difficulty: Easy Keywords: rail, large quantities, cheap Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

4) A cross-docking warehouse holds inventory from manufacturers until retailers are prepared to sell the items. Answer: FALSE Difficulty: Easy Keywords: cross-docking, warehouse Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

5) Which of the following statements about cross-docking is not correct? A) Cross-docking is packing products on incoming shipments so they can be easily sorted for outgoing shipments based on their final destination. B) Cross-docking reduces inventory and storage space requirements, but handling costs and lead times tend to increase. C) Items are moved from incoming vehicles to outgoing vehicles without being stored in warehouse inventory. D) Inbound and outbound shipments must be tightly coordinated for cross-docking to work. Answer: B Difficulty: Moderate Keywords: order fulfillment, cross-docking Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

6) What is the meaning of the acronym 3PL? A) three profit/loss periods B) three purchasing locations C) three partner leverage D) third party logistics provider Answer: D Difficulty: Moderate Keywords: 3PL, third-party logistics Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

7) What services are typically offered by a 3PL? A) transportation B) product design C) catalog hub D) auction Answer: A Difficulty: Moderate Keywords: 3PL, third-party logistics Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

8) The ________ process involves the activities required to deliver a product or service to a customer. Answer: order fulfillment Difficulty: Moderate Keywords: order fulfillment Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

9) ________ is an extreme application of the forward placement tactic. Answer: Vendor managed inventories (VMI) Difficulty: Moderate Keywords: forward placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

10) Define the term logistics and briefly discuss any three important logistics decisions. Answer: Logistics is the process whereby products or services are delivered to the customer. The five important decisions presented in the text are 1) degree of ownership, 2) facility location, 3) mode selection, 4) capacity level, and 5) amount of cross docking. Ownership. The firm has the most control over the logistics process if it owns and operates it, thereby becoming a private carrier. Although this approach may help to better achieve the firm's competitive priorities, the cost of equipment, labor, facilities, and maintenance could be high. The firm could instead leave the distribution to a third-party logistics provider (3PL), negotiating with the carrier for specific services. Those services could involve taking over a major portion of the order fulfillment process. 3PLs typically provide integrated services, from transportation and packaging services to warehousing and inventory management, for corporate clients that need to get their products to market. They can help with the design of a client's supply chain and facilitate the flow of information up and down the supply chain. Facility Location. A critical decision affecting the effectiveness of supply chains is the location of facilities that serve as points of service, storage, or manufacture. Mode Selection. The five basic modes of transportation are (1) truck, (2) train, (3) ship, (4) pipeline, and (5) airplane. The drivers for the selection should be the firm's competitive priorities. Capacity. The performance of a logistics process is directly linked to its capacity. The ownership decision and the modal selection decision are often intertwined because the question of how much capacity is needed must be resolved. Difficulty: Moderate Keywords: competitive orientation, cooperative orientation, supplier relations Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

11) Jackson Sheds has four different warehouse configurations under study, ranging from four warehouses to seven warehouses (only integer values). Each warehouse has a capacity of 300 units and costs $200 to maintain over the course of a year. Demand can range from 1,000 units per year up to 2,000 units in increments of 250 units. If the system warehouse capacity is sufficient to handle the year's demand, then the per unit cost is $2 per unit, but if the warehouse capacity is insufficient, the per unit cost for each unit in excess of system capacity is $5 per unit. The likelihood for each possible demand is shown in the table. Likelihood Demand

0.1 1,000

0.2 1,250

0.3 1,500

0.3 1,750

0.1 2,000

Which warehouse configuration is best for Jackson Sheds? Answer: The cost table for four through seven warehouses is shown; the lowest expected cost occurs at a six warehouse system.

Difficulty: Challenging Keywords: expected value Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Identify the four major nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.

12) Jackson Sheds has four different warehouse configurations under study, ranging from four warehouses to seven warehouses (only integer values). Each warehouse has a capacity of 400 units and costs $200 to maintain over the course of a year. Demand can range from 1,000 units per year up to 2,000 units in increments of 250 units. If the system warehouse capacity is sufficient to handle the year's demand, then the per unit cost is $2 per unit, but if the warehouse capacity is insufficient, the per unit cost for each unit in excess of system capacity is $5 per unit. The likelihood for each possible demand is shown in the table. Likelihood Demand

0.1 1,000

0.2 1,250

0.3 1,500

0.3 1,750

0.1 2,000

Which warehouse configuration is best for Jackson Sheds? Answer: The cost table for four through seven warehouses is shown; the lowest expected cost occurs at a five-warehouse system.

13) Jackson Sheds has four different warehouse configurations under study, ranging from four warehouses to seven warehouses (only integer values). Each warehouse has a capacity of 200 units and costs $400 to maintain over the course of a year. Demand can range from 1,000 units per year up to 2,000 units in increments of 250 units. If the system warehouse capacity is sufficient to handle the year's demand, then the per unit cost is $2 per unit, but if the warehouse capacity is insufficient, the per unit cost for each unit in excess of system capacity is $5 per unit. The likelihood for each possible demand is shown in the table. Likelihood Demand

0.1 1,000

0.2 1,250

0.3 1,500

0.3 1,750

0.1 2,000

Which warehouse configuration is best for Jackson Sheds? Answer: The cost table for four through seven warehouses is shown; the lowest expected cost occurs at a seven-warehouse system.

14) Jackson Sheds has four different warehouse configurations under study, ranging from four warehouses to seven warehouses (only integer values). Each warehouse has a capacity of 200 units and costs $200 to maintain over the course of a year. Demand can range from 1,000 units per year up to 2,000 units in increments of 250 units. If the system warehouse capacity is sufficient to handle the year's demand, then the per unit cost is $2 per unit, but if the warehouse capacity is insufficient, the per unit cost for each unit in excess of system capacity is $3 per unit. The likelihood for each possible demand is shown in the table. Likelihood Demand

0.1 1,000

0.2 1,250

0.3 1,500

0.3 1,750

0.1 2,000

Which warehouse configuration is best for Jackson Sheds? Answer: The cost table for four through seven warehouses is shown; the lowest expected cost occurs at both the four and five warehouse systems.

14.7 Customer Relationship Process 1) Which of the following is not an advantage the Internet provides for a firm's order placement process? A) greater variety and better quality of products available B) cost reduction C) increase in revenue flow D) pricing flexibility E) global access Answer: A Difficulty: Easy Keywords: customer relationship, Internet, order placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Define the three major nested processes in the customer relationship process.

2) Which of the following is not an advantage resulting from a firm outsourcing its customer service process? A) Specific detailed questions can be answered by the customer service representative. B) The firm gains more control over the customer interface process. C) Customer service labor costs are low. D) Automated systems are replaced by human contact. Answer: B Difficulty: Moderate Keywords: customer relationship, customer service, outsourcing Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Define the three major nested processes in the customer relationship process.

3) Which of the following is not a lever in an integrated supply chain? A) collaborative activities by supply chain partners B) reduced replenishment lead times C) reduced order lot sizes D) elimination of product shortages and backorders Answer: D Difficulty: Moderate Keywords: supply chain, levers Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Define the three major nested processes in the customer relationship process.

4) The ________ process involves the activities required to register the need for a product or service and to confirm the acceptance of the order. Answer: order placement Difficulty: Moderate Keywords: order placement Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Define the three major nested processes in the customer relationship process.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Chapter 15 Supply Chain Sustainability 15.1 The Three Elements of Supply Chain Sustainability 1) The essence of sustainability has exclusive focus on cutting costs and maximizing shareholder value. Answer: FALSE Difficulty: Easy Keywords: sustainability, shareholder value Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

2) Sustainability has three principle elements; financial responsibility, environmental responsibility, and social responsibility. Answer: TRUE Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

3) Humanitarian logistics is the process of planning, implementing, and controlling the efficient, costeffective flow and storage of goods and materials, as well as related information, from the point of origin to the point of consumption for the purpose of alleviating the suffering of vulnerable people. Answer: TRUE Difficulty: Moderate Keywords: humanitarian logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

4) The ecological needs of the planet and the firm's stewardship of the natural resources used in production are elements of: A) financial responsibility. B) environmental responsibility. C) social responsibility. D) humanitarian logistics. Answer: B Difficulty: Easy Keywords: sustainability, environmental responsibility Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

5) Financial responsibility addresses the fiscal needs of: A) shareholders and business partners. B) nature and future generations. C) society. D) non-stakeholders. Answer: A Difficulty: Easy Keywords: sustainability, financial responsibility Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

6) Addressing the moral, ethical, and philanthropic expectations that society has of an organization are elements of: A) financial responsibility. B) environmental responsibility. C) social responsibility. D) humanitarian logistics. Answer: C Difficulty: Easy Keywords: sustainability, social responsibility Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

7) What reason is cited by the authors for the difficulty with receiving approval for sustainability as a strategy? A) Sustainability is not a classic strategy in the mold of quality, cost leadership, or flexibility. B) Sustainability is too easily achieved and therefore does not provide a competitive advantage in the market. C) In general, directors often need to see a demonstrable return on investment to justify the costs. D) Sustainability is an inherently high-risk strategy and most boards are risk-averse. Answer: C Difficulty: Moderate Keywords: sustainability, strategy Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

8) ________ addresses the moral, ethical, and philanthropic expectations that society has of an organization. Answer: Social responsibility Difficulty: Moderate Keywords: social responsibility, sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

9) ________ is an element of sustainability that addresses the ecological needs to the planet and the firm's stewardship of the natural resources used in the production of services and products. Answer: Environmental responsibility Difficulty: Moderate Keywords: environmental responsibility, sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

10) ________ is the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods and materials, as well as related information, from the point of origin to the point of consumption for the purpose of alleviating the suffering of vulnerable people. Answer: Humanitarian logistics Difficulty: Moderate Keywords: humanitarian logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

11) ________ is an element of sustainability that addresses the financial needs to the shareholders, employees, customers, business partners, financial institutions, and any other entity that supplies the capital for the production of services or products or relies on the firm for wages or reimbursements. Answer: Financial responsibility Difficulty: Moderate Keywords: financial responsibility, sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

12) Briefly discuss the three elements of supply chain sustainability. Answer: Financial responsibility addresses the financial needs of the shareholders, employees, customers, business partners, financial institutions, and any other entity that supplies the capital for the production of services or products or relies on the firm for wages or reimbursements. Supply chains, for their part, support the financial responsibility of a firm by influencing elements that contribute to the return on assets. Second, environmental responsibility addresses the ecological needs of the planet and the firm's stewardship of the natural resources used in the production of services and products. The goal is to leave as small an environmental footprint as possible so that future generations can make use of abundant natural resources. The design and integration of supply chains can play a major role in preserving resources. Finally, social responsibility addresses the moral, ethical, and philanthropic expectations that society has of an organization. Difficulty: Moderate Keywords: sustainability, financial, environmental, social Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

13) What pressures do organizational leaders feel in the area of sustainability? Answer: A recent survey of top executives revealed that 99 percent of the CEOs believe that sustainability issues are critical to the future success of their companies, and 63 percent of them see technology as a critical accelerator for the socioeconomic impact of their companies. Further, 81 percent of the companies are taking action to achieve global sustainability goals; however the CEOs is the study do not believe that business execution is measuring up to the challenge and previous levels of corporate ambition. Sustainability is not the easiest strategy for which approval can be gained from most boards of directors. Directors often need some sort of demonstrable return on investment to justify the costs. For sustainability efforts, however, managers must have a long-term view that accepts lower returns in the near future to improve the chances of survival and better returns in the future. Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

14) What are the three elements of supply chain sustainability? Describe how each works and provide an example from industry for each. Answer: The three elements of supply chain sustainability include social responsibility, environmental responsibility, and financial responsibility. Social responsibility addresses the moral, ethical, and philanthropic expectations that society has of an organization. Environmental responsibility addresses the ecological needs of the planet and the firm's stewardship of the natural resources used in the production of services and products. The goal is to leave as small an environmental footprint as possible so that future generations can make use of abundant natural resources. Financial responsibility addresses the financial needs of the shareholders, employees, customers, business partners, financial institutions, and any other entity that supplies the capital for the production of services or products or relies on the firm for wages or reimbursements. Examples of each of these elements will vary. Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Define the three elements of supply chain sustainability.

15.2 Reverse Logistics 1) One motivation for reverse logistics is warranty repair or replacement. Answer: TRUE Difficulty: Moderate Keywords: reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

2) Reverse logistics addresses the movement of physical goods from consumer to producer and product information is an important by-product of the reverse-logistics process. Answer: TRUE Difficulty: Moderate Keywords: reverse logistics, information Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

3) A take back incentive is an arrangement for a company to collect its products from its customers for no charge when the customers want to dispose of them. Answer: TRUE Difficulty: Easy Keywords: take back, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

4) A corporate recycling program that takes obsolete models and reuses some basic components in the next generation of products is an example of: A) reverse logistics and environmental responsibility. B) social responsibility and ethics. C) financial responsibility. D) reverse logistics. Answer: A Difficulty: Moderate Keywords: sustainability, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

5) The management of products from the customer back to the point of origin is an element of: A) quality of life programs. B) the transportation method. C) critical mass. D) reverse logistics. Answer: D Difficulty: Moderate Keywords: reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

6) The function in a reverse logistics process that takes used goods from customers and distributes them to the production process or to distributors and retailers is: A) the returns processor. B) the waste disposal unit. C) green team. D) repair team. Answer: A Difficulty: Moderate Keywords: reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

7) The two important by-products of the reverse logistics process are: A) satisfied customers and money. B) product information and money. C) money and waste. D) waste and product information. Answer: D Difficulty: Moderate Keywords: reverse logistics, waste, product information Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

8) Some original equipment manufacturers (OEMs) that participate in remanufacturing attempt to limit the cannibalization of new product sales by: A) charging more for remanufactured products than for new products. B) requiring a new product to be purchased with every purchase of a remanufactured item. C) establishing floors on the prices that are charged for remanufactured products. D) refusing to provide a warranty on remanufactured products. Answer: C Difficulty: Moderate Keywords: reverse logistics, OEM, remanufacturing Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

9) One incentive scheme that insures a steady return of products through reverse logistics channels is to provide a new copy of a product if another copy is returned. This program is commonly known as: A) take back. B) fee. C) deposit fee. D) trade-in. Answer: D Difficulty: Moderate Keywords: reverse logistics, take back Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

10) The assortment of appliances, unused exercise equipment, and cat-scratched couches gave the neighborhood a post-apocalyptic appearance, but I quickly realized it was simply big trash day in this district. This initiative is an example of: A) a deposit fee program. B) a community program. C) a take-back program. D) a recycling program. Answer: B Difficulty: Moderate Keywords: reverse logistics, community program Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

11) A supply chain that integrates forward logistics with reverse logistics is called a(n) ________. Answer: closed-loop supply chain Difficulty: Moderate Keywords: closed-loop supply chain, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

12) A facility owned by the manufacturer or outsourced to a supplier that is proficient at disassembling products and wringing every last drop of value from them is a(n) ________. Answer: returns processor Difficulty: Moderate Keywords: returns processor, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

13) ________ provide an incentive for the user to return the product or containers of the product to get them reimbursed. Answer: Deposit fees Difficulty: Moderate Keywords: deposit fee Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

14) ________ is an arrangement for a company to collect its products from its customers for no charge when the customers want to dispose of them. Answer: Take back incentive Difficulty: Moderate Keywords: take back, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

15) ________ is an incentive arrangement wherein a customer can get a new copy of a product if another copy is returned. Answer: Trade-in Difficulty: Moderate Keywords: trade-in, reverse logistics Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

16) In what ways is reverse logistics management more difficult than the management of more typical supply chain flows? Answer: The reverse logistics operations are considerably different from the forward logistics flows, and considerably more expensive. A firm must establish convenient collection points to receive the used goods from the final customer and transport the goods to a returns processor, which is a facility owned by the manufacturer or outsourced to a supplier that is proficient at disassembling products and gleaning any remaining value from them. Several options exist. If the item is inoperable, it could be repaired and returned to the customer. Another option is that it could be cleaned and refurbished for direct use and returned either to the distribution channel, which is the case with leased products, or back to customers, which is the case with a maintenance warranty. The product could be remanufactured by tearing it down, rebuilding it with new parts as needed, and returning it to the distribution channel. Finally, the product could be completely disassembled and the usable parts and materials cleaned, tested, and returned to the production process. There are two important by-products of the reverse logistics process: waste, which must be properly disposed of, and product information, which is transmitted to the new service/product development process so that improvements can be made to future generations of the product. Difficulty: Moderate Keywords: ethics, just-in-time, JIT Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Explain the reverse logistics process and its implications for supply chain design.

15.3 Energy Efficiency 1) Carbon footprint is the amount of ground area or footprint occupied by a firm's logistics operations such a transportation and warehousing. Answer: FALSE Difficulty: Moderate Keywords: carbon footprint, greenhouse gases Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

2) An increase in freight density will result in a corresponding increase in carbon footprint. Answer: FALSE Difficulty: Moderate Keywords: carbon footprint, freight density Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

3) The traveling salesman problem allows multiple visits to the same location in order to find the shortest possible route. Answer: FALSE Difficulty: Moderate Keywords: traveling salesman problem, optimal route Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

4) Five cases of rubber chickens that were produced in China, sent by shipping container to a west coast port, transferred to a rail car, and then delivered the last 300 miles by semi-truck have experienced intermodal shipment. Answer: TRUE Difficulty: Easy Keywords: intermodal shipments Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

5) Electric trucks due to their high purchase costs result in a substantially higher total cost of ownership (TCO) compared to traditional diesel trucks in the near short term. Answer: FALSE Difficulty: Moderate Keywords: electric trucks, TCO Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

6) The total amount of greenhouse gasses produced to support operations is the: A) greenhouse effect. B) gas mass. C) zither. D) carbon footprint. Answer: D Difficulty: Easy Keywords: carbon footprint Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

7) A key difference between a shortest route problem and a traveling salesman problem is: A) the traveling salesman must return to the starting point. B) the shortest route is concerned with minimizing the total distance traveled. C) the traveling salesman must complete the tour in one day or less. D) the shortest route requires a GPS system. Answer: A Difficulty: Moderate Keywords: carbon footprint, route planning, traveling salesman, shortest route Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

8) The nearest neighbor heuristic chooses the: A) nearest neighbor to the start city and adds it to the unvisited set. B) closest visited city to the last city and adds it to the unvisited set. C) nearest neighbor to the end city and adds it to the visited set. D) closest unvisited city to the last city added to the visited set. Answer: D Difficulty: Moderate Keywords: nearest neighbor, traveling salesman Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

Use Figure 15.1 to answer the questions below.

9) Refer to Figure 15.1. The starting point for the traveling salesman is location E, which is the first city in the visited city set. Use the nearest neighbor heuristic to determine the third city in the visited city set. A) city A B) city B C) city C D) city D Answer: B Difficulty: Easy Keywords: nearest neighbor, traveling salesman Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

10) Refer to Figure 15.1. The starting point for the traveling salesman is location E, which is the first city in the visited city set. Use the nearest neighbor heuristic to determine the fourth city in the visited city set. A) city A B) city B C) city C D) city D Answer: A Difficulty: Moderate Keywords: nearest neighbor, traveling salesman Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

11) Refer to Figure 15.1. The starting point for the traveling salesman is location E, which is the first city in the visited city set. What is the total distance traveled to complete the tour using the nearest neighbor heuristic? A) 320 miles B) 375 miles C) 395 miles D) 410 miles Answer: D Difficulty: Challenging Keywords: nearest neighbor, traveling salesman Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

12) Which of these is an appropriate measurement of freight density? A) miles per dollar B) dollars per mile C) pounds per cubic foot D) pounds per mile Answer: C Difficulty: Moderate Keywords: freight density Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

Matrix 15.1 Use this data in this matrix to answer the following questions.

13) Refer to Matrix 15.1. What is the cost to ship a 11,000 pound item in freight class 85? A) $26.24 B) $11,000 C) $2,886.40 D) $288,640 Answer: D Difficulty: Moderate Keywords: national motor freight classification, NMFC Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

14) Refer to Matrix 15.1. What is the break-even point for shipping a 3,000 pound shipment in class 55? A) 3,500 pounds B) 4,440 pounds C) 3,814 pounds D) 3,934 pounds Answer: C Difficulty: Moderate Keywords: national motor freight classification, NMFC Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

15) Refer to Matrix 15.1. What is the charge for shipping a 4,000 pound crate in shipping class 55? Remember to consider the break-even point for shipment rates. A) $863.50 B) $992.80 C) $1072.22 D) $757.2 Answer: D Difficulty: Moderate Keywords: national motor freight classification, NMFC Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

16) From an energy perspective, which is the most efficient mode of transportation for packages? A) car B) trucking C) rail D) air Answer: C Difficulty: Moderate Keywords: transportation mode, rail Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

17) A shipment that is transported using two or more modes during its journey is said to be: A) speculative. B) cromulent. C) bicoastal. D) intermodal. Answer: D Difficulty: Moderate Keywords: transportation mode, rail Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

18) ________ is the total amount of greenhouse gasses produced to support a firm's operations. Answer: Carbon footprint Difficulty: Moderate Keywords: carbon footprint Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

19) The delivery driver left the office at 8 a.m. and already had a route mapped out that allowed him to visit all customers once and then return to the office while driving the shortest possible distance. This route was determined by solving a(n) ________. Answer: traveling salesman problem Difficulty: Moderate Keywords: traveling salesman problem Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

20) ________ has an objective to find the shortest possible route that visits each city or location exactly once and returns to the starting city. Answer: Traveling salesman problem Difficulty: Moderate Keywords: traveling salesman problem Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

21) ________ is a technique that creates a route by deciding the next city or location to visit on the basis of its proximity. Answer: Nearest neighbor (NN) heuristic Difficulty: Moderate Keywords: nearest neighbor (NN) heuristic Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

22) ________ is the mixing of different modes of transportation for a given shipment, such as moving shipping containers or truck trailers on rail cars. Answer: Intermodal shipments/ transportation Difficulty: Moderate Keywords: intermodal shipments, transportation mode Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

23) ________ as measured in pounds per cubic foot, is one means of determining how energy efficient a firm is behaving. Answer: Freight density Difficulty: Moderate Keywords: freight density Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

24) What are the three managerial levers that can be used to decrease the carbon footprint of a supply chain? Answer: The four levers supply chain managers can use to increase the energy efficiency of their operations: (1) transportation distance, (2) freight density, and (3) transportation mode. Difficulty: Easy Keywords: carbon footprint, transportation distance, freight density, mode, technology Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

25) Describe a traveling salesman scenario from your own experience. How can the nearest neighbor heuristic be used to solve it? Answer: Answers will vary, but the general idea is the student must describe a tour among some number of nodes that required a return to home base. The nearest neighbor heuristic begins at the start node and adds the closest node to the route. From this node, the closest unvisited node is added, and so on, until all nodes have been scheduled. Finally, the starting point traversed from the last node added. Difficulty: Moderate Keywords: traveling salesman Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

26) Pick a product imported from overseas and describe the intermodal options for bringing it to a retail location in your hometown? Answer: Examples will vary. The four major modes of transportation are (1) air freight, (2) trucking, (3) shipping by water, and (4) rail. From an energy perspective, air freight and trucking are much less efficient than shipping or rail. The EPA also considers railroads best when it comes to noxious emissions per ton-mile. Further, freight railroads help relieve congestion on the highways; a typical train takes the freight equivalent of several hundred trucks. Trucks, nonetheless, are more flexible and can make deliveries right to the customer's door. Shippers can have the door-to-door convenience of trucks with the long-haul economy of railroads or ocean containers by employing intermodal shipments, which involves mixing the modes of transportation for a given shipment, such as moving shipping containers or truck trailers on rail cars. Air freight is the fastest, but costly. Trucks, being the most flexible, can reach destinations where air freight, shipping by water along rivers or oceans, or rail are not economical or feasible. Shipping by water, a preferred mode for intercontinental shipments, typically can handle containers of greater weight, thereby minimizing the number of necessary shipments. Difficulty: Moderate Keywords: intermodal, air freight, trucking, water, rail Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

27) The Alphabet Soup Company is delivering the monthly supply of their fine product to their seven customers. The distances in miles between the customers are shown in the table and, wishing to be as efficient as possible, the driver would like to find the shortest route that takes her from the starting point A to every customer and then back to the starting point. Use the nearest neighbor heuristic to identify a route that would minimize the distance traveled. From/To A B C D E F G H

A 0 62 176 210 223 193 255 271

B 288 0 196 216 93 44 275 31

C 231 51 0 86 242 73 241 33

D 210 166 126 0 160 79 116 79

E 89 211 90 171 0 137 41 52

F 216 36 235 46 238 0 293 107

G 118 223 190 276 104 50 0 225

H 264 270 83 125 139 196 164 0

Answer: Starting at site A, the closest site is E at 89 miles. The next legs of the journey are: Site E to site B = 93 miles Site B to site F = 36 miles Site F to site G = 50 miles Site G to site D = 116 miles Site D to site C = 86 miles Site C to site H = 83 miles Site H to site A = 271 miles The total distance driven is 824 miles. Difficulty: Moderate Keywords: shortest route, nearest neighbor Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

28) Sweet Action, Inc. is making the daily cupcake run across the Oklahoma City metropolitan area. They have seven customers and have identified the driving distance (in miles) between each pairwise combination as shown in the table. One-way streets and various construction projects affect driving distances such that the distance from one to the other may not be the same depending on which site is the starting point. Identify the most energy efficient route that begins at Sweet Action headquarters (SA) and visits each customer once before returning to headquarters. From/To SA Bosco's Champion Damron Enumclaw Luther Jones Heidi

SA 0 14 63 98 27 91 87 61

Bosco's Champion 9 97 0 99 8 0 90 29 88 94 95 62 2 27 31 58

Damron 17 29 90 0 81 91 69 13

Enumclaw Luther Jones 22 34 55 20 39 84 96 89 66 46 88 62 0 49 53 19 0 73 11 4 0 15 92 44

Heidi 71 53 78 13 35 91 25 0

Answer: Starting at site SA, the closest site is Bosco's at 9 miles. The next legs of the journey are: Site Bosco's to site Enumclaw = 20 miles Site Enumclaw to site Heidi = 35 miles Site Heidi to site Damron = 13 miles Site Damron to site Champion = 29 miles Site Champion to site Jones = 66 miles Site Jones to site Luther = 4 miles Site Luther to site Sweet Action = 91 miles The total distance driven is 267 miles. Difficulty: Moderate Keywords: shortest route, nearest neighbor Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

29) Copies of the Wall Street Journal are printed locally and delivered to ten different newsstands throughout the area. The spotter picks up the papers at 4 a.m. and visits each site once, drops off a predetermined number of copies, and proceeds to the next location before returning to the printer. The driver has always determined his route "pretty much at random" however he recently read an article (in the Wall Street Journal) that addressed sustainability issues in services. He was so taken with the sustainability concept that he has decided to determine an optimal route for his ten stops. One morning he picks up his papers at 4 a.m. and then jots down each possible route and adds up the total distance traveled for that route. If it takes him one minute to evaluate a route, at what time will he begin to make his deliveries? Answer: He will begin to make his deliveries 126 days from the time he begins enumerating the possible routes. He should be lauded for his sustainability initiative but might employ another technique to determine an optimal route. Routes = Routes = Routes =

= 181,440

Time = 181,440 minutes = 126 days Difficulty: Challenging Keywords: shortest route, nearest neighbor Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

30) A New Holland supplier ships flywheels to the assembly plant for the model 68 Hayliner string baler. Each flywheel weighs 80 pounds and 10 of them fit on a standard pallet. A complete pallet ships as freight class specification 85. Use the matrix of weight breaks and freight class (below) to calculate the shipping cost for a demand of 15 pallets and also determine the shipping cost per flywheel.

Answer: At 15 pallets, or 150 pieces, the shipping weight is 150 * 80 = 12,000 pounds. At a freight classification of 85, using the matrix, the break-even weight is x= x=

= 13,300

thus the shipment does not qualify for the lower rate and the shipping cost is 120 ∗ 26.24 = $3,148.80. The per-component shipping cost is $3,148.80/150 = $20.99 per flywheel Difficulty: Moderate Keywords: freight density Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

31) A HD TV manufacturer produces sets at the rate of 72 units per week. The TV sets weigh 23 pounds each and two dozen fit on a pallet. If the shipping class is to be 70, what's the break-even point for a more favorable shipping rate and what does it cost to send a week's supply of TVs?

Answer: At 72 units of 23 pounds per unit, the shipping weight is 72 ∗ 23 = 1,656 pounds. At a freight classification of 70, using the matrix, the break-even weight is x= x=

= 1,900.57 pounds

The shipment does not qualify for the lower rate and the shipping cost is 16.56 ∗ 31.56 = $522.63. Difficulty: Moderate Keywords: freight density Learning Outcome: Compare common approaches to supply chain design AACSB: Analytical Thinking Learning Objective: Show how firms can improve the energy efficiency of their supply chains by using the nearest neighbor (NN) heuristic for logistics routes and determining the effects of freight density on freight rates.

15.4 Disaster Relief Supply Chains 1) In a disaster relief supply chain, response should precede the disaster, which in turn precedes the preparation. Answer: FALSE Difficulty: Easy Keywords: disaster relief, preparation, response Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

2) In the recovery phase of disaster relief, supplies can be ordered with more normal lead times since demand can be estimated more accurately. Answer: TRUE Difficulty: Easy Keywords: disaster relief, recovery Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

3) Since disasters happen with little or no warning, any kind of advance planning is impossible to do or even futile. Answer: FALSE Difficulty: Moderate Keywords: disaster relief, command and control Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

4) Which of these sequences in humanitarian supply chain operations is correct? A) Preparation before Response B) Response before Preparation C) Disaster after Response D) Recovery before Response Answer: A Difficulty: Moderate Keywords: disaster relief Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

5) First aid kits are packed and staged at distribution hubs in the: A) Recovery operation. B) Preparation operation. C) Response operation. D) Forecast operation. Answer: B Difficulty: Moderate Keywords: disaster relief, preparation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

6) Which of these statements about disaster relief supply chains is best? A) Critical supplies are usually deployed the instant they are available in the disaster zone. B) Employee turnover in disaster relief is low since these individuals are dedicated to the cause. C) Most disaster relief supply chains exist for only short times. D) Supplies follow a pull flow initially but change to a push flow once demand is more predictable. Answer: C Difficulty: Moderate Keywords: disaster relief Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

7) ________ can sometimes provide enough lead time to assemble disaster relief resources, but often disasters happen with little to no warning. Answer: Forecasts and early warning Difficulty: Challenging Keywords: forecasts, early warning, preparation Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

8) The three major disaster relief chain operations are ________, ________, and ________. Answer: preparation, response, recovery Difficulty: Moderate Keywords: preparation, response, recovery, disaster relief Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

9) The life cycle of a disaster relief supply chain begins with the ________ step. Answer: brief needs assessment Difficulty: Moderate Keywords: needs assessment, disaster relief Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

10) In some disaster relief efforts ________ is a problem because stocks of some supplies are excessive and for other supplies, stocks are non-existent. Answer: donor independence Difficulty: Challenging Keywords: donor independence, disaster relief Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

11) What are the primary disaster relief supply chain management challenges? Answer: Answers will vary, but the challenges presented in the text include: Design implications. Many disaster relief supply chains exist for only short times. At the onset of a disaster, the supply chain could require a new design from scratch featuring quick response capabilities involving innovative suppliers. Response operations are all about speed and agility in the supply of needed items. Risk-taking is encouraged because the priority is quick access. Recovery operations, however, require a more scheduled program, favoring an efficient supply chain design. Command and control. In major international disasters, the United Nations typically has the leadership role. Disaster relief agencies work to supply the items and services they have access to. However, the national and local government of the affected region must be recognized and included. Sometimes the national government will not grant access to the area until it can ensure its security or it will not allow access to relief agencies from some countries because of political reasons. Cargo security. Shipping containers of goods in some Third World countries may experience theft or extra delays. Delays can be due to numerous police checks or weight checks. Sometimes, bribes are needed to move the cargo through the check points, all of which cause delays when speed is of the essence. Donor independence. There are many disaster relief agencies, all of which having the best of intentions to help relieve pain and suffering at the point of the disaster. If they are not coordinated with a list of required supplies, each sends what they think is needed. The result can be confusion, congestion, over stocking of some items, and under stocking of other items. Change in work flow. During the response operations, supplies are sent without waiting for demand to be accurately determined. Supplies are provided according to forecasts, however imperfect, using a push flow from suppliers. Once relief efforts reach the recovery operations, actual needs should dictate the required volume of supplies and the supply chains should switch to a pull flow. Local infrastructure. Because disasters often cause major damage to the infrastructure, roads, ports, railways, and airports may be compromised, thereby limiting the logistical movement of needed supplies. Local transportation capability may be limited. High employee turnover. The needs of the disaster relief and the availability of qualified local labor are highly unpredictable. The manual processes often needed in disasters are poorly defined. Coupled with the uncertainty of funding from the relief agency, employee turnover tends to be high in disaster relief operations. Poor communication. Information technology is fragmented: telephone lines are disrupted, cell service is limited, and Internet access is unreliable. Difficulty: Moderate Keywords: ethics, just-in-time, JIT Learning Outcome: Compare common approaches to supply chain design AACSB: Application of Knowledge Learning Objective: Explain how supply chains can be organized and managed to support the response and recovery operations of disaster relief efforts.

15.5 Supply Chain Ethics 1) The standard governing nine dimensions of ethical workforce management is SA 8000:2014. Answer: TRUE Difficulty: Moderate Keywords: ethics, SA8000:2014 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

2) The standard for time off as established by Social Accountability International is at least one day off for every five-day period. Answer: FALSE Difficulty: Moderate Keywords: ethics, SA8000:2014 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

3) A just-in-time (JIT) system minimizes inventory cost for the company but increases inconvenience in the form of noise, traffic, and air pollution for the community at large. Answer: TRUE Difficulty: Moderate Keywords: ethics, just-in-time, JIT Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

4) Suppliers have an ethical responsibility to label products accurately. Answer: TRUE Difficulty: Easy Keywords: ethics, product labeling Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

5) Which of these statements is in accordance with the ethical standards on workplace management? A) Workers should typically be 15 years of age or older. B) Require no more than 80 hours per work week. C) Use no corporal punishment, only verbal abuse. D) Provide a safe work environment except where time is crucial. Answer: A Difficulty: Moderate Keywords: disaster relief Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

6) An ethical firm would strive to select suppliers for the supply chain guided primarily by: A) purchasing power. B) market criteria and competitive priorities. C) ability to achieve a reciprocal purchasing arrangement. D) gratuities and perks. Answer: B Difficulty: Moderate Keywords: ethics, SA8000:2014 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

7) According to SA8000:2014 working hours should be limited to no more than ________ hours per week. Answer: 48 Difficulty: Moderate Keywords: social accountability international, SA8000:2014, working hours Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

8) According to SA8000:2014, workers should typically be ________ years of age or older. Answer: 15 Difficulty: Moderate Keywords: social accountability international, SA8000:2014, working hours Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

9) What are the three most important ethical considerations for workforce management? Answer: Answers will vary, most likely according to how the respondent has been mistreated in his career. The ethical considerations offered in the text are as follows: Child Labor: Employ no underage workers, usually taken to be under 15 years of age. Forced Labor: Prohibit the use of forced labor, including prison or debt bondage labor. Health and Safety: Provide a safe and healthy work environment. Freedom of Association and Right to Collective Bargaining: Respect the right to form and join trade unions and bargain collectively. Discrimination: Avoid discrimination based on race, caste, origin, religion, disability, gender, sexual orientation, union or political affiliation, or age; no sexual harassment. Discipline: Use no corporal punishment, mental or physical coercion, or verbal abuse. Working Hours: Require no more than 48 hours per week with at least one day off for every 7-day period with overtime hours and pay subject to the collective bargaining agreement. Compensation: Wages paid for a standard work week must meet the legal and industry standards and be sufficient to meet the basic need of workers and their families. Management Systems: Facilities seeking to gain and maintain certification must go beyond simple compliance to integrate the standard into their management systems and practices. Difficulty: Moderate Keywords: ethics, workforce management Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Describe the ethical issues confronting supply chain managers.

15.6 Managing Sustainable Supply Chains 1) The meaning of the term "sustainability" might vary from firm to firm. Answer: TRUE Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

2) ISO 26000 provides standards for environmental management systems. Answer: FALSE Difficulty: Moderate Keywords: sustainability, ISO 14000 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

3) ISO 14001:2004 specifies guidelines for certification of companies and requires performance improvement plans to environmental management systems. Answer: TRUE Difficulty: Moderate Keywords: sustainability, ISO 14000 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

4) Which of the following is not one of the seven principles of social responsibility or standards included in ISO 26000? A) Transparency B) Respect for human rights C) Ethical behavior D) Certification process requirements Answer: D Difficulty: Moderate Keywords: sustainability, ISO 26000 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

5) Identify the item below that is not included in the authors' discussion of how a firm might manage its supply chains to ensure that they are sustainable. A) Gather data on the buying habits of customers and ensure that data is freely shared throughout the supply chain. B) Develop a sustainable supply chain framework. C) Engage in active supplier management and utilize all available ethical means to influence their behavior. D) Gather data on the performance of current suppliers and use the same questionnaire to screen potential new suppliers. Answer: A Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

6) ISO 14001:2004 standards require that companies must be inspected by ________ on a regular basis to maintain their certification. Answer: outside, private auditors Difficulty: Moderate Keywords: sustainability, ISO 14000 Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

7) It is critical that active supplier management techniques should be employed as long as they are ________. Answer: ethical Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

8) What are some of the steps the authors suggest firms take to ensure that their supply chains are sustainable? Answer: The authors suggest the following steps: 1. Develop a sustainable supply chain framework. Define what "sustainability" means for the firm in clear terms. Use SA8000:2014 as a guideline for workplace issues. 2. Gather data on the performance of current suppliers and use the same questionnaire to screen potential new suppliers. Use the supply chain sustainability framework as a foundation. 3. Require compliance to the sustainable supply chain framework across all business units, including their dealings with current suppliers and the selection of future suppliers. 4. Engage in active supplier management and utilize all available ethical means to influence their behavior. 5. Provide periodic reports on the impact the supply chains have on sustainability. Difficulty: Moderate Keywords: sustainability Learning Outcome: Discuss the role of operations management in corporate social responsibility and sustainability AACSB: Ethical Understanding and Reasoning Learning Objective: Explain how a firm can manage its supply chains to ensure they are sustainable.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement A Decision Making A.1 Break-Even Analysis 1) The break-even quantity is the volume at which the variable cost is equal to the fixed cost. Answer: FALSE Difficulty: Easy Keywords: break-even quantity, total revenue, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

2) The variable cost is the portion of total cost that varies directly with the volume of output. Answer: TRUE Difficulty: Easy Keywords: variable cost, level of output, break-even point Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

3) Fixed cost is the portion of the total cost that remains constant regardless of changes in levels of output. Answer: TRUE Difficulty: Easy Keywords: fixed cost, level of output, break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

4) Sensitivity analysis is a technique for systematically changing parameters in a model to determine the effects of such changes. Answer: TRUE Difficulty: Moderate Keywords: sensitivity analysis, parameter, break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

5) Which one of the following statements about break-even analysis for evaluating products or services is true? A) The break-even quantity will tend to increase as the variable cost per unit of production decreases. B) As sales increase beyond the break-even quantity, total before-tax profits tend to decrease. C) A restaurant's opening of downsized facilities with only drive-through service is an example of lowering fixed costs and the break-even quantity. D) Increasing the unit selling price has the effect of increasing the break-even quantity. Answer: C Difficulty: Moderate Keywords: break-even, fixed cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

6) Which one of the following statements about break-even analysis, as we applied it to evaluating products or services, is best? A) Break-even analysis assumes that the cost function is linear and consists of fixed costs plus variable costs times volume. B) The break-even quantity will increase when the change in variable cost per unit is identical to the change in unit price. C) Increasing the price, while keeping the variable cost per unit constant, increases the break-even quantity. D) Increasing the fixed costs tends to decrease the break-even quantity. Answer: A Difficulty: Moderate Keywords: break-even quantity, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

7) Which condition would result in invalidating an application of break-even analysis? A) The variable cost to produce a unit is less than one percent of the fixed cost to run the plant. B) The purchasing department both offers quantity discounts to customers and receives quantity discounts from suppliers. C) The variable cost to produce a unit is within one percent of the sale price. D) The labor to manufacture the item is free. Answer: B Difficulty: Moderate Keywords: break-even quantity, volume, cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

8) Mantel Incorporated began producing its new line of dolls at its Connecticut plant in December of year 0. In year 1, it produced 30,000 dolls at a total cost of $385,000. In year 2, its production increased to 80,000 dolls at a total cost of $885,000. Assuming the cost structure was the same for both years, what must be the variable cost (C) and the fixed cost (F) per doll? A) F is less than $80,000, and C is greater than $7. B) F is greater than $60,000, and C is less than $5. C) F is less than $100,000, and C is greater than $9. D) F is greater than $110,000, and C is less than $6. Answer: C Difficulty: Moderate Keywords: break-even quantity, variable cost, fixed cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

9) The break-even quantity for a certain kitchen appliance is 10,000 units. The selling price is $20 per unit, and the variable cost is $12 per unit. What must be the fixed cost to break even at 10,000 units? A) $40,000 B) $80,000 C) $120,000 D) $150,000 Answer: B Difficulty: Moderate Keywords: break-even quantity, fixed cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

10) A "Little Sis" restaurant has been opened as a prototype to test the concept of a smaller facility with a limited menu. Experience during the first two years was as follows:

The average sale is $10 per customer. Use the following partially completed graph to determine the break-even quantity graphically. Then refine your solution by solving it algebraically.

A) The break-even quantity is fewer than or equal to 30,000 customer visits. B) The break-even quantity is more than 30,000 customer visits and fewer than or equal to 50,000 visits. C) The break-even quantity is more than 50,000 visits and fewer than or equal to 70,000 visits. D) The break-even quantity is more than 70,000 customer visits. Answer: D Difficulty: Challenging Keywords: break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

11) Minor Video has opened a new store renting videocassettes. Fixed costs are $60,000, and the variable cost per unit is $1.50. The average sale is $5 per customer. Use the following axes to determine the breakeven quantity graphically. Next, refine your solution by solving it algebraically.

A) The break-even quantity is fewer than or equal to 10,000 rentals. B) The break-even quantity is more than 10,000 rentals and fewer than or equal to 20,000 rentals. C) The break-even quantity is more than 20,000 rentals and fewer than or equal to 25,000 rentals. D) The break-even quantity is more than 25,000 rentals. Answer: B Difficulty: Moderate Keywords: break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

Use this scenario to answer the questions below. A printing center leases printers at a fixed cost of $1000 per year. The variable cost per page printed is $0.05. They have determined their total annual cost is given by the equation 5(1000) + 0.05X. 12) In the cost equation for the printing center, 5 represents the: A) variable cost per unit. B) fixed cost. C) number of printers leased per year. D) revenue per page printed per year. Answer: C Difficulty: Moderate Keywords: break-even analysis, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

13) In the cost equation for the printing center, X represents the: A) variable cost per unit. B) fixed cost. C) number of printers leased per year. D) number of pages printed per year. Answer: D Difficulty: Moderate Keywords: break-even analysis, volume, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

14) What is the annual profit if the printing center leases 8 printers for the year? A) $5000 B) $5004 C) $300 D) cannot be determined Answer: D Difficulty: Moderate Keywords: break-even quantity, total revenue, profit Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

15) Commodore is debating whether to produce the printed circuit boards for a new line of video cameras or outsource their production to a company that specializes in this operation. Strictly from a cost standpoint, production of the circuit boards would definitely be outsourced if: A) the variable cost of producing the circuit boards is lower than the buy option. B) the production volumes are greater than Commodore's break-even quantity. C) the production volumes are less than Commodore's break-even quantity. D) the production volumes are the same for making and buying the circuit boards. Answer: C Difficulty: Moderate Keywords: break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

16) A poultry farmer is debating whether to acquire Rhode Island Reds or Buff Orpingtons to lay the eggs he wants to sell. The fixed costs for the Buffs would be $7,500 and the variable costs per egg would be a dime per egg. The Reds would have a fixed cost of $6,000 and a variable cost of fifteen cents. At what level of egg production would the poultry farmer be indifferent between Rhode Island Reds and Buff Orpingtons? A) 20,000 eggs B) 30,000 eggs C) 50,000 eggs D) 60,000 eggs Answer: B Difficulty: Moderate Keywords: break-even quantity, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

17) Zipco is in serious negotiations to purchase a chunking machine that will enable them to perform their own chunking at $1 per unit. They currently have their chunking outsourced at a cost of $1.50 per unit and a fixed cost of $45,000. Their marketing team feels that they can sustain an annual volume of 10,000 units. What is the maximum fixed cost that Zipco should be willing to bear in order to perform their own chunking? A) $50,000 B) $45,000 C) $40,000 D) $35,000 Answer: A Difficulty: Moderate Keywords: break-even quantity, fixed cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

18) Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding. They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000. Their marketing team feels that they can sustain an annual sales volume sufficient to require 35,000 welds. If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house? A) $3.00 per weld B) $2.40 per weld C) $2.00 per weld D) $1.45 per weld Answer: B Difficulty: Moderate Keywords: break-even quantity, variable cost, make-or-buy quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

Use this scenario to answer the following questions. A company must decide if it will make or buy an item it needs. The company can make the item for $20 per unit, but must invest $25,000 in tooling to achieve that capability. An outside supplier has quoted a total price of $25 per unit to supply the quantity required (assume their fixed costs are included in the quoted price). 19) What is the break-even quantity when considering the make-or-buy decision? A) 5,000 units B) 7,000 units C) 8,250 units D) 10,000 units Answer: A Difficulty: Moderate Keywords: break-even Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

20) Which alternative should be selected if annual requirements are 10,000 units? A) Make B) Buy C) Either Make or Buy; costs are the same for either option at 10,000 units. D) Can't be determined with information given Answer: A Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

21) What does the company save for the year by selecting this low-cost option (for annual requirements of 10,000 units)? A) $15,000 B) $50,000 C) $25,000 D) $5,000 Answer: C Difficulty: Moderate Keywords: break-even quantity, make-or-buy, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

Use the following to answer the questions below. A company is considering two suppliers for the purchase of a part needed for manufacturing. Particulars are as follows: SUPPLIER A: SUPPLIER B:

Fixed Costs = $4,000 / year Fixed Costs = $10,000 / year

Variable Cost / Unit = $10 Variable Cost / Unit = $5

22) Refer to the instruction above. What is the annual break-even quantity for choosing between the two suppliers? A) 1,200 units B) 2,000 units C) 3,000 units D) 5,000 units Answer: A Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

23) Refer to the instruction above. For an annual volume of 2,500 units, which supplier should be chosen? A) Supplier A B) Supplier B C) Either Supplier A or Supplier B, because costs are the same for either option at 2,500 units D) Can't be determined with information given Answer: B Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

24) Refer to the instruction above. What does the company save for the year by selecting this low-cost option (for annual requirements of 2,500 units)? A) $2,000 B) $3,000 C) $6,500 D) $10,000 Answer: C Difficulty: Moderate Keywords: break-even point, make-or-buy, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

Use the following information to answer the questions below. You currently make a part for old equipment at a cost of $20 / unit. The annual fixed cost for this equipment is $50,000. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year (see table). ALTERNATIVE Buy Make

FIXED COST $200,000 per year $50,000 per year

VARIABLE COST $15 per unit $20 per unit

25) Refer to the instruction above. What is the break even quantity between buying and making? A) 30,000 units per year B) 40,000 units per year C) 50,000 units per year D) 60,000 units per year Answer: A Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

26) Refer to the instruction above. What are total costs to buy an annual quantity of 40,000 units? A) $400,000 B) $500,000 C) $800,000 D) $850,000 Answer: C Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

27) Refer to the instruction above. What are total costs to make a quantity of 40,000 units per year? A) $400,000 B) $450,000 C) $800,000 D) $850,000 Answer: D Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

28) Refer to the instruction above. For what range of output would you prefer to buy? A) 0 - 30,000 units per year B) 30,000 or more units per year C) 40,000 or more units per year D) 0 - 40,000 units per year Answer: B Difficulty: Moderate Keywords: break-even quantity, range of output, make-or-buy, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

29) Refer to the instruction above. For what range of output would you prefer to make? A) 30,000 or more units per year B) 0 - 30,000 units per year C) 0 - 40,000 units per year D) 40,000 or more units per year Answer: B Difficulty: Moderate Keywords: break-even quantity, range of output, make-or-buy, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

30) Refer to the instruction above. What does the company save for the year by selecting the low-cost option (for annual requirements of 40,000 units)? A) $150,000 B) $300,000 C) $50,000 D) $40,000 Answer: C Difficulty: Moderate Keywords: break-even quantity, make-or-buy, total cost, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

Use the following to answer the questions below. A proposal for implementing a new product line has an annual fixed cost of $60,000, variable cost of $35 per unit of output, and revenue (selling price) of $55 per unit of output. 31) Refer to the instruction above. What is the break-even quantity? A) 2,000 units per year B) 3,000 units per year C) 6,000 units per year D) 20,000 units per year Answer: B Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

32) Refer to the instruction above. What volume of output will be necessary for an annual profit of $60,000? A) 2,000 units B) 3,000 units C) 6,000 units D) 20,000 units Answer: C Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

33) Refer to the instruction above. What selling price would be necessary to generate an annual profit of $90,000, if expected volume is 6,000 units per year (assume fixed costs remain at $60,000, and variable cost per unit at $35)? A) $30 / unit B) $40 / unit C) $50 / unit D) $60 / unit Answer: D Difficulty: Moderate Keywords: break-even analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

34) The ________ is the volume at which total revenues equal total costs. Answer: break-even quantity Difficulty: Moderate Keywords: break-even quantity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

35) ________ is the portion of total cost that varies with the volume of output. Answer: Variable cost Difficulty: Moderate Keywords: variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

36) ________ is a technique for systematically changing parameters in a model to determine the effects of such changes. Answer: Sensitivity analysis Difficulty: Moderate Keywords: sensitivity analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

37) What assumptions are made when using break-even analysis? Answer: Break-even analysis is useful to evaluate new or existing products or services and to compare production methods; however, decision makers who use this model make assumptions. Typically, single values are provided for fixed and variable cost and for revenues. This results in wonderfully straight lines that do not reflect realities such as start-up costs, economies of scale, price breaks offered to volume purchasers, and diseconomies of scale. Difficulty: Easy Keywords: break-even analysis, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

38) Why should a decision maker engage in sensitivity analysis? Answer: Sensitivity analysis is a technique for systematically changing parameters in a model to determine the effects of such changes. Models are created with assumptions and the results given by the use of a model are only as good as the assumptions that were made in creating the model. For techniques such as the Laplace criterion, if the probability for one state of nature or payoff was estimated incorrectly, the result might suggest a choice far different from the choice made if a better estimate were used. Difficulty: Easy Keywords: sensitivity analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

39) A single factory produces two different products during each half of the year with equivalent fixed cost; from January through June they produce Product A and from July through December they produce Product B. Product A costs twice as much to produce and is sold at twice the price of Product B. Derive an expression relating the break-even quantity of Product A to that of Product B. Answer: QA = QB = FA = FB (same factory) pA = 2pB (A sells for twice as much as B) cA = 2cB (A costs twice as much as B) QA =

(QB)

The break-even point for Product A is half the quantity for Product B. Difficulty: Challenging Keywords: break-even quantity, fixed cost, variable cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

40) A manufacturing firm is considering an entirely new product that will require additional capital equipment, training, and an addition to their existing facility that will cost $50,000 per year. The projected retail price is $45 per unit, and the variable cost of production is $12.50. What is the break-even for this product? Solve using both the graphical and algebraic approaches. Answer: Q =

= 1538.46 units/year

Difficulty: Moderate Keywords: break-even quantity, fixed cost, variable cost, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

41) A manufacturing firm is considering whether to produce or outsource the production of a new product. If they produce the item themselves, they will incur a fixed cost of $950,000 per year, but if they outsource overseas there will be a $1.5 million cost per year. The advantage of outsourcing overseas is the variable cost of 95¢ per unit, which is a fraction of their $43/unit cost in their own union shop. Regardless of where these devices are made, they will sell for $98 each. What is the break-even quantity for each alternative? Solve this problem graphically and algebraically. Answer: Overseas: In-house:

= 15,455.95 units = 17,272.73 units

42) A company faces a fixed cost of $568 and sells items at a 50% markup on their cost of $12. What is their break-even point in both units and dollar sales? Answer: The 50% markup means their revenue per unit is $18 for a $6 profit. Their break-even point is 568/6 = 94.67 units or $1,704.06. Difficulty: Easy Keywords: break-even Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

43) Pops has a cost function of 3x2-25x + 34,374.74 and a revenue function of 5x2. Using Excel (or algebra), determine a break-even point. What is their fixed cost? What is their break-even point in both units and dollar sales? Answer: The fixed cost must be $34,374.74 since it is the argument in the cost function that does not vary with production volume. The break-even point is 125 units, at which point the total revenue is $78,124.38. The other root of the quadratic equation represents negative production and is not a valid answer regardless of the efficiency of their reverse logistics program. 3x2 + 25x + 34,374.74 = 5x2 2x2 - 25x - 34,374.74 = 0 x= x1 = -125; x2 = 137.5 Difficulty: Moderate Keywords: break-even Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain break-even analysis, using both the graphic and algebraic approaches.

A.2 Preference Matrix 1) A preference matrix is a table that allows the manager to rate an alternative according to several performance criterion. Answer: TRUE Difficulty: Moderate Keywords: preference matrix, alternative, performance criteria Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Define and construct a preference matrix.

2) The preference matrix technique can be used only with qualitative factors to consider. Answer: FALSE Difficulty: Moderate Keywords: preference matrix Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Define and construct a preference matrix.

3) A company is screening ideas for new services. Five alternative service ideas are being considered. Management identified four criteria and weighted them as follows: A = 30, B = 10, C = 20, and D = 40. They have also come up with scored values for the five alternatives and the four criteria as shown below. Management has decided that if an alternative has less than a total scored value of 600, it should automatically be rejected. Use the preference matrix technique to determine which idea should be accepted.

A) service #1 or #2 B) service #3 or #4 C) service #5 D) none Answer: D Difficulty: Moderate Keywords: preference matrix Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Define and construct a preference matrix.

4) The Forsite Company is screening three new product ideas. Resource constraints allow only one idea to be commercialized at the present time. The following estimates have been made for the five performance criteria that management feels are most important. If the five criteria are equally weighted, what are the best and worst alternatives?

A) A is best, and B is worst. B) B is best, and C is worst. C) B is best, and A is worst. D) C is best, and A is worst. Answer: B Difficulty: Moderate Keywords: preference matrix Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Define and construct a preference matrix.

5) California Manufacturing, Inc. is now evaluating two new product ideas, and management has decided to apply the preference matrix method. The following table shows five criteria with different weights and individual scores of each product idea. If management has established a threshold of 800, which product(s) should be accepted for further development?

A) product A B) product B C) Both products A and B D) Neither product A nor B Answer: B Difficulty: Moderate Keywords: preference matrix Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Define and construct a preference matrix.

6) When faced with a decision where multiple non-financial criteria should be assessed, the savvy manager should employ a(n) ________ as a decision tool. Answer: preference matrix Difficulty: Easy Keywords: preference matrix, criteria, weight Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Define and construct a preference matrix.

7) The site selection team you formed last quarter meets with you in the conference room to present the results of their thoughtful analysis. They have collectively logged 200,000 frequent flyer miles while conducting their investigation. The conference room table sags under the weight of their massive report and all team members sport deep tans. As the leader drones on about their completely objective approach to the problem he projects a slide containing the following information about their location of choice.

What questions do you, a conscientious vice-president level executive, have for the team about this portion of their analysis? Answer: The preference matrix provides a vehicle for converting a subjective decision into a decision that appears more objective. This analysis should be questioned regarding the choice of criteria, the weights assigned to the criteria, and the scores assigned to each alternative. How did the committee settle on infrastructure, utility cost, labor skill, labor cost, and political climate as the most important factors? How were weights and scores assigned? If this is the only site's results presented, then what was the margin of victory and what were the other sites? Comparing scores is also an issue; there is temptation to treat the scores as having greater significance than they actually carry. Difficulty: Moderate Keywords: preference matrix, criteria, weight Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Define and construct a preference matrix.

8) A company is screening ideas for new services. Four alternative service ideas are being considered. Management identified four criteria and weighted them as follows: A = 40, B = 30, C = 20, and D = 10. They have also come up with scored values for the five alternatives and the four criteria as shown below. Management has decided that if an alternative has less than a total scored value of 600, it should automatically be rejected. Use the preference matrix technique to determine which idea should be accepted.

Answer:

Therefore, select Alternative 1, with a weighted score of 740. Difficulty: Moderate Keywords: break-even quantity, fixed cost, variable cost, total cost Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Define and construct a preference matrix.

A.3 Decision Theory 1) A payoff table shows a random payoff distribution for each alternative if each possible event occurs. Answer: FALSE Difficulty: Moderate Keywords: payoff table, event Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

2) If the payoff table contains revenues instead of expenses, then the best alternative is the lowest payoff. Answer: FALSE Difficulty: Moderate Keywords: payoff, alternative Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

3) If a new alternative is added to a payoff table and the maximax criterion is applied again, the new decision must either remain with the original maximax alternative or the new alternative. Answer: TRUE Difficulty: Moderate Keywords: maximax, alternative Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

4) The Laplace criterion will reach the same decision as the Minimax Regret criterion when the payoff table contains expenses instead of revenues. Answer: FALSE Difficulty: Moderate Keywords: minimax regret, Laplace, payoff table Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

5) Maximin is a decision rule for the optimist. Answer: FALSE Difficulty: Moderate Keywords: maximin, optimist, pessimist Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

6) By definition, the maximax and maximin criteria cannot result in the selection of a common alternative in decision making under uncertainty. Answer: FALSE Difficulty: Moderate Keywords: decision making, maximax, maximin Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

7) Making a decision under risk using the expected value criterion is the equivalent of using the Laplace decision rule under uncertainty. Answer: TRUE Difficulty: Moderate Keywords: Laplace decision rule, expected value Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

8) Choosing the alternative that is the "best of the best" using decision making under uncertainty would be: A) maximin. B) maximax. C) Laplace. D) minimax regret. Answer: B Difficulty: Moderate Keywords: maximax decision Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

9) Choosing the alternative that is the best weighted payoff using decision making under uncertainty would be: A) maximin. B) maximax. C) Laplace. D) minimax regret. Answer: C Difficulty: Moderate Keywords: Laplace, weighted payoff Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

10) Choosing the alternative that minimizes lost-opportunity costs using decision making under uncertainty would be: A) maximin. B) maximax. C) Laplace. D) minimax regret. Answer: D Difficulty: Moderate Keywords: opportunity cost, minimax regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

11) The decision rule in decision making under uncertainty that would be best for the manager who has high expectations would be: A) maximin. B) maximax. C) Laplace. D) minimax regret. Answer: B Difficulty: Moderate Keywords: maximax Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

12) The decision rule in decision making under uncertainty that is most appropriate for the pessimistic manager would be: A) maximin. B) maximax. C) Laplace. D) minimax regret. Answer: A Difficulty: Moderate Keywords: pessimist, maximin Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

Table A.1 Use the following to answer the questions below. A couple planning a vacation needs to choose between four different modes of transportation as shown in the table. Depending on the weather, either excellent, normal, or bad, they have estimated their daily comfort expenses.

Plane Train Automobile Boat

Excellent Weather $70 $22 $9 $44

Normal Weather $51 $46 $14 $35

Bad Weather $38 $90 $52 $24

13) Which alternative in Table A.1 performs best under the minimax regret criterion? A) plane B) train C) automobile D) boat Answer: D Difficulty: Moderate Keywords: decision theory, uncertainty, risk Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

14) An optimistic couple would opt for a(n) ________ based on the information presented in Table A.1. A) plane B) train C) automobile D) boat Answer: C Difficulty: Moderate Keywords: decision theory, uncertainty, risk Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

Table A.2 Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they forecast different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low.

Method A Method B Method C Method D

High $475 $325 $800 $600

Medium $400 $350 $925 $600

Low $300 $425 $1050 $650

15) Using the information in Table A.2, which alternative is best in accordance with an optimistic outlook? A) Method A B) Method B C) Method C D) Method D Answer: A Difficulty: Moderate Keywords: maximax, decision theory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

16) Using the information in Table A.2, which alternative is best in accordance with a pessimistic outlook? A) Method A B) Method B C) Method C D) Method D Answer: B Difficulty: Moderate Keywords: maximin, decision theory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

17) Using the information in Table A.2, which alternative is best in accordance with a decision criterion of Laplace? A) Method A B) Method B C) Method C D) Method D Answer: B Difficulty: Moderate Keywords: Laplace, decision theory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

18) Using the information in Table A.2, which alternative is best in accordance with a decision criterion of minimax regret? A) Method A B) Method B C) Method C D) Method D Answer: B Difficulty: Challenging Keywords: minimax regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

19) Using the information in Table A.2, which alternative is best if further study revealed that the probability of high growth is 0.3, the probability of medium growth is 0.4, and the probability of low growth is 0.3? A) Method A B) Method B C) Method C D) Method D Answer: B Difficulty: Moderate Keywords: decision theory, risk Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

Table A.3 Use the following to answer the questions below. In choosing between three new jobs, Joe MBA considers the potential payoffs over the next three years. The following table contains the payoffs, given the speed of promotion in each of the organizations. The probability of fast promotion is 0.6, and the probability of slow promotion is 0.4. Alternative A. High-flying consultant B. Utility analyst C. Research assistant

Slow Promotion ($180,000) $200,000 $250,000

Fast Promotion $600,000 $400,000 $260,000

20) Use the information in Table A.3. Which alternative is best, given the matrix payoff? A) The A alternative would be chosen using the maximin decision rule. B) The B alternative would be chosen using the maximax decision rule. C) The C alternative would be chosen using the Laplace decision rule. D) The C alternative would be chosen using the maximin decision rule. Answer: D Difficulty: Moderate Keywords: maximin, payoff Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

21) Use the information in Table A.3 and the Laplace decision rule. The weighted payoff is: A) less than $200,000 if the high-flying consultant job is selected. B) more than $280,000 if the research assistant job is selected. C) more than $280,000 if the utility analyst job is selected. D) highest for the research assistant position. Answer: C Difficulty: Moderate Keywords: Laplace decision rule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

22) Use the information in Table A.3 and the minimax regret decision rule. The maximum regret is: A) less than $300,000 if the high-flying consultant job is selected. B) less than $300,000 if the utility analyst job is selected. C) less than $300,000 if the research assistant job is selected. D) lowest for the research assistant job. Answer: B Difficulty: Moderate Keywords: minimax regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

23) Use the information in Table A.3 and the expected-value rule. Which statement is true? A) The expected value of the consultant job is more than $300,000. B) The expected value of the utility analyst job is more than $300,000. C) The expected value of the research assistant job is less than $250,000. D) The job with the highest expected value is the research assistant. Answer: B Difficulty: Moderate Keywords: expected value Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

24) In decision theory, the different courses of action that a decision maker can choose are called ________. Answer: alternatives Difficulty: Moderate Keywords: alternatives, decision theory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

25) A(n) ________ shows the amount of revenue or expenses for each alternative if each possible event occurs. Answer: payoff table Difficulty: Moderate Keywords: payoff table, event, alternatives Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

26) The decision rule ________ is also referred to as the pessimist's criterion. Answer: maximin Difficulty: Moderate Keywords: maximin, pessimist, decision rule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

27) The decision rule ________ is also referred to as the optimist's criterion. Answer: maximax Difficulty: Moderate Keywords: maximax, optimist, decision rule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

28) The decision rule ________ chooses the alternative that is the "best of the best." Answer: maximax Difficulty: Moderate Keywords: maximax, decision rule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

29) An analyst that can't assign probabilities to the events must be engaged in decision making under ________. Answer: uncertainty Difficulty: Moderate Keywords: uncertainty, events Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

30) The decision rule ________ chooses the alternative with the best weighted payoff. Answer: Laplace Difficulty: Moderate Keywords: Laplace decision rule Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

31) A(n) ________ is the difference between a given payoff and the best payoff for a given state of nature. Answer: regret Difficulty: Moderate Keywords: minimax, decision, regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

32) List and describe decision rules that are used for decision making under uncertainty. Answer: The decision rules include maximin, maximax, Laplace, and minimax regret. Maximin chooses the "best of the worst" and is for the pessimist. Maximax chooses the "best of the best" and is for the optimist. Laplace chooses the best weighted payoff and is for the realist. Minimax regret chooses the best "worst regret." Difficulty: Moderate Keywords: Laplace, minimax, maximax, minimax, regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

33) Provide an example of two or more events where you as a decision maker would truly be engaged in decision making under uncertainty. Why are you incapable of deciding which event is more likely than the other(s)? Answer: Answers will vary. Difficulty: Moderate Keywords: uncertainty, events Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

34) Given a payoff table in a decision making under risk scenario, what value is derived from applying the following decision rule? Apply all four criteria presented in your book and choose the alternative that is selected more frequently than the others. Answer: The decision rules include maximin, maximax, Laplace, and minimax regret. Maximin chooses the "best of the worst" and is for the pessimist. Maximax chooses the "best of the best" and is for the optimist. Laplace chooses the best weighted payoff and is for the realist. Minimax regret chooses the best "worst regret." Applying an overall winner to the four criteria might permit the decision maker to satisfy the appetite for risk of the greatest number of stakeholders. The mindsets that drive a decision maker towards one criterion or another are such that an average of these approaches most probably will hold no additional cachet for any single optimist or pessimist or centrist. Difficulty: Moderate Keywords: Laplace, minimax, maximax, minimax, regret Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

35) A company that is introducing a new product has to choose between four marketing plans, A through D. The marketing plans are forecasted to have varying payoffs, depending on the level of advertising. The probability of high demand is 0.6 and of low demand 0.4. Use the following decision rules to select the marketing plan: maximin, maximax, minimax regret, Laplace, and expected value.

Answer:

Difficulty: Moderate Keywords: maximin, maximax, Laplace, minimax regret, expected value Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

36) A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they have forecasted different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low. Which alternative is best in accordance with an optimistic outlook? Which alternative is best according to a pessimist?

Method A Method B Method C Method D

High $450 $950 $375 $800

Medium $670 $320 $575 $400

Low $780 $200 $775 $300

Answer: The optimistic outlook is Method B; the pessimistic outlook is Method C; the equally likely perspective is Method B; the minimax regret choice is Method C. Difficulty: Moderate Keywords: maximax, decision theory Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Explain how decision theory can be used to make decisions under conditions of certainty, uncertainty, and risk.

A.4 Decision Trees 1) Decision trees are typically used in the situation of decision making under uncertainty. Answer: FALSE Difficulty: Moderate Keywords: decision tree, risk, uncertainty Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

2) The average probability, P(E), for all branches leaving an event node is 1/n, where n is the number of branches leaving that event node. Answer: TRUE Difficulty: Challenging Keywords: decision tree, probability, nodes Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

3) After drawing a decision tree, we solve it by working from right to left, calculating the risk associated with each node. Answer: FALSE Difficulty: Moderate Keywords: decision tree, expected payoff Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

4) When using decision tree analysis: A) the sum of the expected payoffs must always equal zero. B) round nodes represent decision points. C) there must be more square nodes than round nodes. D) probabilities for all branches leaving a chance node must sum to 1.0. Answer: D Difficulty: Moderate Keywords: decision tree, probability, nodes Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

5) Decision trees are typically used in the situation of decision making under: A) certainty. B) risk. C) uncertainty. D) equilibrium. Answer: B Difficulty: Moderate Keywords: decision tree, risk Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

6) An operations manager has developed this decision tree showing the costs associated with the different alternatives for a planned expansion. If the probability of high demand is 0.4, what is the best course of action?

A) Alternative A B) Alternative B C) Alternative C D) Alternative D Answer: B Difficulty: Moderate Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

7) A marketing director must decide among four alternatives for a new marketing campaign. She ascertains that the probability of high demand is 0.8 and the probability of low demand is 0.2. What is the best choice with the payoffs shown in the tree?

8) A marketing director must decide among four alternatives for a new marketing campaign. She ascertains that the probability of high demand is 0.45 and the probability of low demand is 0.55. What is the best choice with the payoffs shown in the tree?

A) Alternative A B) Alternative B C) Alternative C D) Alternative D Answer: C Difficulty: Moderate Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

9) George Burdell must decide among four alternatives for an oil exploration project. He estimates that the probability of high demand is 0.3 and the probability of low demand is 0.7. What is the best choice with the payoffs shown in the tree?

A) Alternative A B) Alternative B C) Alternative C D) Alternative D Answer: D Difficulty: Moderate Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

10) Analyze the following decision tree. Determine the missing probabilities, and identify the alternative that maximizes the expected payoff.

A) Option 1, with an expected payoff of less than $25 B) Option 1, with an expected payoff of $25 or more C) Option 2, with an expected payoff of less than $25 D) Option 2, with an expected payoff of $25 or more Answer: D Difficulty: Challenging Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

11) Analyze the following decision tree. After determining the missing probabilities, identify which alternative (Option 1 or Option 2) has the higher expected payoff. What is the expected payoff?

A) Option 1, with an expected payoff of less than $25 B) Option 1, with an expected payoff of $25 or more C) Option 2, with an expected payoff of less than $25 D) Option 2, with an expected payoff of $25 or more Answer: B Difficulty: Challenging Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

12) Analyze the following decision tree. After determining the missing probabilities, identify which alternative (Option 1 or Option 2) has the higher expected payoff. What is the expected payoff?

A) Option 1, with an expected payoff of less than $35 B) Option 1, with an expected payoff of no less than $35 C) Option 2, with an expected payoff of less than $35 D) Option 2, with an expected payoff of more than $35 Answer: D Difficulty: Challenging Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

13) A(n) ________ is a schematic model of alternatives available to the decision maker, along with their possible consequences. Answer: decision tree Difficulty: Moderate Keywords: decision tree, alternatives Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

14) The ________ nodes have probabilities associated with them in a decision tree. Answer: event (or circle) Difficulty: Moderate Keywords: decision tree, event node Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

15) After drawing a decision tree, we solve it by working from right to left, calculating the ________ for each node. Answer: expected payoff Difficulty: Moderate Keywords: decision tree, expected payoff Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

16) A chance event that has an impact on the outcome of the choice but is not under the manager's control is called a(n) ________. Answer: state of nature Difficulty: Moderate Keywords: event, state of nature Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

17) Under what conditions can decision trees be useful? Answer: Decision trees are useful when there is uncertainty and sequential decisions are involved. Difficulty: Easy Keywords: decision tree, sequential decisions Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Describe how to draw and analyze a decision tree.

18) A new minor league baseball team is coming to town and the owners have decided to build a new stadium, either small or large. The success of the team with regard to ticket sales will be either high or low with probabilities of 0.75 and 0.25, respectively. If demand for tickets is high, the large stadium would provide a payoff of approximately $20 million. If ticket sales are low, the loss on the large stadium would be $5 million. If a small stadium is constructed, and ticket sales are low, the payoff is $500,000 after deducting the cost of construction. If ticket sales are high, the team can choose to build an upper deck, or to maintain the existing facility. Expanding the stadium in this scenario has a payoff of $10 million, whereas maintaining the same number of seats has a payoff of only $3 million. a. Draw a decision tree for this problem. b. What should management do to achieve the highest expected payoff? Answer:

Small Stadium: 0.25($500,000) + 0.75($10,000,000) = $7,625,000 Large Stadium: 0.25(-$5,000,000) + 0.75($20,000,000) = $13,750,000 Select the large stadium based on expected value. Difficulty: Moderate Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

19) The Hill O'Beans Coffee Company operates a chain of coffee shops downtown and has decided to open a new store. The demand will be weak, fair, or strong; probabilities are 0.25, 0.30, and 0.45, respectively. If the company installs a small booth that sells only coffee, the associated payoffs are -$25,000; 25,000; and $100,000 for weak, fair, and strong demand. If the company chooses an expanded facility that offers sandwiches and breakfast foods, it must build a kitchen and rent additional space. The payoffs for an expanded facility are -$200,000, -$25,000, and $500,000. a. Draw a decision tree for this problem. b. What should management do to achieve the highest expected payoff? Answer:

Small: .25(<25,000>) + .30(25,000) + .45(100,000) = 46,250 Expand: .25(<200,000>) + .30(<25,000>) + .45(500,000) = 167,500 Therefore, expand based on the expected value. Difficulty: Moderate Keywords: decision tree Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

20) Keith Monroe is deciding among four alternatives and fleshes out the decision tree shown below. He has developed excellent estimates of payoffs but admits he has no clue about the probabilities for the two states of nature. He wants to cover all of his bases, so he would like to calculate the probability of high demand for which each alternative is superior. Analyze this situation and make recommendations for him. He promises to cut you in for 30% of the profits if you can show him how to calculate the ranges.

Answer: Approaches to this problem may vary. The value for each alternative is given by this set of equations: Alternative A: 800pHIGH + 500pLOW = VA Alternative B: 900pHIGH + 250pLOW = VB Alternative C: 650pHIGH + 650pLOW = VC Alternative D: 300pHIGH + 900pLOW = VD pLOW = 1 - pHIGH Alternative A: 800pHIGH + 500(1 - pHIGH) = VA = 300pHIGH + 500 Alternative B: 900pHIGH + 250(1 - pHIGH) = VB = 650pHIGH + 250 Alternative C: 650pHIGH + 650(1 - pHIGH) = VC = 650 Alternative D: 300pHIGH + 900(1 - pHIGH) = VD = -600pHIGH + 900 The second set of equations create lines as displayed in the graph, which shows the expected monetary value of the four alternatives plotted against the probability of high demand as it ranges from 0 to 1.

The graph shows that Alternative D is initially superior, giving way to Alternative C, which yields to Alternative A, which is supplanted by Alternative B as the probability of high demand increases from 0 to 1. These three intersections on the graph can be determined by setting up three sets of simultaneous equations. D&C VD = -600pHIGH + 900 = 650 = VC -600pHIGH = -250 pHIGH = .41 C&A VC = 650 = 300pHIGH + 500 = VA 150 pHIGH = .5 A&B VA = 300pHIGH + 500 = 650pHIGH + 250 = VB 250 = 350pHIGH pHIGH = .714286 To summarize: Range Best Alternative 0.0 - 0.4167 D 0.4167 - 0.5 C 0.5 - 0.7143 A 0.7143 - 1.0 B Difficulty: Challenging Keywords: decision tree, risk Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Describe how to draw and analyze a decision tree.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement B Waiting Lines B.1 Structure of Waiting-Line Problems 1) The four elements common to all waiting-line situations are a customer population, a waiting line of customers, the service facility, and a priority rule. Answer: TRUE Difficulty: Moderate Keywords: priority rule, customer line, customer population Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

2) In a waiting line system it is not only the calling population that goes to the server, the servers could also go to the calling population. Answer: TRUE Difficulty: Moderate Keywords: queue, line, server Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

3) A phase represents a single step in providing a service. Answer: TRUE Difficulty: Moderate Keywords: phase, service Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

4) A bank dedicates a single common window for both it's commercial account customers and personal account customers. This means that the waiting line system has two channels. Answer: FALSE Difficulty: Moderate Keywords: queue, channel Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

5) If the customer population of a service system generates customers according to a Poisson distribution, the exponential distribution describes the probability that the next customer will arrive in the next T time periods. Answer: TRUE Difficulty: Moderate Keywords: Poisson distribution, exponential distribution Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

6) In a waiting line system, the variability of customer arrivals often can be described by a Poisson distribution. Answer: TRUE Difficulty: Moderate Keywords: Poisson distribution, customer arrivals Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

7) Under the assumptions of waiting line models, it is impossible for management to affect the rate of customer arrivals. Answer: FALSE Difficulty: Moderate Keywords: customer arrival rate, waiting line decisions Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

8) In a waiting line system, the variability of customer arrivals often can be described by a(n): A) exponential distribution. B) Poisson distribution. C) normal distribution. D) uniform distribution Answer: B Difficulty: Moderate Keywords: Poisson distribution, customer arrivals Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

9) Which statement about queue structure is best? A) Customers are more likely to feel a sense of fairness when waiting in the multiple line system than in a single line system. B) When similarly skilled, multiple servers are available, a single line is best. C) Customers that are in the same line must be colocated. D) Machines needing repair are left in place and repair techs come to them; thus, the repair techs are technically the customers since they must travel to the machine. Answer: B Difficulty: Moderate Keywords: single channel, single phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

10) The distinction between an infinite customer population and a finite customer population is whether the: A) potential number of customers is appreciably affected by the number of customers already in the system. B) number of potential customers exceeds the square of the number of servers. C) number of potential customers exceeds the number of servers raised to the power of the number of channels. D) number of customers exceeds infinity. Answer: A Difficulty: Easy Keywords: finite customer population Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

11) Ed Deadbeat races to the Bursar's Office on the first day of class and notes that the line is four students long. Ed figures that the wait will be at least ten minutes and, having better uses of his time, he decides to proceed to the next item on his to-do list. Ed's behavior is best described as: A) reneging. B) balking. C) blocking. D) queuing. Answer: B Difficulty: Moderate Keywords: balking, balks Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

12) India Sisson wants to grab a latte before heading to her marketing class, knowing that the jolt of a double tall mocha is the only thing that can possibly keep her eyes open during today's presentation on the four P's. The server is slower than molasses in January and India notes that the pace of the line won't permit her to grab her favorite seat in the back row of her class. She decides to risk marketing without a latte and leaves the line before getting served. India's behavior is best described as: A) balking. B) blocking. C) reneging. D) queuing. Answer: C Difficulty: Moderate Keywords: reneging, reneges Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

13) The single, multiple, and finite waiting line models all assume that the: A) arrival rate exceeds the service rate. B) number of servers exceeds the number of customers. C) number of customers exceeds the number of servers. D) customers are patient. Answer: D Difficulty: Moderate Keywords: single line, multiple line, phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

14) An automatic, one-lane, drive-through car wash is an example of a: A) single-channel, single-phase arrangement. B) single-channel, multiple-phase arrangement. C) multiple-channel, single-phase arrangement. D) multiple-channel, multiple-phase arrangement. Answer: A Difficulty: Moderate Keywords: single channel, single phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

15) A drive-through system with one lane at a fast food restaurant where the first facility takes the order, the second takes the money, and the third provides the food is an example of a: A) single-channel, single-phase arrangement. B) single-channel, multiple-phase arrangement. C) multiple-channel, single-phase arrangement. D) multiple-channel, multiple-phase arrangement. Answer: B Difficulty: Moderate Keywords: single channel, multiple phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

16) A bank lobby with six teller windows, each with a separate line, is an example of a: A) single-channel, single-phase arrangement. B) single-channel, multiple-phase arrangement. C) multiple-channel, single-phase arrangement. D) multiple-channel, multiple-phase arrangement. Answer: C Difficulty: Moderate Keywords: multiple channel, single phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

17) A Laundromat where there are washing machines and dryers is an example of a: A) single-channel, single-phase arrangement. B) single-channel, multiple-phase arrangement. C) multiple-channel, single-phase arrangement. D) multiple-channel, multiple-phase arrangement. Answer: D Difficulty: Moderate Keywords: multiple channel, multiple phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

18) A super computer-accessory discount store often has customers who leave the checkout line before being served because of excessive waiting times. The store has a(n): A) infinite customer population with balking customers. B) infinite customer population with reneging customers. C) finite customer population with balking customers. D) finite customer population with reneging customers. Answer: B Difficulty: Moderate Keywords: infinite customer population, reneging customers Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

19) A homemade-ice cream shop owner has noticed that, often, potential customers will stop outside the store, assess the wait in line, and then pass by. The shop has a(n): A) infinite customer population with balking customers. B) infinite customer population with reneging customers. C) finite customer population with balking customers. D) finite customer population with reneging customers. Answer: A Difficulty: Moderate Keywords: infinite customer population, balking customers Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

20) The owner of a desktop publishing company exclusively caters exclusively to seven loyal clients who periodically require his services. The owner has: A) an infinite customer population of patient customers. B) an infinite population of impatient customers. C) a finite customer population. D) a finite customer population with balking customers. Answer: C Difficulty: Moderate Keywords: finite customer population Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

21) The teller counter at a local branch receives an average of 12 customers per hour according to a Poisson distribution. The teller takes an average of 4 minutes to serve each customer with exponential service times. What is the likelihood that there are zero customers in the system at the bank? A) 0.10 B) 0.15 C) 0.20 D) 0.25 Answer: C Difficulty: Moderate Keywords: queuing parameters, operating characteristics Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

22) The teller counter at a local branch receives an average of 12 customers per hour according to a Poisson distribution. The teller takes an average of 4 minutes to serve each customer with exponential service times. What is the likelihood that there is one customer in the system at the bank? A) 0.08 B) 0.120 C) 0.160 D) 0.200 Answer: C Difficulty: Moderate Keywords: queuing parameters, operating characteristics Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

23) The teller counter at a local branch receives an average of 12 customers per hour according to a Poisson distribution. The teller takes an average of 4 minutes to serve each customer with exponential service times. What is the likelihood that there are two customers in the system at the bank? A) 0.081 B) 0.128 C) 0.150 D) 0.177 Answer: B Difficulty: Moderate Keywords: queuing parameters, operating characteristics Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

24) The teller counter at a local branch receives an average of 12 customers per hour according to a Poisson distribution. The teller takes an average of 4 minutes to serve each customer with exponential service times. What is the average number of customers in the system? A) 2 B) 3 C) 4 D) 5 Answer: C Difficulty: Moderate Keywords: queuing parameters, operating characteristics Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

25) Customers arrive according to a Poisson distribution. The average number of customer arrivals per hour is three. The probability that two customers will arrive in the next hour is: A) less than or equal to 0.15. B) greater than 0.15 but less than or equal to 0.20. C) greater than 0.20 but less than or equal to 0.25. D) greater than 0.25. Answer: C Difficulty: Moderate Keywords: Poisson distribution, customer arrival probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

26) Customers arrive according to a Poisson distribution. The average number of customer arrivals per hour is three. The probability that two customers will arrive in the next two hours is: A) less than or equal to 0.05. B) greater than 0.05 but less than or equal to 0.10. C) greater than 0.10 but less than or equal to 0.15. D) greater than 0.15. Answer: A Difficulty: Moderate Keywords: Poisson distribution, customer arrival probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

27) Customers are serviced at a rate of five customers per hour with exponential service times. What is the probability that a customer will require 15 minutes or less of service? A) less than or equal to 0.40 B) greater than 0.40 but less than or equal to 0.60 C) greater than 0.60 but less than or equal to 0.80 D) greater than 0.80 Answer: C Difficulty: Moderate Keywords: exponential distribution, customer service rate probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

28) Customers are serviced at a rate of six customers per hour according to an exponential distribution. What is the probability that customer service will require fewer than 20 minutes? A) less than or equal to 0.70 B) greater than 0.70 but less than or equal to 0.80 C) greater than 0.80 but less than or equal to 0.90 D) greater than 0.90 Answer: C Difficulty: Moderate Keywords: exponential distribution, customer service rate probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

29) Customers are serviced at a rate of five customers per hour according to an exponential distribution. What is the probability that customer service will require fewer than 20 minutes? A) less than or equal to 0.75 B) greater than 0.75 but less than or equal to 0.80 C) greater than 0.80 but less than or equal to 0.85 D) greater than 0.85 Answer: C Difficulty: Moderate Keywords: exponential distribution, customer service rate probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Identify the structure of waiting lines in real situations.

30) A(n) ________ is a single step in the service process. Answer: phase Difficulty: Easy Keywords: phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

31) A(n) ________ is one or more facilities required to perform a given service. Answer: channel Difficulty: Easy Keywords: channel Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

32) Customers arrive and wait in one line single file as their documents are checked. Then they load their carry-on items on the conveyor belt for inspection. Finally, they walk through a metal detector before retrieving their carry-on items and proceeding to their departure gate. This facility is ________ channel, ________ phase. Answer: single, multiple Difficulty: Moderate Keywords: channel, phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

33) A(n) ________ selects the next customer to be served at the service facility. Answer: priority rule Difficulty: Moderate Keywords: priority rule Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

34) You drive your car into the parking lot of your favorite fast food establishment and get in the line for drive through service. After placing your order into the speaker, you proceed to the first window to pay, and then to the second window to pick up your meal. Since you just studied waiting lines that day in your Operations Management class, you quickly realize as you drive away that this was an example of a(n) ________ channel ________ phase queuing system. Answer: single, multiple Difficulty: Moderate Keywords: waiting line, channel, phase, queue Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

35) A(n) ________ is a single step in providing a service. Answer: phase Difficulty: Moderate Keywords: phase, service Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

36) A(n) ________ is a rule that allows a customer of higher priority to interrupt the service of another customer. Answer: preemptive discipline Difficulty: Moderate Keywords: preemptive discipline Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

37) The ________ distribution specifies the probability that n customers will arrive in T time periods. Answer: exponential Difficulty: Easy Keywords: exponential distribution Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

38) The exponential distribution is based on the assumption that each service time is ________ of those that preceded it. Answer: independent Difficulty: Moderate Keywords: exponential distribution Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

39) Explain how waiting lines can develop even when the service time is a constant. Answer: The arrival rates, being random, may exceed the service rates for short periods of time, thus causing lines to form. Difficulty: Easy Keywords: waiting line, queue, formation of lines Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

40) What are the assumptions of the exponential distribution applied to the single server queuing situation? Provide examples of when these assumptions might be violated. Answer: The assumptions are that each service time is independent of the preceding service times and that extremely small and extremely large service times are possible. Counter-examples will vary. Difficulty: Easy Keywords: exponential distribution Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

41) Comment on the tension between cost management and customer satisfaction management in a call center situation. Answer: Cost control in a call center situation is typically achieved by setting staffing levels and use of an AVR (automated voice response) system that shifts some of the labor burden to the customer. Staffing levels set too low will lower costs but result in long wait times and unhappy customers. AVR systems also lower costs, but many customers find the menus confusing and deliberately bypass the systems in hopes of speaking with a customer service representative. Difficulty: Easy Keywords: queue length, wait time, capacity Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

42) What are priority rules? Provide examples and indicate why a manager would choose to adopt one over another. Answer: A priority rule determines which customer to serve next. Most service systems that do not use appointments use a first-come, first-served (FCFS) rule. The customer who arrives first and is at the head of the line has the highest priority. Other possible rules are shortest processing time (SPT) and earliest due date (EDD). These rules are discussed outside this supplement. A preemptive discipline allows a customer of higher priority to interrupt the service of another, lower priority, customer. FCFS is perceived as being fair by all parties, a preemptive discipline is also perceived as reasonable if the priority nature of the later arrival is understood by all parties. SPT minimizes the average flow time of all parties and the earliest-due-date rule minimizes the number of late customers. Difficulty: Moderate Keywords: priority rule, preemptive discipline, FCFS, EDD, SPT Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

43) Your employer is considering a choice between a single-line and a multiple-line arrangement. The operation involves multiple servers and a single-phase service. When would each arrangement be ideal? Answer: Single line is best when the servers can handle general transactions. Multiple lines are best when some servers require a special skill or perform only a selected set of services. Difficulty: Challenging Keywords: single line, multiple line, phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

44) What is a finite-source model? Give an example of its appropriate use. Answer: A finite-source model is one in which the calling population of customers is not infinite. If N is greater than 30 customers, the single-server model with the assumption of an infinite calling population is adequate. Otherwise, the finite-source model is the one to use. Examples may vary but might include the number of students arriving for office hours, the number of machines that need repair, or the number of items expiring in your refrigerator. Difficulty: Moderate Keywords: finite source Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Identify the structure of waiting lines in real situations.

B.2 Using Waiting-Line Models to Analyze Operations 1) Short lines in a waiting line system always indicate good customer service. Answer: FALSE Difficulty: Moderate Keywords: customer waiting line, capacity, service efficiency Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

2) The best method for analyzing a waiting-line problem is to relate the five operating characteristics and their alternatives to dollars. Answer: TRUE Difficulty: Moderate Keywords: queuing parameters, operating characteristics Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

3) The standard assumption in the single-server model is that there is an infinite number of customers and that customers will wait in line as long as it takes to get served. Answer: TRUE Difficulty: Moderate Keywords: calling population, single-server Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

4) The standard assumption in the single-server model is that customers are served according to the shortest expected processing time. Answer: FALSE Difficulty: Moderate Keywords: single-server, queue discipline, SPT Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

5) Customers are serviced at a rate of eight customers per hour with exponential service times. What is the probability that a customer will require 5 minutes or less of service? A) less than or equal to 0.25 B) greater than 0.25 but less than or equal to 0.50 C) greater than 0.50 but less than or equal to 0.75 D) greater than 0.75 Answer: B Difficulty: Moderate Keywords: exponential distribution, customer service rate probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

6) With a single-server model, increasing the service rate while holding all other factors constant will: A) increase the utilization of the server. B) increase the time spent per customer. C) decrease the probability that there are two customers in the system at any time. D) decrease the arrival rate of customers. Answer: C Difficulty: Moderate Keywords: single server model, customer service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

7) With a single-server model, increasing the promotions for a service through advertising will most likely: A) increase the utilization of the server. B) decrease the average number of customers in the service system. C) decrease the average time a customer spends in the system. D) increase the probability that the server will be idle. Answer: A Difficulty: Challenging Keywords: single server model, server utilization rate, arrival rate Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

8) With a single-server model, increasing the capital-to-labor ratio will most likely: A) increase the utilization of the server. B) have no effect on the operating characteristics because they are affected only by work-methods changes. C) decrease the probability that there are zero customers in the system at any time. D) decrease the average number of customers in the waiting line. Answer: D Difficulty: Challenging Keywords: single server model, capital-to-labor ratio, waiting line length, average number of customers Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

9) With a single-server model, increasing the arrival rate by 10 percent and also increasing the service rate by 10 percent will result in a(n): A) increase in the utilization of the server. B) increase in the average number of customers in the system. C) decrease in the average time spent in the system, including service. D) increase in the waiting-line time. Answer: C Difficulty: Challenging Keywords: single server model, arrival rate, service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

10) With a single-server model, increasing the arrival rate by 10 percent and also increasing the service rate by 10 percent will result in: A) a decrease in the utilization of the server. B) no change in the average number of customers in the service system. C) an increase in the average number of customers in the waiting line. D) an increase in the waiting time in line. Answer: B Difficulty: Challenging Keywords: single server model, arrival rate, service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

11) With a single-server model, increasing the arrival rate by 10 percent and also increasing the service rate by 10 percent will result in: A) no change in the probability that there are n customers in the system. B) a decrease in the average waiting time in line. C) an increase in the average time spent in the system, including service. D) an increase in the average number of customers in the system. Answer: A Difficulty: Challenging Keywords: single server model, arrival rate, service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

12) In the single-server model, the: A) customers are assumed to arrive at constant intervals of time. B) variability of customer arrivals is most often described by a Poisson distribution. C) mean of the distribution of customer arrivals must be greater than the variance of customer arrivals to get meaningful results. D) probability of n arrivals in T time periods comes from a normal distribution. Answer: B Difficulty: Moderate Keywords: single server model, Poisson distribution, customer arrivals Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

13) In the single-server model, the: A) service time of a customer is most often described by an exponential distribution. B) service time depends on the number of customers in the system as long as there is at least one customer in the waiting line. C) mean of the service-time distribution must be as great as the target service time for a feasible solution. D) service times are always constant to avoid large waiting lines. Answer: A Difficulty: Moderate Keywords: single server model, exponential distribution, customer service times Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

14) With a multiple-server model, increasing the arrival rate by 10 percent and also increasing the service rate of each server by 10 percent will result in: A) a decrease in the utilization of the system. B) no change in the average number of customers in the waiting line. C) a decrease in the average number of customers in the waiting line. D) an increase in the waiting time in line. Answer: B Difficulty: Challenging Keywords: multiple server model, arrival rate, service rate, queue length Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

15) With a finite-source model, increasing the arrival rate by 10 percent and also increasing the service rate by 10 percent will result in a(n): A) increase in the utilization of the server. B) increase in the average number of customers in the service system. C) decrease in the average time spent in the system, including service. D) increase in the waiting time in line. Answer: C Difficulty: Challenging Keywords: finite source model, arrival rate, service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

16) With a finite-source model, increasing the arrival rate by 10 percent and also increasing the service rate by 10 percent will result in: A) a decrease in the utilization of the server. B) no change in the average number of customers in the system. C) an increase in the average number of customers in the waiting line. D) an increase in the waiting time in line. Answer: B Difficulty: Challenging Keywords: finite source model, arrival rate, service rate Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

Scenario B.1 Customers arrive at a car wash at an average rate of 8 customers per hour according to a Poisson distribution. The time required to complete a typical car wash is exponentially distributed with an average of 6 minutes. 17) Use the information in Scenario B.1. What percentage of time is the car wash idle? A) 20% B) 40% C) 60% D) 80% Answer: A Difficulty: Moderate Keywords: utilization, waiting line, idle Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

18) Use the information in Scenario B1. What is the average number of customers waiting in line to get a car wash? A) less than two B) between two and three C) between three and four D) greater than four Answer: C Difficulty: Moderate Keywords: waiting line, number in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

19) Use the information in Scenario B1. What is the average number of customers in the system? A) two B) three C) four D) five Answer: C Difficulty: Moderate Keywords: waiting line, number in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

20) Use the information in Scenario B1. What is the probability that there are two customers in the system? A) 0.075 B) 0.128 C) 0.211 D) 0.250 Answer: B Difficulty: Moderate Keywords: waiting line, number in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

21) Use the information in Scenario B1. What is the average time a car will spend waiting in line? A) four minutes B) five minutes C) six minutes D) seven minutes Answer: A Difficulty: Moderate Keywords: waiting line, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

22) Use the information in Scenario B1. What is the average time a car will spend in the system? A) four minutes B) five minutes C) six minutes D) seven minutes Answer: B Difficulty: Moderate Keywords: waiting line, time in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

Scenario B.2 Weary travelers arrive at Will Rogers International Airport, pick up their luggage, stumble to their cars, and proceed to the parking lot attendant to pay for their parking. Traveler interarrival times are exponentially distributed, as are the service times of the attendant. On average, travelers arrive every 25 seconds. The attendant can process three travelers per minute, and processing rates follow a Poisson distribution. 23) Use the information in Scenario B.2. How many minutes per hour is the attendant not serving customers? A) fewer than or equal to 13 B) greater than 13 but fewer than or equal to 17 C) greater than 17 but fewer than or equal to 21 D) greater than 21 Answer: A Difficulty: Moderate Keywords: waiting line, idle time Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

24) Use the information in Scenario B.2. What is the probability that a traveler will pull up to the attendant's service window without having to wait for another customer? A) less than or equal to 0.15 B) greater than 0.15 but less than or equal to 0.25 C) greater than 0.25 but less than or equal to 0.35 D) greater than 0.35 Answer: B Difficulty: Moderate Keywords: single server, Poisson arrivals, exponential service times, system empty probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

25) Use the information in Scenario B.2. What is the average number of customers in line? A) fewer than or equal to 1.0 B) greater than 1.0 but fewer than or equal to 2.0 C) greater than 2.0 but fewer than or equal to 3.0 D) greater than 3.0 Answer: D Difficulty: Moderate Keywords: single server, Poisson arrivals, exponential service times, customers in line, queue length Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

26) Use the information in Scenario B.2. What is the average number of customers in the system? A) fewer than or equal to 3.0 B) greater than 3.0 but fewer than or equal to 5.0 C) greater than 5.0 but fewer than or equal to 7.0 D) greater than 7.0 Answer: B Difficulty: Moderate Keywords: single server, Poisson arrivals, exponential service times, number in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

27) Use the information in Scenario B.2. What is the average time a customer spends in line? A) less than or equal to 1.0 minute B) greater than 1.0 but fewer than or equal to 2.0 minutes C) greater than 2.0 but fewer than or equal to 3.0 minutes D) greater than 3.0 minutes Answer: B Difficulty: Moderate Keywords: single server, Poisson arrivals, exponential service times, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

28) Use the information in Scenario B.2. What is the average amount of time a customer spends waiting in line and being served? A) less than or equal to 1.0 minutes B) greater than 1.0 minutes but fewer than or equal to 1.50 minutes C) greater than 1.5 minutes but fewer than or equal to 2.0 minutes D) greater than 2.0 minutes Answer: C Difficulty: Moderate Keywords: single server, Poisson arrivals, exponential service times, time in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

Scenario B.4 Customers arrive at an airline ticket counter at the rate of 50 customers per hour, according to a Poisson distribution. There are three ticket agents. Customers select the first available agent from one line. Each agent can process 20 customers per hour with exponential service times. 29) Use the information in Scenario B.4. What is the average utilization of the three-agent system? A) less than or equal to 80 percent B) greater than 80 percent but less than or equal to 85 percent C) greater than 85 percent but less than or equal to 90 percent D) greater than 90 percent Answer: B Difficulty: Moderate Keywords: multiple servers, Poisson arrivals, exponential service times, utilization Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

30) Use the information in Scenario B.4. What is the average number of customers waiting in line for service? A) fewer than or equal to 4.0 B) greater than 4.0 but fewer than or equal to 4.5 C) greater than 4.5 but fewer than or equal to 5.0 D) greater than 5.0 Answer: A Difficulty: Moderate Keywords: multiple servers, Poisson arrivals, exponential service times, customers in line, queue length Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

31) Use the information in Scenario B.4. What is the average waiting time in line? A) fewer than or equal to 3.5 minutes B) greater than 3.5 minutes but fewer than or equal to 4.5 minutes C) greater than 4.5 minutes but fewer than or equal to 5.5 minutes D) greater than 5.5 minutes Answer: B Difficulty: Moderate Keywords: multiple servers, Poisson arrivals, exponential service times, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

32) Use the information in Scenario B.4. What is the average time spent in the system? A) fewer than or equal to 6.5 minutes B) greater than 6.5 minutes but fewer than or equal to 7.5 minutes C) greater than 7.5 minutes but fewer than or equal to 8.5 minutes D) greater than 8.5 minutes Answer: B Difficulty: Moderate Keywords: multiple servers, Poisson arrivals, exponential service times, time in system Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

Scenario B.6 The Jackson Machine Company has four cutting tools that need to be refurbished after an average of 30 hours, according to an exponential distribution. The single machine that refurbishes the tools needs 15 hours for each tool on the average, with exponential service times. 33) Use the information in Scenario B.6. What is the probability that there will be no tools in the system? A) less than or equal to 0.16 B) greater than 0.16 but less than or equal to 0.19 C) greater than 0.19 but less than or equal to 0.22 D) greater than 0.22 Answer: A Difficulty: Moderate Keywords: single server, finite population, Poisson arrivals, exponential service times, customer wait probability Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

34) Use the information in Scenario B.6. What is the average utilization of the refurbishing machine? A) less than or equal to 40 percent B) greater than 40 percent but less than or equal to 50 percent C) greater than 50 percent but less than or equal to 60 percent D) greater than 60 percent Answer: D Difficulty: Moderate Keywords: single server, finite population, Poisson arrivals, exponential service times, utilization Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

35) Use the information in Scenario B.6. What is the average waiting time of tools in line? A) fewer than or equal to 15 hours B) greater than 15 hours but fewer than or equal to 25 hours C) greater than 25 hours but fewer than or equal to 35 hours D) greater than 35 hours Answer: B Difficulty: Moderate Keywords: single server, finite population, Poisson arrivals, exponential service times, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

36) The average lead time of a unit of product through a manufacturing station is 10 minutes. The production rate has been steady at five units per hour. The average work-in-process inventory at this station is: A) 50 units. B) 10 units. C) 5 units. D) 0.83 units. Answer: D Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

37) The production rate has been steady at 20 units per hour. The average work-in-process inventory at this station is 15 units. What is the average lead time through this manufacturing station? A) 15 minutes B) 30 minutes C) 45 minutes D) 1.0 hours Answer: C Difficulty: Moderate Keywords: waiting line, lead time Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

38) The average lead time of a unit of product through a manufacturing station is 18 minutes. The average work-in-process inventory at this station has been 30 pieces. What is the production rate? A) 0.33 piece per minute B) 0.83 piece per minute C) 1.66 pieces per minute D) 3.0 pieces per minute Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

39) Customers arrive at the local grocery store at a steady rate of 40 an hour. Thirty percent of these customers purchase 10 items or less and go to the express line where they enjoy an average checkout time of 5 minutes. Customers that don't meet the express line criterion go to the other checkout line where they spend an average of 10 minutes checking out. How many people are checking out in the express line on average? A) 1.0 B) 3.0 C) 12 D) 144 Answer: A Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

40) Customers arrive at the local grocery store at a steady rate of 40 an hour. Thirty percent of these customers purchase 10 items or less and go to the express line where they enjoy an average checkout time of 5 minutes. Customers that don't meet the express line criterion go to checkout line #2 where they spend an average of 10 minutes checking out. How many people are checking out in line #2 on average? A) less than or equal to 1.0 B) greater than 1.0 but less than or equal to 3.0 C) greater than 3.0 but less than or equal to 5.0 D) greater than 5.0 Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

41) Customers arrive at the local grocery store at a steady rate of 40 an hour. Thirty percent of these customers purchase 10 items or less and go to the express line where they enjoy an average checkout time of 5 minutes. Customers that don't meet the express line criterion go to checkout line #2 where they spend an average of 10 minutes checking out. How many people are checking out in both lines on average? A) less than or equal to 1.0 B) greater than 1.0 but less than or equal to 3.0 C) greater than 3.0 but less than or equal to 5.0 D) greater than 5.0 Answer: D Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

42) A movie complex experiences its peak ticket sales in the early evening when several movies have about the same start times. The ticket booth can process customers buying tickets at a maximum rate of 45 seconds each (or 80 tickets sold per hour). You arrive to buy your ticket and count 16 people in line ahead of you. How long can you expect to wait in line before getting to the booth to buy your ticket? A) less than or equal to 5 minutes B) greater than 5 but less than or equal to 10 minutes C) greater than 10 but less than or equal to 15 minutes D) greater than 15 minutes Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

43) Patients arrive at a doctor's office at a rate of 6 patients per hour. Each patient stays in the doctor's office an average of 40 minutes. On average, how many patients are in the doctor's at any one time? A) 4 patients B) 6 patients C) 7 patients D) 10 patients Answer: A Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

44) Patients arrive at a doctor's office at a rate of 6 patients per hour. A periodic count shows that there are 8 patients in the doctor's office at any one time. On average, how long is each patient's stay in the doctor's office? A) less than or equal to 40 minutes B) greater than 40 but less than or equal to 60 minutes C) greater than 60 but less than or equal to 80 minutes D) greater than 80 minutes Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

45) The manager of a car wash wants to know how fast his new crew is processing cars through the wash area. He notices that it takes cars an average of about 30 minutes in line to reach the car wash, and his spot checks during the day indicated an average of seven cars in line waiting to be washed. What was the processing rate for his new crew that day? A) less than or equal to 2.0 minutes per car B) greater than 2.0 but less than or equal to 3.0 minutes per car C) greater than 3.0 but less than or equal to 4.0 minutes per car D) greater than 4.0 minutes per car Answer: D Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

46) Patrons arrive at a restaurant during the dinner time at a rate of 30 diners per hour. Each diner stays in the restaurant an average of 40 minutes. On average, how many diners are in the restaurant at any one time? A) 15 diners B) 18 diners C) 20 diners D) 25 diners Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

47) Patrons arrive at a restaurant during dinner time at a rate of 30 diners per hour. A periodic count shows that there are 40 diners in the restaurant at any one time. On average, how long is each diner's stay in the restaurant? A) less than or equal to 30 minutes B) greater than 30 but less than or equal to 40 minutes C) greater than 40 but less than or equal to 50 minutes D) greater than 50 minutes Answer: C Difficulty: Moderate Keywords: WIP, work in process, lead time, process rate, Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

48) ________ is a fundamental law that relates the number of customers in a waiting-line system to the waiting time of customers. Answer: Little's Law Difficulty: Easy Keywords: Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

49) Customer waiting times for a call center are extremely long. Two possible explanations for this phenomenon are low ________ or low ________. Answer: server efficiency, capacity Difficulty: Easy Keywords: Little's Law Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

50) What is Little's Law? How might it be applied to determine the average length of time it takes an MBA student to complete the program? Answer: Little's Law is articulated as W=L/λ. The average time to complete an MBA can be calculated by dividing the number of students in the program by the arrival rate, i.e., how many students are admitted to the program on average, per year or per semester. Using the graduation rate (if the two rates are substantially different) might inflate the average time. Difficulty: Moderate Keywords: priority rule, preemptive discipline, FCFS, EDD, SPT Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

51) Customers in a small retail store arrive at the single cashier at the rate of 10 per hour. The average service time for the cashier is five minutes. Arrivals tend to follow a Poisson distribution, and service times follow an exponential distribution. a. What is the average utilization of the cashier? b. What is the average number of customers in the system? c. What is the average number of customers in line? d. What is the average time spent in the system? e. What is the average time spent in line? Answer:

Difficulty: Moderate Keywords: utilization, number in system, queue line length, average time in system, average time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

52) A professor sits in his office and answers questions from his students the afternoon before the final exam. His class is a mass lecture of 350 students, so he concentrates on providing explanations as quickly as possible. On average, he can answer 60 questions an hour and students arrive at his office every five minutes. Student arrivals are Poisson distributed, each student has only one question and answer times are exponentially distributed. a. What fraction of his time does the professor spend answering questions? b. What is the average number of students waiting outside his office? c. What is the average time a student spends in line outside the professor's office? Answer: a. Average utilization = ρ =

= 0.20

= 0.05 customers

b. Queue length = Lq =

c. Waiting time in queue = Wq =

= 0.0042 hours = 0.252 minutes = 15.12 seconds

Difficulty: Moderate Keywords: utilization time, length of queue, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

53) A harvesting firm has six combines, each requiring service at an average rate of once every 40 hours, according to an exponential distribution. The firm has a mechanic who needs four hours to complete the average repair with exponential service times. a. What is the average utilization of the mechanic? b. What is the average number of combines in the system? c. What is the average number of combines in line? d. What is the average time spent being repaired and waiting? e. What is the average time spent in line waiting for repair? Answer:

Difficulty: Moderate Keywords: utilization, number in system, number in queue, time in system, time in queue Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

54) A professor's teaching assistants sit in their communal office and answer questions from students the afternoon before the final exam. The class is a mass lecture of 350 students, and the teaching assistants have final exams of their own, so they concentrate on providing explanations as quickly as possible. On average, the three teaching assistants can answer 30 questions an hour and students arrive at their office every five minutes. Student arrivals are Poisson distributed, each student has only one question and answer times are exponentially distributed. a. What fraction of their time do the teaching assistants spend answering questions? b. What is the average number of students waiting outside their office? c. What is the average time a student spends in line outside the teaching assistants' office and having their question answered? Answer:

a. Server utilization is 0.13. b. The average number of students in line is zero. c. The average time in the system is 0.0335 hour or 2.01 minutes. Difficulty: Moderate Keywords: utilization time, length of queue, time in queue, multiple-server Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

55) The delivery wagon that the hominy man had used for the last three decades was beyond repair, so he decided to open a hominy stand at a busy intersection in downtown Luther. Customers arrive at the rate of 8 per hour and it takes 5 minutes on average to fill their buckets with hominy. a. What is the likelihood that the line is longer than three people? b. What is the average waiting time in line? c. What is the average number of customers in line? Answer: a. The likelihood the line is longer than three people is the complement that the line contains three or fewer customers: P=1P=1-

P=1P = 1 - (0. ) {1 + P = 1 - (0. ) {1 + P = 1 - .802469 P = .1975

+ ( )2 + ( )3} + + }

b. The average waiting time in line is: Wq = ρW = Wq =

Wq =

hour

c. The average number of customers in line is: Lq = ρL =

Lq =

customers

Difficulty: Challenging Keywords: length of queue, time in queue, single-server Learning Outcome: Apply waiting-line theories and models AACSB: Analytical Thinking Learning Objective: Use the single-server, multiple-server, and finite-source models to analyze operations and estimate the operating characteristics of a process.

B.3 Waiting Lines and Simulation 1) Customer arrival rates vary throughout the day and the priority rules change depending on the customer mix and influence each has over the finances of the firm. Such a situation is best analyzed using simulation rather than one of the queuing formulas. Answer: TRUE Difficulty: Easy Keywords: simulation Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe the situations where simulation should be used for waiting-line analysis and the nature of the information that can be obtained.

2) SimQuick is a process simulation software tool that can provide statistics on cycle time for simple processes such as waiting lines, inventory control, and projects. Answer: TRUE Difficulty: Moderate Keywords: waiting line, simulation, SimQuick Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe the situations where simulation should be used for waiting-line analysis and the nature of the information that can be obtained.

3) If you were using SimQuick to determine how opening an additional airport security inspection station would affect passenger wait times, the arrival of passengers at the security process would be modeled in SimQuick with a(n): A) workstation. B) buffer. C) decision point. D) entrance. Answer: D Difficulty: Moderate Keywords: workstation, simulation, SimQuick Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe the situations where simulation should be used for waiting-line analysis and the nature of the information that can be obtained.

4) If you were using SimQuick to determine how opening an additional airport security inspection station would affect passenger wait times, a(n) ________ would be used to model each of the waiting lines. A) workstation B) buffer C) decision point D) entrance Answer: B Difficulty: Moderate Keywords: buffer, simulation, SimQuick Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Describe the situations where simulation should be used for waiting-line analysis and the nature of the information that can be obtained.

B.4 Decision Areas for Management 1) Priority rules set by managers in a waiting line system will have no impact on the server utilization rates. Answer: FALSE Difficulty: Moderate Keywords: waiting line, priority rule Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

2) By adjusting the capital-to-labor ratio or instituting incentive programs, management can have a direct impact on: A) the line arrangement. B) server efficiency. C) the size of the customer population. D) the number of service phases. Answer: B Difficulty: Moderate Keywords: waiting line, server efficiency Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

3) An operations manager decides that customers should be processed based on the anticipated duration of their request instead of their arrival time. The system has been changed in what fashion? A) number of phases B) server efficiency C) priority rule D) line arrangement Answer: C Difficulty: Easy Keywords: priority rule Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

4) An operations manager organizes a process improvement team and the resulting process has a lower mean (µ). Which statement is the best description of this change? A) Arrival rate has fallen. B) There are fewer phases in the new system. C) Interarrival time has fallen. D) Server efficiency has declined. Answer: D Difficulty: Moderate Keywords: server efficiency, process rate Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

5) Instead of having one worker perform all eight steps to process a customer, an operations manager assigns each step to a different worker. In doing so, the operations manager has increased the: A) number of phases. B) number of channels. C) arrival rate. D) interarrival rate. Answer: A Difficulty: Moderate Keywords: phase Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

6) If the nature of the customer population, constraints on the line, the priority rule, and the service time distribution renders waiting line theory no longer useful, then an operations manager should rely on: A) decision tree analysis. B) linear programming. C) simulation. D) Little's Law. Answer: C Difficulty: Moderate Keywords: simulation Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

7) A customer support call center grades their employees on how quickly they resolve customer problems (average call time) and how many times the customer request escalates to the point that a supervisor must be summoned to resolve the dispute. What might an employee do to perform well on these metrics without actually providing good customer service? What could management do to prevent such behaviors? Answer: Answers will vary, but two common tactics are to transfer the call back to the queue so that another employee must handle the request or to hang up on the caller. Both actions serve to reduce the average call duration and prevent the supervisor from being summoned by the employee. Management can collect data on the number of dropped calls, transferred calls, and randomly monitor the representatives to determine the percentage of calls handled in this fashion. Difficulty: Moderate Keywords: decision areas, queue management Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

8) Create a table that lists any three performance measures for a service system in the left column. In the center column, indicate what steps management can take to improve system performance on those metrics. In the rightmost column indicate what steps management can take to improve customers' perceptions of performance on those metrics. Answer: Answers will vary. The text indicates that management might be concerned about the length of the queue, the total number of customers in the system, the waiting time in line, the total time in the system, and the service facility utilization. Ways to improve a service facility include affecting the arrival rates, increasing the number of service facilities, changing the number of phases, increasing the number of servers, changing priority rule, and changing the line arrangement. Management can improve customer perceptions a number of ways. For example, customers will be less aware of waiting time if they are entertained while waiting. Customers will be less aware of the length of the line if the line is serpentine rather than straight. Difficulty: Moderate Keywords: service system improvement, arrival rate, service rate, number of customers, number in system, number of servers Learning Outcome: Apply waiting-line theories and models AACSB: Application of Knowledge Learning Objective: Explain how waiting-line models can be used to make managerial decisions.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement C Special Inventory Models C.1 Noninstantaneous Replenishment 1) The economic production lot size represents the optimal lot size in a situation in which replenishment is not instantaneous. Answer: TRUE Difficulty: Moderate Keywords: noninstantaneous replenishment, ELS Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

2) Inventory build-up occurs when the production rate is lower than the demand rate. Answer: FALSE Difficulty: Easy Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

3) Consider a noninstantaneous replenishment situation in which the production rate is 100 units per day, the demand rate is four units per day, and the economic production lot size is 500 units. Which of the following statements is true? A) The average cycle inventory is fewer than 225 units. B) The average cycle inventory is greater than 300 units. C) The rate of buildup in cycle inventory during the production cycle is fewer than 100 units per day. D) The rate of buildup in cycle inventory during the production cycle is greater than or equal to 400 units per day. Answer: C Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

Scenario C.1 The Universal Computer Company manufacturers the memory chips sued in their tablet computers. The estimated annual demand for the memory chips (which is steady throughout the year) is 75,000 units and can be produced at a production rate of 1,000 units per day. The company operates the production line for manufacturing the memory chips 250 days in a year. Setup cost to produce the memory chips is $800 and the item has a holding cost of $10 per unit per year. 4) Use the information in Scenario C.1. What is the economic production lot size (ELS)? A) fewer than or equal to 4,000 units B) greater than 4,000 units but fewer than or equal to 5,000 units C) greater than 5,000 units but fewer than or equal to 6,000 units D) greater than 6,000 units Answer: B Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

5) Use the information in Scenario C.1. How many production runs per year are needed if the manufacturer chooses to produce at the economic production lot size (ELS)? A) fewer than or equal to 15 runs B) greater than 15 runs but fewer than or equal to 17 runs C) greater than 17 runs but fewer than or equal to 19 runs D) greater than 19 runs Answer: C Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

6) Use the information in Scenario C.1. If manufacturer chooses to produce batches dictated by the economic production lot size (ELS) model, how many days elapse between the start of consecutive production runs (what is the time between runs or TBO)? A) fewer than or equal to 15 days B) greater than 15 days but fewer than or equal to 18 days C) greater than 18 days but fewer than or equal to 21 days D) greater than 21 days Answer: A Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

7) Use the information in Scenario C.1. What is the production time during each cycle if the manufacturer chooses to produce at the economic production lot size (ELS)? A) fewer than or equal to 2 days B) greater than 2 days but fewer than or equal to 5 days C) greater than 5 days but fewer than or equal to 8 days D) greater than 8 days Answer: B Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

8) Use the information in Scenario C.1. If the manufacturer chooses to produce the batch size suggested by the economic production lot size (ELS) model, what is the total annual cost? A) less than or equal to $25,000 B) greater than $25,000 but less than or equal to $30,000 C) greater than $30,000 but less than or equal to $35,000 D) greater than $35,000 Answer: B Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

9) Consider a manufacturer that uses the economic production lot size (ELS) model. What must be the relationship be between production rate and demand rate for the producer to spend double the time in the production and demand portion of the inventory cycle than they spend in only the demand portion of the inventory cycle? A) p = 1.5d B) p = d C) 2p = d D) p = 2d Answer: A Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

10) Consider a manufacturer that uses the economic production lot size (ELS) model. What must be the relationship be between production rate and demand rate for the producer to spend exactly the same time in the production and demand portion of the inventory cycle as they spend in only the demand portion of the inventory cycle? A) p = d B) p = 0.5d C) p = 2d D) p = 1.5d Answer: C Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

11) The time between orders is given by the formula ELS/D. What is the significance of its inverse, D/ELS? A) the number of orders per year B) the time between consuming an order C) the ratio of demand only to production and demand cycles D) the ratio of the maximum inventory to the production quantity Answer: A Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

12) Consider a manufacturer that uses the economic production lot size (ELS) model. What must the relationship be between production rate and demand rate for the producer to realize a maximum inventory that is exactly two-thirds of their lot size? A) p = 2d B) p = 0.5d C) p = 0.33d D) p = 3d Answer: D Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

13) Warren's Ice Cream makes 4 different flavors of ice cream using their secret process and top-secret recipes. Each of their flavors is equally popular and experiences a demand of 5,000 gallons/year. Warren's process is capable of producing 100 gallons/day once they incur the $25 setup cost. The ice cream holding cost is 10% of the $5 per gallon price. Warren's plant runs 250 days a year and stays busy doing so, but management feels they can add another flavor to their product line and increase their revenue. Which of the following statements is appropriate for this scenario? A) Warren's can comfortably add a fifth flavor without increasing the number of days they operate. B) Warren's cannot add the fifth flavor because the holding cost would increase. C) Warren's can add the fifth flavor only if there is zero setup time between flavors. D) Warren's cannot add the fifth flavor because demand would exceed capacity. Answer: C Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

14) In a noninstantaneous replenishment model, as the daily demand approaches the daily production rate, the: A) number of production runs per year decreases. B) length in days of a production run increases. C) economic lot size increases. D) time between production runs decreases. Answer: D Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

15) The ________ is the optimal lot size in situations in which replenishment is not instantaneous. Answer: economic production lot size, ELS Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

16) A manufacturer produces aluminum cans internally rather than purchasing them and uses the economic production lot size equation to govern this process. The length of time that the aluminum can batch runs is given by the equation ________ and the time between the start of one batch of cans to the next is found by the equation ________. Answer: ELS/p, ELS/d Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

17) The pile of inventory accumulated in an economic production lot size situation is ________ than the lot size dictated by the ELS calculation. Answer: smaller Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

18) In an economic production lot size situation, the production rate is always ________ than the demand rate. Answer: greater Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

19) In an economic production lot size situation, the producer is producing half the time if the ratio of production rate to demand rate is ________. Answer: 2:1 Difficulty: Challenging Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

20) Briefly explain why the economic production lot size (ELS) is actually larger than the EOQ when there are noninstantaneous replenishments. Answer: The cycle inventory is less than Q/2, which reduces the annual holding cost of ordering Q units. Thus, a larger order quantity is justified. Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

21) Sketch the economic production lot size (ELS) graph of inventory level as a function of time and label all elements of the graph. Answer:

Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

22) A production manager is making a decision on batch size for a product with an annual demand of 25,000 units per year. The setup cost for each batch is $45 and once the setup is complete, the product may be produced at the rate of 650 units per day. There is a holding cost of $2 per unit per year and the plant operates on a 250-day production year. How big should the production batch be and how long (in days) will it take to produce the batch? Answer: ELS =

Production time =

= 1,153 units

= 1.77 days

23) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for each batch is $6,500 and once the setup is complete, the product may be produced at the rate of 1800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a 350-day production year. How big should the production batch be and how long (in days) will it take to produce the batch? Answer: ELS = Production time =

= =

= 6,860.68 pounds = 3.81 days

24) Walter White must satisfy an annual demand of 50,000 pounds per year. The setup cost for each batch is $6,500 and once the setup is complete, the product may be produced at the rate of 1,800 pounds per day. There is a holding cost of $15 per unit per year and the plant operates on a 350-day production year. Determine the relevant parameters and sketch the inventory cycle through two complete cycles, labeling all lines and vertices. Answer: ELS =

Imax = Imax =

= 6,860.68 pounds

(p - d) (1,800 - 142)

Imax = 6,316 pounds Production time =

= 3.81 days

25) A production manager uses the economic lot size approach to determine the batch size for a product with an annual demand of 20,000 units per year. The setup cost for each batch is $50 and once the setup is complete, the product may be produced at the rate of 800 units per day. There is a holding cost of $2 per unit per year and the plant operates on a 250-day production year. If the machine used to produce this product is needed for another item and it takes one day to set up regardless of product, how many production days are available for production of the new item? Answer: ELS =

Production time =

Time Between Orders =

= 1,054 units

= 1.3175 days =

= 13.175 days

Available time = 13.175 days - 1,3175 days - 2 × (1 day) = 9.8575 days per cycle = 18.97 cycles/year ≈ 19 cycles/year

19 cycles/year × 9.8575 days/cycle = 187.29 days/year Difficulty: Moderate Keywords: noninstantaneous replenishment Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the optimal lot size when replenishment is not instantaneous.

C.2 Quantity Discounts 1) When facing quantity discounts, the EOQ found with the lowest price level is always the lowest total cost plan. Answer: FALSE Difficulty: Easy Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

2) A pencil supplier just introduced quantity discounts. The price schedule follows. Order Quantity 000 - 199 200 - 399 400 and more

Price per Unit $4.00 $3.75 $3.50

XYZ store's annual demand remains at 350 units and ordering cost at $2 per order. If annual holding cost is 30 percent of the pencils' per-unit price, what order quantity should XYZ select to minimize all costs? A) fewer than or equal to 150 units B) greater than 150 units but fewer than or equal to 199 units C) greater than 199 units but fewer than or equal to 399 units D) greater than 399 units Answer: C Difficulty: Challenging Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

3) Which one of the following statements about quantity discounts is best? A) The minimum cost point on each price curve is always feasible. B) A price break is the maximum quantity needed to get a discount. C) If the EOQ for the lowest price is feasible, this is the best lot size. D) Either price or quantity is sufficient for the search for the best lot size. Answer: C Difficulty: Moderate Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

4) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 350 units. Ordering cost is $20 each time an order is placed, and the holding cost is 30 percent of the per-unit price. Your supplier provided the following price schedule. Price per Unit $4.00 $3.75 $3.50

Order Quantity 000 - 199 200 - 399 400 and more

What is the annual cost discrepancy between the optimal order policy and the second best order policy? A) less than $5 B) between $5 and $10 C) between $10 and $20 D) more than $20 Answer: B Difficulty: Moderate Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

5) When faced with a quantity discount situation, if the first feasible EOQ found is for the ________, this quantity is the best lot size. Answer: lowest price level Difficulty: Moderate Keywords: EOQ, quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

6) Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in the total cost curve in the quantity discount model? Answer: The total cost curve has breaks due to the price breaks. Reading the total cost curve from left to right, when purchase quantities reach a price break, an increase in one unit will trigger a per-unit decrease in price for all units in the order, which accounts for the reduction in total cost. Difficulty: Moderate Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

7) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 1,000 units. Ordering costs are $50 each time an order is placed, and the holding cost is 25 percent of the per-unit price. Your supplier provided the following price schedule. Quantity 1 - 199 200 - 499 500 or more

Price per Unit $10.00 $ 9.80 $ 9.60

What ordering-quantity policy do you recommend? Answer: Start at lowest cost EOQ9.60 =

= 204, not feasible

Solve for next lowest cost EOQ9.80 =

= 202, feasible

Compare costs at the feasible 139 and at the lower cost for discount at 351 C202 =

H+

S + PD =

(.25)9.80 +

(50) + 9.80(1,000) = $10,295

C500 =

H+

S + PD =

(.25)9.60 +

(50) + 9.60(1,000) = $10,300

Therefore, the best order size is 202, with a cost of $10,295. Difficulty: Challenging Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

8) As an inventory manager, you must decide on the order quantity for an item. Its annual demand is 679 units. Ordering costs are $7 each time an order is placed, and the holding cost is 10% of the unit cost. Your supplier provided the following price schedule. Quantity 1 - 100 101 - 350 351 or more

Price per Unit $5.65 $4.95 $4.55

What ordering-quantity policy do you recommend? Answer: Start at lowest cost EOQ4.55 =

= 144.54, not feasible

Solve for next lowest cost EOQ9.80 =

= 139, feasible

Compare costs at the feasible 139 and at the lower cost for discount at 351 C139 =

H+

S + PD =

(.10)4.95 +

(7) + 4.95(679) = $3,429.47

C351 =

H+

S + PD =

(.10)4.55 +

(7) + 4.55(679) = $3,182.84

Therefore, the best order size is 351, with a cost of $3,182.84. Difficulty: Challenging Keywords: quantity discount Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Determine the optimal order quantity when materials are subject to quantity discounts.

C.3 One-Period Decisions 1) If demand exceeds the order quantity in a single period situation, then the payoff is simply the order quantity times the per unit profit. Answer: TRUE Difficulty: Easy Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

2) In a one-period inventory model, the after-season sales price may be zero. Answer: TRUE Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

3) In a one-period inventory model, the higher the after-season sales price, the higher the order placed at the start of the season. Answer: TRUE Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

4) In a one-period inventory model, the more profitable the item during the sales season, the manager should place a higher order at the start of the season. Answer: TRUE Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

5) The closer the in-season and after season sales price are, the lower the order placed at the start of the season. Answer: FALSE Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

6) Use of the single-period model will maximize profit in every season. Answer: FALSE Difficulty: Easy Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

Scenario C.2 A retailer of custom made holiday greeting cards has a discrete probability distribution of demand as in the table below. The retailer makes a profit of $5 per card sold during the holiday season, but they will incur a $2 loss per unit if sold after the season is over. Demand (D) 2000 3000 4000 5000 6000

Demand Probability 0.1 0.25 0.25 0.3 0.1

7) Use the information in Scenario C.2. What is the payoff with an order quantity (Q) of 5000 units, if the demand (D) is 4000 units? A) less than or equal to $10,000 B) greater than $10,000 but less than or equal to $15,000 C) greater than $15,000 but less than or equal to $20,000 D) greater than $20,000 Answer: C Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

8) Use the information in Scenario C.2. What is the best order quantity? A) 3000 units B) 4000 units C) 5000 units D) 6000 units Answer: C Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

Scenario C.3 Consider an item with the following discrete demand distribution for a one-period inventory decision. Demand (D) 20 25 30 35 40

Demand Probability 0.1 0.15 0.30 0.25 0.20

This item experiences a seasonal demand pattern. A profit of $20 per unit is made if the item is sold in season, but a loss of $10 per unit is incurred if the item is sold after the season is over. 9) Use the information in Scenario C.3. What is the payoff when 30 units are ordered but a demand of 40 materializes? A) $450 B) $500 C) $600 D) $750 Answer: C Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

10) Use the information in Scenario C.3. What is the payoff when 35 units are ordered but a demand of 25 materializes? A) $200 B) $400 C) $500 D) $550 Answer: B Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

11) Use the information in Scenario C.3. What is the order quantity with the highest expected payoff? A) 25 units B) 30 units C) 35 units D) 40 units Answer: C Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

12) A world traveler prepares to leave the comforts of home for a back to nature visit to Gilligan's Island, where all transactions are conducted in coconuts and the banking system is completely undeveloped. The traveler can buy coconuts for $2 each before the journey. If he fails to bring enough coconuts with him and runs out, he must get some coconuts flown in at a cost of $5 each. If he finishes his vacation and has leftover coconuts he can cash them in when he returns home, but will receive only $1.50 per coconut. What is his loss per unit if he overstocks on coconuts prior to leaving home? A) $0.50 B) $1 C) $3.50 D) $4.50 Answer: A Difficulty: Easy Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

13) Which of these statements about the one-period model is best? A) Purchasing a quantity with the highest expected payoff will result in a positive payoff regardless of the actual demand during the period. B) The loss per unit cannot exceed the profit per unit. C) If demand exceeds the purchased quantity then the actual payoff exceeds the expected payoff for that quantity. D) The expected payoff for a purchase quantity is always less than the actual payoff for that quantity. Answer: C Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

14) The need for one-time inventory decisions also can arise in manufacturing plants when ________ items are made to a single order and ________ are high. Answer: customized, scrap quantities Difficulty: Challenging Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

15) In a single period model, if purchase quantity Q exceeds demand rate D, then the number of units sold after the season is ________. Answer: Q-D Difficulty: Easy Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

16) In a single period model, if the in-season demand is unexpectedly high, then the profit can be calculated as ________. Answer: pQ Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

17) When do one-period decisions on inventory arise in practice? Answer: The one-period inventory models are appropriate when retailers handle seasonal goods that must be sold at a reduced price after the selling season. For manufacturing situations, it can arise when customized products are made and scrap rates are high. Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

18) Pick any three products that occupy both extremes and the midpoint of the one-period model continuum. Explain why the products occupy these positions and identify the ideal inventory model for determining the best order quantity or each. Answer: Examples will vary, but the pure single-period product should use a single-period model. The example demand not bound by any season may be ordered using EOQ, POQ or some other model. Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

19) Explain why in any given season, the one-period decision model may result in a poor choice for a stocking level? Answer: The one-period inventory models are appropriate when decision makers handle seasonal goods that must be sold at a reduced price after the selling season. The model is based on expected values, i.e., the probability of experiencing demand at a certain level, perhaps based on historical data. If the data are highly variable, then there is a chance that demand may be unusually high or low, particularly in a "fashion" setting. A design that catches the public's fancy may experience high demand that exceeds the stocking level and the retailer will stock out and fail to realize all the sales that might have been possible. Conversely, a dog of a design may leave the retailer with excess inventory on the shelves. If this stocking game is played season after season, profit will be maximized, but any one season may have a different outcome. Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Application of Knowledge Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

20) A newsstand is trying to determine how many bundles of newspapers to stock. For each bundle, the newsstand makes $20. However, they lose $5 per bundle if they do not sell. The following discrete probability distribution has been estimated for their daily demand. How many bundles should they stock? Demand (bundles) 4 5 6 7 8

Probability .10 .20 .30 .30 .10

Answer:

Difficulty: Moderate Keywords: single period model Learning Outcome: Compare the advantages and disadvantages of common inventory systems AACSB: Analytical Thinking Learning Objective: Calculate the order quantity that maximizes the expected profits for a one-period inventory decision.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement D Linear Programming D.1 Characteristics of Linear Programming Models 1) Linear programming is useful for allocating scarce resources among competing demands. Answer: TRUE Difficulty: Easy Keywords: linear programming, scarce resources, competing demands Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

2) An = (equal to) constraint is often used for certain optional non-binding relationships. Answer: FALSE Difficulty: Easy Keywords: constraint, limit Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

3) Decision variables are always represented only in the objective function and are not part of the constraints in a linear program formulation. Answer: FALSE Difficulty: Moderate Keywords: constraint, decision variable, objective function Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

4) A parameter is a region that represents all permissible combinations of the decision variables in a linear programming model. Answer: FALSE Difficulty: Moderate Keywords: parameter, decision variable, feasible region Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

5) In linear program formulation, the value of certain parameter are assumed to be unknown or random. Answer: FALSE Difficulty: Moderate Keywords: parameter, assumption, certainty Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

6) The objective function Maximize Z = 3x2 + 4y is appropriate for linear programming. Answer: FALSE Difficulty: Moderate Keywords: linearity, assumption, proportionality Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

7) One assumption of linear programming is that a decision maker cannot use negative quantities of the parameters. Answer: FALSE Difficulty: Moderate Keywords: nonnegativity, decision variable Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

8) A manager is interested in using linear programming to analyze production for the ensuing week. She knows that it will take exactly 1.5 hours to run a batch of product A and that this batch will consume two tons of sugar. This is an example of the linear programming assumption of: A) linearity. B) certainty. C) continuous variables. D) whole numbers. Answer: B Difficulty: Moderate Keywords: assumption, certainty Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Define the seven characteristics of all linear programming models.

9) Which of the following statements regarding linear programming is best? A) A parameter is also known as a decision variable. B) Linearity assumes proportionality and additivity. C) Since nonnegativity is required, parameters must be greater than or equal to zero. D) Linear programming ensures the decision maker will reach a single, optimal solution. Answer: B Difficulty: Challenging Keywords: parameter, decision variable Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

10) ________ is useful for allocating scarce resources among competing demands. Answer: Linear programming Difficulty: Easy Keywords: linear programming Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

11) The ________ is an expression in linear programming models that states mathematically what is being maximized or minimized. Answer: objective function Difficulty: Moderate Keywords: objective function Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

12) In a linear program, ________ represent choices the decision maker can control. Answer: decision variables Difficulty: Moderate Keywords: decision variables Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

13) In a linear program, ________ are the limitations that restrict the permissible choices for the decision variables. Answer: constraints Difficulty: Easy Keywords: constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

14) The ________ represents all permissible combinations of the decision variables in a linear programming model. Answer: feasible region Difficulty: Moderate Keywords: feasible region Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

15) A(n) ________ is a value that the decision maker cannot control and that does not change when the solution is implemented. Answer: parameter Difficulty: Moderate Keywords: parameter value Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

16) Parameters that are quantified without doubt meet the linear programming assumption of ________. Answer: certainty Difficulty: Easy Keywords: parameter, certainty assumption Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

17) Linearity is a characteristic of liner programming models that implies ________ and ________ . Answer: proportionality, additivity Difficulty: Moderate Keywords: linearity Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

18) The assumption of ________ allows a decision maker to combine the profit from one product with the profit from another to realize the total profit from a feasible solution. Answer: additivity Difficulty: Easy Keywords: additivity assumption Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

19) What are the assumptions of linear programming? Provide examples of each. Answer: The assumptions are certainty, linearity, and nonnegativity. The assumption of certainty is that a fact is known without doubt, such as an objective function coefficient, or the parameters in the rightand left-hand sides of the constraints. The assumption of linearity implies proportionality and additivity, that is, that there are no cross products or squared or higher powers of the decision variables. The assumption of nonnegativity is that decision variables must either be positive or zero. Examples will vary. Difficulty: Moderate Keywords: assumption, linearity, certainty, nonnegativity Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

20) A manufacturer builds finished items A, B, and C from five different components. They currently have several finished units, a number of items that are partially complete, and many components that have just been delivered from their suppliers. The finished items, incomplete items and raw components can all be assigned some monetary value even though the manufacturer typically does not sell anything except finished items. The manufacturer needs to raise capital quickly so they formulate a linear program to help them decide on the most profitable way ahead. Their linear programming expert forgets to restrict their decision variables to non-negative values and is surprised when the computer output tells them that finished item A and C should be negative. If the company always follows the advice of their linear programming analysis, what should they do and why? Answer: The assumption of nonnegativity is that decision variables must either be positive or zero. In this case, it would appear that either A) the components are more valuable to the company than the finished items (perhaps there is a pricing error and the company is not charging enough for their products) or B) disassembling items A and C might yield parts that could be used to produce item B, which is a more profitable product. Depending on the values of the other decision variable, the company should begin disassembly of finished items A and C. They might also ask their linear programming analyst to update his resume. Difficulty: Moderate Keywords: assumption, nonnegativity Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Define the seven characteristics of all linear programming models.

D.2 Formulating a Linear Programming Model 1) In a linear programming model, the objective function answers the question What is to be maximized? Answer: TRUE Difficulty: Easy Keywords: linear programming, scarce resources, competing demands Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Formulate a linear programming model.

Scenario D.1 A local company manufactures two types of office desks called type A and B. Each desk requires wood and nails as the main raw materials. The company has 30,000 pounds of wood and 2,500 pounds of nails available. Each Type A desk requires 50 pounds of wood and 3 pounds of nails. The profit generated from each Type A desk is $100. Each Type B desk requires 60 pounds of wood and 4 pounds of nails, and each Type B desk generates a profit of $150. Also current licensing contract limits the manufacturer to make a maximum of 350 units of Type B desks. 2) Referring to Scenario D.1, what is an appropriate objective function for this scenario? A) Max Z = 100*DeskA + 150*DeskB B) Min Z = 150*DeskA + 100*DeskB C) Min Z = 100*DeskA + 150*DeskB D) Max Z = 150*DeskA + 100*DeskB Answer: A Difficulty: Moderate Keywords: objective function Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

3) Referring to Scenario D.1, what is an appropriate constraint for the use of wood? A) 4*DeskA + 3*DeskB ≤ 30,000 B) 50*DeskA + 60*DeskB ≤ 30,000 C) 50*DeskA + 3*DeskB ≤ 30,000 D) 60*DeskA + 50*DeskB ≤ 30,000 Answer: B Difficulty: Moderate Keywords: constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

4) Referring to Scenario D.1, what is an appropriate constraint for the use of nails? A) 3*DeskA + 4*DeskB = 2,500 B) 4*DeskA + 3*DeskB ≤ 2,500 C) 50*DeskA + 3*DeskB ≤ 2,500 D) 3*DeskA + 4*DeskB ≤ 2,500 Answer: D Difficulty: Moderate Keywords: constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

5) Referring to Scenario D.1, which of the following statements is correct? A) Desk A uses more resources and generates a higher profit. B) Desk B uses less resources and generates a higher profit. C) Desk A uses less resources but generates a lower profit. D) Desk B uses more resources but generates a lower profit. Answer: C Difficulty: Moderate Keywords: constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

6) Referring to Scenario D.1, assume that each pound of wood costs $10 and each pound of nails cost $4. Which of the following statements is correct? A) The material cost to make one Type A desk is $512. B) The material costs to make one Type A and one Type B desk are $1224 C) The material cost to make one Type B desk is $572. D) The material costs to make two Type B desks are $1024. Answer: A Difficulty: Moderate Keywords: linear programming Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

7) The ________ problem is a one-period type of aggregate planning problem, the solution of which yields optimal output quantities of a group of products or services, subject to resource capacity and market demand conditions. Answer: product-mix Difficulty: Moderate Keywords: product-mix, product mix Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Formulate a linear programming model.

8) A producer has three products, A, B, and C, which are composed from many of the same raw materials and subassemblies by the same skilled workforce. Each unit of product A uses 15 units of raw material X, a single purge system subassembly, a case, a power cord, three labor hours in the assembly department, and one labor hour in the finishing department. Each unit of product B uses 10 units of raw material X, five units of raw material Y, two purge system subassemblies, a case, a power cord, five labor hours in the assembly department, and 90 minutes in the finishing department. Each unit of product C uses five units of raw material X, 25 units of raw material Y, two purge system subassemblies, a case, a power cord, seven labor hours in the assembly department, and three labor hours in the finishing department. Labor between the assembly and finishing departments is not transferable, but workers within each department work on any of the three products. There are three full-time (40 hours/week) workers in the assembly department and one full-time and one half-time (20 hours/week) worker in the finishing department. At the start of this week, the company has 300 units of raw material X, 400 units of raw material Y, 60 purge system subassemblies, 40 cases, and 50 power cords in inventory. No additional deliveries of raw materials are expected this week. There is a $90 profit on product A, a $120 profit on product B, and a $150 profit on product C. The operations manager doesn't have any firm orders, but would like to make at least five of each product so he can have the products on the shelf in case a customer wanders in off the street. Formulate the objective function and all constraints, and clearly identify each constraint by the name of the resource or condition it represents. Answer: Objective Function: Max P = $90A + $120B + $150C Raw Material X: 15A + 10B + 5C ≤ 300 Raw Material Y: 0A + 5B + 25C ≤ 400 Purge System Subassembly: 1A + 2B + 2C ≤ 60 Case: 1A + 1B + 1C ≤ 40 Cord: 1A + 1B + 1C ≤ 50 Assembly Department Labor: 3A + 5B + 7C ≤ 120 Finish Department Labor: 1A + 1.5B + 3C ≤ 60 Minimum Production for A: 1A + 0B + 0C ≥ 5 Minimum Production for B: 0A + 1B + 0C ≥ 5 Minimum Production for C: 0A + 0B + 1C ≥ 5 Non-negativity constraints: A, B, C ≥ 0 Difficulty: Moderate Keywords: linear programming, objective function, constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

9) NYNEX must schedule round-the-clock coverage for its telephone operators. To keep the number of different shifts down to a manageable level, it has only four different shifts. Operators work eight-hour shifts and can begin work at either midnight, 8 a.m., noon, or 4 p.m. Operators are needed according to the following demand pattern, given in four-hour time blocks.

Time Period midnight to 4 a.m. 4 a.m. to 8 a.m. 8 a.m. to noon Noon to 4 p.m. 4 p.m. to 8 p.m. 8 p.m. to midnight

Operators Needed 4 6 90 85 55 20

Formulate this scheduling decision as a linear programming problem, defining fully your decision variables and then giving the objective function and constraints. Answer: Let X1 = the number of telephone operators starting their shift at midnight. X2 = the number of telephone operators starting their shift at 8 a.m. X3 = the number of telephone operators starting their shift at noon. X4 = the number of telephone operators starting their shift at 4 p.m. Min:

X1 + X2 + X3 + X4

subject to

≥

Midnight to 4 a.m.

≥

4 a.m. to 8 a.m.

≥

8 a.m. to noon

X2 + X3

≥

noon to 4 p.m.

X3 + X4

≥

4 p.m. to 8 p.m.

≥

8 p.m. to midnight

X1, X2, X3, X4

≥

Difficulty: Moderate Keywords: objective function, constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

10) A portfolio manager is trying to balance investments between bonds, stocks and cash. The return on stocks is 12 percent, 9 percent on bonds, and 3 percent on cash. The total portfolio is $1 billion, and he or she must keep 10 percent in cash in accordance with company policy. The fund's prospectus promises that stocks cannot exceed 75 percent of the portfolio, and the ratio of stocks to bonds must equal two. Formulate this investment decision as a linear programming problem, defining fully your decision variables and then giving the objective function and constraints. Answer: Let X1 = the amount invested in bonds X2 = the amount invested in stocks X3 = the amount invested in cash Max:

z = .09X1 + .12X2 + .03X3

s.t.

X1 + X2 + X3

= 1,000,000,000

Portfolio value

≤

100,000,000

10% minimum stock

X2 2X1 - X2 X1, X2, X3

≤

750,000,000

75% maximum cash

2:1 ratio stocks to bonds

11) Lisa lives out in the country with her seven cats and avoids driving into the big city as much as possible. She has decided to make her own cat food and has the following nutritional guidelines. Each four ounce portion must contain 22 units of protein, 15 units of vitamin A, and 8 units of vitamin B. She has eggs, tomatoes, and chicken meat as possible inputs to her cat food. Each ounce of eggs contains 6 units of protein, 4 units of Vitamin A, and 3 units of Vitamin B. Each ounce of tomatoes contains 1 unit of protein, 8 units of Vitamin A, and 14 units of Vitamin B. Each ounce of chicken contains 22 units of protein, 14 units of Vitamin A, and 8 units of Vitamin B. Chicken costs 40 cents per ounce, tomatoes cost 5 cents per ounce, and eggs cost 12 cents per ounce. To make the production process as easy as possible, she would like to make exactly four ounces of cat food from her recipe. Formulate this decision as a linear programming problem, defining fully your decision variables and then giving the objective function and constraints. Answer: Let X1 = ounces of eggs X2 = ounces of tomatoes X3 = ounces of chicken Min Z = .12X1 + .05X2 +.40X3 s.t.

6X1 + 1X2 + 22X3 = 22 Protein constraint 4X1 + 8X2 + 14X3 = 15 Vitamin A constraint 3X1 + 14X2 + 8X3 = 8 Vitamin B constraint 1X1 + 1X2 + 1X3 = 4 weight constraint X1, X2, X3 > 0

12) Belsky Manufacturing makes three models of fans, identified by the unimaginative names of A, B, and C. The fans are made out of nuts, bolts, wire, blades, and motors. The current inventory levels and parts list for each type of fan is shown in the table. Fan A Component # Needed Wire 1 Nuts 8 Bolts 8 Motor 1 Blades 5

Fan B # Needed 2 12 12 1 6

Fan C # Needed 3 14 14 2 7

Current Inventory 500 700 700 200 400

Fan A sells for $18, Fan B sells for $25, and Fan C sells for $30. Formulate this decision as a linear programming problem, defining fully your decision variables and then giving the objective function and constraints. Answer: Let A = units of Fan A B = units of Fan B C = units of Fan C Max Z = 18A + 25B + 30C s.t. 1A + 2B + 3C = 500 Wire constraint 8A + 12B + 14C = 700 Nuts constraint 8A + 12B + 14C = 700 Bolt constraint 1A + 1B + 2C = 200 Motor constraint 5A + 6B + 7C = 400 Blades constraint A, B, C > 0 Difficulty: Moderate Keywords: objective function, constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Formulate a linear programming model.

13) Belsky Manufacturing makes three models of fans, identified by the unimaginative names of A, B, and C. The fans are made out of nuts, bolts, wire, blades, and motors. The current inventory levels and parts list for each type of fan is shown in the table. Fan A Component # Needed Wire 1 Nuts 8 Bolts 8 Motor 1 Blades 5

Fan B # Needed 2 12 12 1 6

Fan C # Needed 3 14 14 2 7

Current Inventory 500 700 700 200 400

Fan A sells for $18, Fan B sells for $25, and Fan C sells for $30. Milo Belsky decided to arrive at an optimal production quantity using linear programming. His initial solution was to produce 50 Fan As and 21.4 Fan Cs for a profit of $1,542.86. Determine what his inventory would be. Charlie Belsky made an important change to the model and ran the linear programming software again, His solution was to produce 50 Fan As, -150 Fan Bs, and 150 Fan Cs for a profit of $1,650 units. What change did he make to the model and what would the ending inventory be if they were to produce according to this plan? What are the practical implications of this solution? Answer: The ending inventory after the production of 50 Fan As and 21.4 Fan C is: Part Wire Nuts Bolts Motor Blades

Remaining 385.7 0 0 107.1 0

The change was to relax the nonnegativity assumption, hence the negative value for the Fan B decision variable. The practical implications are that they must disassemble 150 units of Fan B in order to create enough parts to produce the more profitable Fan Cs. These Fan Bs must be in finished goods inventory or they wouldn't be available for disassembly. Since labor is not a factor, the amount needed to disassemble Bs does not weigh on the cost to produce additional Cs. Part Wire Nuts Bolts Motor Blades

Remaining 300 0 0 0 0

D.3 Graphic Analysis 1) All points in the feasible region should be considered for the optimal solution to a linear programming problem. Answer: FALSE Difficulty: Moderate Keywords: corner point, feasible region, optimal solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

2) The graphical method of linear programming is not a practical technique for solving problems that have more than two decision variables. Answer: TRUE Difficulty: Moderate Keywords: graphical method, decision variables Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

3) Only constraints having an = (equal to) sign should be plotted in the graphical method of linear programming. Answer: FALSE Difficulty: Moderate Keywords: constraint, graphical method Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

4) A binding constraint does not have any slack or surplus. Answer: TRUE Difficulty: Easy Keywords: binding constraint, slack, surplus Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

5) The terms slack and surplus both refer to having too much of a resource. Answer: FALSE Difficulty: Moderate Keywords: slack, surplus Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

6) To identify feasible solutions in the graphical method of linear programming, one should only consider the points on the line representing the constraints. Answer: FALSE Difficulty: Moderate Keywords: simplex method, feasible solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

7) Which of the following statements regarding linear programming is not true? A) A linear programming problem can have more than one optimal solution. B) Most real-world linear programming problems are solved on a computer. C) If a binding constraint were relaxed, the optimal solution wouldn't change. D) A surplus variable is added to a ≥ constraint to convert it to an equality. Answer: C Difficulty: Moderate Keywords: binding constraint, optimal solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

8) For the line that has the equation 3X1 + 5X2 = 30, an axis intercept is: A) (6, 10). B) (10, 0). C) (0, 8). D) (10, 6). Answer: B Difficulty: Moderate Keywords: axis intercept Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

9) Consider a corner point to a linear programming problem, which lies at the intersection of the following two constraints: 6X1 + 15X2 ≤ 390 2X1 + X2 ≤ 50 Which of the following statements about the corner point is true? A) X1 ≤ 21 B) X1 ≥ 25 C) X1 ≤ 10 D) X1 ≥ 17 Answer: A Difficulty: Moderate Keywords: corner point Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

10) A manager is interested in deciding production quantities for products A, B, and C. He has an inventory of 20 tons each of raw materials 1, 2, 3, and 4 that are used in the production of products A, B, and C. He can further assume that he can sell all of what he makes. Which of the following statements is correct? A) The manager has four decision variables. B) The manager has three constraints. C) The manager has three decision variables. D) The manager can solve this problem graphically. Answer: C Difficulty: Moderate Keywords: decision variables Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

11) You are faced with a linear programming objective function of: Max P = $20X + $30Y and constraints of: 3X + 4Y = 24 (Constraint A) 5X - Y = 18 (Constraint B) You discover that the shadow price for Constraint A is 7.5 and the shadow price for Constraint B is 0. Which of these statements is true? A) You can change quantities of X and Y at no cost for Constraint B. B) For every additional unit of the objective function you create, you lose 0 units of B. C) For every additional unit of the objective function you create, the price of A rises by $7.50. D) The most you would want to pay for an additional unit of A would be $7.50. Answer: D Difficulty: Challenging Keywords: shadow price Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

12) While glancing over the sensitivity report, you note that the stitching labor has a shadow price of $10 and a lower limit of 24 hours with an upper limit of 36 hours. If your original right hand value for stitching labor was 30 hours, you know that: A) the next worker that offers to work an extra 8 hours should receive at least $80. B) you can send someone home 6 hours early and still pay them the $60 they would have earned while on the clock. C) you would be willing pay up to $60 for someone to work another 6 hours. D) you would lose $80 if one of your workers missed an entire 8 hour shift. Answer: C Difficulty: Moderate Keywords: shadow price Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

13) In linear programming, a(n) ________ is a point that lies at the intersection of two (or possibly more) constraint lines on the boundary of the feasible region. Answer: corner point Difficulty: Moderate Keywords: corner point, solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

14) A(n) ________ limits the ability to improve the objective function. Answer: binding constraint Difficulty: Moderate Keywords: binding constraint, optimal corner Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

15) ________ is the amount by which the left-hand side falls short of the right-hand side in a linear programming model. Answer: Slack Difficulty: Moderate Keywords: slack, left-hand side, right-hand side Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

16) ________ is the amount by which the left-hand side exceeds the right-hand side in a linear programming model. Answer: Surplus Difficulty: Moderate Keywords: surplus, left-hand side, right-hand side Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

17) A modeler is limited to ________ decision variables when using the graphical method. Answer: two or fewer, less than three Difficulty: Moderate Keywords: decision variables, graphical method Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

18) Only ________ should be considered for the optimal solution to a linear programming problem. Answer: corner points Difficulty: Moderate Keywords: corner point, optimal solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

19) For an "less-than-equal-to" (≤ ) constraint, the points ________ and the points ________ are feasible solutions. Answer: on the line or below, to the left of the line Difficulty: Moderate Keywords: less-than-equal-to constraint, feasible solutions Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

20) A(n) ________ is the marginal improvement in the objective function value caused by relaxing a constraint by one unit. Answer: shadow price Difficulty: Moderate Keywords: shadow price, sensitivity, relaxing a constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

21) The interval over which the right-hand-side parameter of a constraint can vary while its shadow price remains valid is the ________. Answer: range of feasibility Difficulty: Moderate Keywords: range of feasibility Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

22) In a linear programming model formulation, what does the feasible region represent? Answer: A simultaneous consideration of the constraints defines the feasible region, which represents all permissible combinations of the decision variables. In some unusual situations, the problem is so tightly constrained that there is only one possible solution—or perhaps none. However, in the usual case, the feasibility region contains infinitely many possible solutions, assuming that the feasible combinations of the decision variables can be fractional values. The goal of the decision maker is to find the best possible solution. Difficulty: Moderate Keywords: slack, surplus variable Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

23) In a linear programming model formulation, what is the meaning of a slack or surplus variable? Answer: The amount by which the left-hand side falls short of the right-hand side is the slack variable. The amount by which the left-hand side exceeds the right-hand side is the surplus variable. Difficulty: Moderate Keywords: slack, surplus variable Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

24) What are the limitations of the graphical method of linear programming? Answer: The primary limitation of the graphical method of linear programming is that it is best suited for problems consisting of only two decision variables. It can be used for models containing three decision variables, but is cumbersome. Also, the graphical method can be difficult to execute if the constraints' right-hand sides are grossly different in magnitude, e.g., one is fractional and the other is in the ten thousands. Difficulty: Moderate Keywords: graphic analysis Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

25) You observe a linear programming problem that has been solved using the graphical method of linear programming. The feasible region and optimal solution are clearly labeled. How could you identify the slack or surplus amounts in the scenario? Answer: Slack or surplus would be evident by the relation of the constraint lines to the optimal point at the edge of the feasible region. The slack or surplus would be the distance between the optimal solution point and the line representing a nonbinding constraint. Difficulty: Moderate Keywords: graphic analysis, slack, surplus Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

26) Briefly describe the meaning of a shadow price. Provide an example of how a manager could use information about shadow prices to improve operations? Answer: The shadow price is the marginal improvement in Z caused by relaxing a constraint by one unit. Examples will vary. Difficulty: Moderate Keywords: shadow price Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

27) Use the graphical technique to find the optimal solution for this objective function and associated constraints. Maximize: Z = 8A + 5B Subject To: Constraint 1 4A + 5B ≤ 80 Constraint 2 7A + 4B ≤ 120 A, B ≥ 0 Graph the problem fully in the following space. Label the axes carefully, plot the constraints, shade the feasibility region, identify all candidate corner points, and indicate which one yields the optimal answer.

Answer:

Intersection of Constraint 1 & 2 (7A + 4B = 120) × 5 -(4A + 5B = 80) × 4 19A = 280 A = 14.73, ∴ B = 4.21 Z(0, 0) = 8 × 0 + 5 × 0 = 0 Z(0, 16) = 8 × 0 + 5 × 16 = 90 Z(17.14, 0) = 8 × 17.14 + 5 × 0 = 137.14 Z(14.73, 4.21) = 8 × 14.73 + 5 × 4.21 = 138.89 optimal Difficulty: Moderate Keywords: graphic analysis Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

28) A very confused manager is reading a two-page report given to him by his student intern. "She told me that she had my problem solved, gave me this, and then said she was off to her production management course," he whined. "I gave her my best estimates of my on-hand inventories and requirements to produce, but what if my numbers are slightly off? I recognize the names of our four models W, X, Y, and Z, but that's about it. Can you figure out what I'm supposed to do and why?" You take the report from his hands and note that it is the answer report and the sensitivity report from Excel's solver routine. Explain each of the highlighted cells in layman's terms and tell the manager what they mean in relation to his problem.

Answer: Answer Report Target Cell Max: The target cell should be maximized, so the manager must have provided the intern with profit information. Final Value: The final value is the greatest amount possible for the situation. If we are working with profit figures, this is the best return possible given what we estimate is on hand and how it is to be produced. This may change if our inventory or recipes are slightly off. The highest profit identified is $88,888.89 Adjustable Cells: The adjustable cells show that we considered any positive quantity of models W - Z as possible outputs for the week. Name: The names are those of the models we produce. Final Value: These are the exact amounts of each of our four models to produce to earn the final value. In this case we would make 111.1 units of model W and none of the other four models. Status: This shows what is limiting our ability to produce the models. A binding constraint directly limits our output although a nonbinding constraint means that factor does not limit us. In this case, the second and third constraints are nonbinding, so producing 111.1 units of model W leaves us with leftovers of whatever scarce resource they represent. The first constraint is binding, so we are using up every bit of that resource. Slack: Slack shows us how much of each resource we have left. Our first constraint is binding, so we have none left over and therefore have 0 slack. Our second and third constraints are not binding, so we have plenty (3,888 and 25,000 units respectively) of these scarce resources left over. Sensitivity Report Adjustable Cells Reduced Cost: This is the change in the optimum objective per unit change in the upper or lower bounds of the variable. The objective function will increase by 0.-66, and so on, per unit increase. Allowable Increase: These two (Allowable Increase and Allowable Decrease) provide a range for our current answer and the recipe we used to arrive at it. For model W, we have assumed that each unit gives us $800 profit. If our estimate was too high, and the return was up to $80 less per unit, we would still arrive at the same answer. If it were more than $80 too high, our answer would change. The same holds true for the models we are not making. If model Y made more than $666.66 profit per unit, then our final product mix would change. Allowable Decrease: See analysis for Allowable Increase. Constraints Shadow Price: This is the marginal return for having one more unit of each resource. Here we have a shadow price of $8.88, so if we had one more unit of resource in the first constraint, we could make an additional $8.88. This gives us an idea of the maximum we would be willing to pay for more of that resource. Allowable Increase: These work the same as the allowable increases and decreases for the adjustable cells except they focus on the shadow prices. They indicate how far the RHS of the constraint can change before the shadow price will change. Allowable Decrease: See discussion immediately preceding. Difficulty: Challenging Keywords: sensitivity analysis Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

29) The CZ Jewelry Company produces two products: (1) engagement rings and (2) jeweled watches. The production process for each is similar in that both require a certain number of hours of diamond work and a certain number of labor hours in the gold department. Each ring takes four hours of diamond work and two hours in the gold shop. Each watch requires three hours in diamonds and one hour in the gold department. There are 240 hours of diamond labor available and 100 hours of gold department time available for the next month. Each engagement ring sold yields a profit of $9; each watch produced may be sold for a $10 profit. a. Give a complete formulation of this problem, including a careful definition of your decision variables. Let the first decision variable, (X1), deal with rings, the second decision variable, (X2), with watches, the first constraint with diamonds, and the second constraint with gold. b. Graph the problem fully in the following space. Label the axes carefully, plot the constraints, shade the feasibility region, plot at least one isoprofit line that reveals the optimal solution, circle the corner points and highlight the optimal corner point so found, and solve for it algebraically. (Show all your work to get credit.)

Answer: a. Max: 9X1 + 10X2 s.t.

4X1 + 3X2 ≤ 240 hours of diamond work 2X1 + X2 ≤ 100 hours of gold work X1, X2 ≥ 0

Difficulty: Moderate Keywords: objective function, constraint, graphical solution Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

30) The Really Big Shoe Company is a manufacturer of basketball shoes and football shoes. Ed Sullivan, the manager of marketing, must decide the best way to spend advertising resources. Each football team sponsored requires 120 pairs of shoes. Each basketball team requires 32 pairs of shoes. Football coaches receive $300,000 for shoe sponsorship and basketball coaches receive $1,000,000. Ed's promotional budget is $30,000,000. The Really Big Shoe Company has a very limited supply (4 liters or 4,000cc) of flubber, a rare and costly raw material used only in promotional athletic shoes. Each pair of basketball shoes requires 3cc of flubber, and each pair of football shoes requires 1cc of flubber. Ed desires to sponsor as many basketball and football teams as resources allow. However, he has already committed to sponsoring 19 football teams and wants to keep his promises. a. Give a linear programming formulation for Ed. Make the variable definitions and constraints line up with the computer output appended to this exam. b. Solve the problem graphically, showing constraints, feasible region, and isoprofit lines. Circle the optimal solution, making sure that the isoprofit lines drawn make clear why you chose this point. (Show all your calculations for plotting the constraints and isoprofit line on the left to get credit.)

c. Solve algebraically for the corner point on the feasible region. d. Part of Ed's computer output is shown following. Give a full explanation of the meaning of the three numbers listed below. Based on your graphical and algebraic analysis, explain why these numbers make sense. (Hint: He formulated the budget constraint in terms of $000.) See the computer printout that follows. First Number: The shadow price of 0.0104 for the "Flubber" constraint. Second Number: The slack or surplus of 6383.334 for the "Budget" constraint. Third Number: The lower limit of 12.2807 for the "Commitment" constraint.

Answer: a. Let X1 = the number of football teams sponsored X2 = the number of basketball teams sponsored Objective Function: Max X1 + X2 s.t.

≥

Commitments

300X1 + 1,000X2

≤

30,000

Budget

120X1 + 96X2

≤

4,000

Flubber

X1, X2 ≥ 0 b.

Commitments: X1 > 19 → X1 = 19 Budget: 300X1+ 1,000X2 < 30,000 if X1 = 0; X2 =

= 30

if X2 = 0; X1 =

= 100

Flubber: 120X1 + 96X2 < 40,000 if X1 = 0; X2 =

= 41.

if X2 = 0; X1 =

= 33.

c. corner point 120X1 + 96X2 = 4,000 (X1 = 19) × -120 96X2 = 1,720 X2 = 17.91 Therefore, X1 = 19 d. First Number: The shadow price of 0.0104 for the "Flubber" constraint. Second Number: The slack or surplus of 6,383.334 for the "Budget" constraint. Third Number: The lower limit of 12.2807 for the "Commitment" constraint. The first number is the amount (.0104) by which the objective function will improve with a one-unit decrease in the right-hand-side value. The second number means that $6,383,334 remains in the budget. The third value is the amount by which the constraint can change and still keep the current values of the shadow price. As Ed always says, "Big shoes, big feet." Difficulty: Challenging Keywords: linear programming Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

31) A small oil company has a refining budget of $200,000 and would like to determine the optimal production plan for profitability. The following table lists the costs associated with its three products.

Marketing has a budget of $50,000, and the company has 750,000 gallons of crude oil available. Each gallon of gasoline contributes 14 cents of profits, heating oil provides 10 cents, and plastic resin 30 cents per unit. The refining process results in a ratio of two units of heating oil for each unit of gasoline produced. This problem has been modeled as a linear programming problem and solved on the computer. The set up and output follows:

a. Give a linear programming formulation for this problem. Make the variable definitions and constraints line up with the computer output. b. What product mix maximizes the profit for the company using its limited resources? c. How much plastic resin is produced if profits are maximized? d. Give a full explanation of the meaning of the three numbers listed following. First Number: Slack or surplus of 42,500 for the #2 Marketing Budget constraint. Second Number: Shadow price of 0 for the #1 Refining Budget constraint. Third Number: An upper limit of "infinity" for the right-hand-side value for the #1 Refining Budget constraint.

Answer: a. Let X1 = gallons of gasoline refined X2 = gallons of heating oil refined X3 = gallons of plastic resin refined Max: s.t.

.14X1 + 10X2 + .30X3 .40X1 + 10X2 + .60X3 ≤ 200,000 .10X1 + .05X2 + .07X3 ≤ 50,000 .10X1 + 5X2 + 20X3 ≤ 750,000 X2 - 2X1

Refining budget Marketing budget Crude oil available Ratio

X1, X2, X3 > 0 b.

X1 = 37,500 gallons, X2 = 75,000 gallons, and X3 = 0 gallons

c. No plastic resin is produced if profits are maximized. d. $42,500 remains in the marketing budget. A zero implies that increasing the refining budget will not improve the value of the objective function. Infinity implies that the right-hand side can be increased by any amount and the shadow price will remain the same. Difficulty: Moderate Keywords: objective function, constraint Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

32) Lisa lives out in the country with her seven cats and avoids driving into the big city as much as possible. She has decided to make her own cat food and has the following nutritional guidelines. Each four-ounce portion must contain 22 units of protein, 15 units of vitamin A, and 8 units of vitamin B. She has eggs, tomatoes, and chicken meat as possible inputs to her cat food. Each ounce of eggs contains 6 units of protein, 4 units of Vitamin A, and 3 units of Vitamin B. Each ounce of tomatoes contains 1 unit of protein, 8 units of Vitamin A, and 14 units of Vitamin B. Each ounce of chicken contains 22 units of protein, 14 units of Vitamin A, and 8 units of Vitamin B. Chicken costs 40 cents per ounce, tomatoes cost 5 cents per ounce, and eggs cost 12 cents per ounce. To make the production process as easy as possible, she would like to make exactly four ounces of cat food from her recipe. She used POM for Windows and received the following results. Provide an interpretation.

Answer: The optimal solution for four ounces of cat food is to use 3.6 ounces of eggs and 0.4 ounces of tomatoes for a cost of 45.2 cents (3.6*.12 + 0.4*0.05). The use of eggs would continue within the range of 0.05 to 0.13333 for the per ounce egg cost (actual cost is 12 cents per ounce). Similarly, tomatoes would continue to be in the recipe in the same amount as long as the tomato price stays between 12 cents and 3.25 cents per ounce. Chicken would need to fall 5.6 cents per ounce in order to play a role in the cat food (aside from laying the eggs that make it into the mix). Difficulty: Moderate Keywords: sensitivity analysis Learning Outcome: Apply the basic concepts of linear programming AACSB: Analytical Thinking Learning Objective: Perform a graphic analysis and derive a solution for a two-variable linear programming model.

D.4 Computer Analysis 1) Using the simplex method, we can find a corner point by simultaneously solving m constraints, where all but m variables are set equal to zero. Answer: TRUE Difficulty: Moderate Keywords: simplex method, corner points Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Use a computer routine to solve a linear programming problem.

2) The simplex method deals exclusively with corner points Answer: TRUE Difficulty: Easy Keywords: simplex method Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Use a computer routine to solve a linear programming problem.

3) Degeneracy occurs when the linear program model consists of only an infeasible region. Answer: FALSE Difficulty: Moderate Keywords: degeneracy Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Use a computer routine to solve a linear programming problem.

4) ________ tells us how much the objective function coefficient of a decision variable that is zero in the optimal solution must improve before the optimal solution would change. Answer: Reduced cost Difficulty: Moderate Keywords: reduced cost Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Use a computer routine to solve a linear programming problem.

5) What is degeneracy in the context of linear programming? Why is degeneracy a concern? Answer: On some rare occasions, the number of nonzero variables in the optimal solution can be less than the number of constraints—a condition called degeneracy. When degeneracy occurs, the sensitivity analysis information is suspect. If you want more "what-if" information, simply run your software package again using the new parameter values that you want to investigate. Difficulty: Moderate Keywords: graphic analysis, slack, surplus Learning Outcome: Apply the basic concepts of linear programming AACSB: Application of Knowledge Learning Objective: Use a computer routine to solve a linear programming problem.

D.5 The Transportation Method Table D.1 Tanfastic, Inc., a manufacturer of swimwear, is in the process of developing a production plan for the coming spring break. The ending inventory for January is 30 units. Undertime is paid, at a rate of $5.00 per unit. Details are shown in the following POM for Windows table.

1) Use the information in Table D.1. Given the information in the optimal tableau, what is the inventory carrying cost, in dollars per unit per quarter? A) less than $1 B) greater than $1 but less than or equal to $2 C) greater than $2 but less than or equal to $3 D) greater than $3 Answer: C Difficulty: Moderate Keywords: production plan, transportation method, inventory holding cost Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

2) Use the information in Table D.1. Given the information in the optimal tableau, what is the overtime cost in dollars per unit? A) less than $12 B) greater than $12 but less than or equal to $14 C) greater than $14 but less than or equal to $16 D) greater than $16 Answer: C Difficulty: Moderate Keywords: production plan, transportation method, overtime cost Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

Table D.2 Bahouth Enterprises produces a variety of hookahs for clients around the globe. Their small plant has a highly flexible workforce that can switch between products seamlessly. They forecast using a six-month planning period and have a demand forecast as shown in the table. The per-unit costs for each output option the sales and operations planner has at his disposal are indicated in the table. Regular output costs $40 per unit, overtime production is $60 per unit, and subcontracting is $70 per unit. Holding inventory from one month to the next costs $2 per unit per month and a backlog costs $5 per unit per month. Regular plant capacity is 300 units per month. Period Forecast Output Regular Overtime Subcontract Inventory Beginning Ending Average Backlog Costs

1 400

2 350

3 500

4 400

5 500

6 200

$40 $60 $70

Total 2,350 1,800 0 0

0 $2 0 2,250

3) Use the information in Table D.2. If the planner decides to adopt a chase plan for the planning period, what will the regular output be for month 1? A) 300 units B) 350 units C) 400 units D) 450 units Answer: A Difficulty: Easy Keywords: production plan, chase plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

4) Use the information in Table D.2. If the planner decides to adopt a level plan for the planning period, what will the total output be for month 3? A) between 350 and 400 units B) between 400 and 450 units C) between 450 and 500 units D) more than 500 units Answer: A Difficulty: Easy Keywords: production plan, level plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

5) Use the information in Table D.2. If the planner decides to adopt a level plan for the planning period, what will the regular output be for month 3? A) between 290 and 330 units B) between 330 and 370 units C) between 370 and 410 units D) between 410 and 450 units Answer: A Difficulty: Easy Keywords: production plan, level plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

6) Use the information in Table D.2. If the plant has no limits on the number of units produced by overtime or subcontractors, what is the lowest-cost chase plan that is possible for the six-month period? A) less than $50,000 B) between $50,000 and $100,000 C) between $100,000 and $150,000 D) between $150,000 and $200,000 Answer: C Difficulty: Moderate Keywords: production plan, chase plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

7) Use the information in Table D.2. The plant has no limits on the number of units produced by overtime or subcontractors and adopts a chase plan strategy for the six-month planning period. What is the cost for month 6 of their chase plan? A) $8,000 B) $9,852 C) $11,317 D) $12,631 Answer: A Difficulty: Moderate Keywords: production plan, chase plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

8) Use the information in Table D.2. The plant has no limits on the number of units produced by overtime or subcontractors and adopts a level plan strategy for the six-month planning period. What is the cost for month 6 of their level plan? A) between $16,200 and $16,600 B) between $16,600 and $17,000 C) between $17,000 and $17,400 D) between $17,400 and $17,800 Answer: D Difficulty: Moderate Keywords: production plan, level plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

Table D.3 The Harper Company is in the process of production planning for the next four quarters. The company follows a policy of a stable workforce and uses overtime and subcontracting to meet uneven forecasted demand. Anticipation inventory is also allowed, but not backorders. Undertime is paid, at a rate of $5.00 per unit. The beginning (or current) inventory is 25 units. Details are shown in the following POM for Windows table.

9) Use the information in Table D.3. What is the total cost of the optimal production plan? A) less than or equal to $1,000 B) greater than $1,000 but less than or equal to $2,000 C) greater than $2,000 but less than or equal to $3,000 D) greater than $3,000 Answer: A Difficulty: Moderate Keywords: production plan Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

10) Use the information in Table D.3. What is the anticipation inventory at the end of the first quarter? A) 0 units B) 1 through 5 units C) 6 through 10 units D) 11 units and above Answer: B Difficulty: Moderate Keywords: production plan, anticipation inventory Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

11) Use the information in Table D.3. According to the optimal production plan, what is the total ending inventory in the second quarter? Assume that the plan that uses the least amount of subcontracting is used. A) none B) two units C) three units D) greater than three units Answer: D Difficulty: Moderate Keywords: production plan, subcontracting Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

12) Use the information in Table D.3. According to the optimal production plan, what is the overtime production in the second quarter? A) two units B) three units C) four units D) five units Answer: D Difficulty: Moderate Keywords: production plan, overtime Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

13) Use the information in Table D.3. Given the information in the optimal tableau, what is the demand forecast for quarter 2? A) fewer than 30 units B) greater than 30 units but fewer than or equal to 35 units C) greater than 35 units but fewer than or equal to 40 units D) greater than 40 units Answer: A Difficulty: Moderate Keywords: production plan, demand forecast Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

14) Use the information in Table D.3. Given the information in the optimal tableau, what is the inventory carrying cost, in dollars per unit per quarter? A) less than $1 B) greater than $1 but less than or equal to $2 C) greater than $2 but less than or equal to $3 D) greater than $3 Answer: B Difficulty: Moderate Keywords: production plan, inventory holding cost Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

15) Use the information in Table D.3. Given the information in the optimal tableau, what is the subcontracting cost, in dollars per unit? A) $5 B) $7 C) $10 D) $12 Answer: D Difficulty: Moderate Keywords: production plan, subcontracting Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

16) Provide three examples of operations management decision problems for which linear programming can be useful, and why. Answer: Answers and justifications will vary. Possible answers include production planning, distribution, inventory, location, process management, and scheduling. Difficulty: Moderate Keywords: linear programming applications Learning Outcome: Apply the concept of transportation models AACSB: Application of Knowledge Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

17) A snack food producer runs four different plants that supply product to four different regional distribution centers. The division operations manager is focused on one product, so he creates a table showing each plant's monthly capacity and each distribution center's monthly demand (both amounts in cases) for the product. The division manager supplements this table with the cost data to ship one case from each plant to each distribution center. Formulate an objective function and constraints that will solve this problem using linear programming.

Plant A Plant B Plant C Plant D Monthly Demand

Center 1 $2 $9 $7 $4

Center 2 $7 $4 $6 $8

Center 3 $5 $7 $4 $3

Center 4 $4 $6 $3 $5

9,000

8,500

8,000

7,000

Monthly Capacity 8,000 12,000 7,500 5,000

Answer: This is a cost minimization problem with 16 decision variables, one for each combination of plant and center; there are 8 constraints, one for each plant's capacity and one for each center's demand. Objective Min Z = $2xA1 + $7xA2 + $5xA3 + $4xA4 + $9xB1 + $4xB2 + $7xB3 + $6xB4 + $7xC1 + $6xC2 + $4xC3 + $3xC4 + $4xD1 + $8xD2 + $3xD3 + $5xD4 Subject to Plant A: xA1 + xA2 + xA3 + xA4 = 8,000 Plant B: xB1 + xB2 + xB3 + xB4 = 12,000 Plant C: xC1 + xC2 + xC3 + xC4 = 7,500 Plant D: xD1 + xD2 + xD3 + xD4 = 5,000 Center 1: xA1 + xB1 + xC1 + xD1 = 9,000 Center 2: xA2 + xB2 + xC2 + xD2 = 8,500 Center 3: xA3 + xB3 + xC3 + xD3 = 8,000 Center 4: xA4 + xB4 + xC4 + xD4 = 7,000 The optimal solution is:

Plant A Plant B Plant C Plant D Monthly Demand

Center 1 8,000

Center 2

Center 3

Center 4

8,500

3,500 500 4,000

7,000

8,000

7,000

1,000 9,000

8,500

Monthly Capacity 8,000 12,000 7,500 5,000 $113,500

Difficulty: Moderate Keywords: objective function, constraint Learning Outcome: Apply the concept of transportation models AACSB: Analytical Thinking Learning Objective: Apply the transportation method to sales and operations planning (S&OP) problems.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement E Simulation E.1 Reasons for Using Simulation Models 1) Simulation is the process of reproducing the behavior of a system using a model that describes the processes of the system. Answer: TRUE Difficulty: Easy Keywords: simulation, system behavior, model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

2) The operations manager of a new restaurant would like to build a waiting line simulation model to study customer arrival and service times for the first month of operations after the restaurant opening. However, to save time, when building the simulation model, the operations manager decides to model only the first week of behavior. The operations manager is using the time compression feature of simulation. Answer: FALSE Difficulty: Moderate Keywords: time compression Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

3) A simulation model: A) describes operating characteristics with known equations. B) replicates the service of customers and keeps track of characteristics such as the number in line, the waiting time, and the total time in the system. C) prescribes what should be done in a situation. D) finds the optimal solution to a problem without having to try each alternative. Answer: B Difficulty: Moderate Keywords: simulation model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

4) Simulation models are: A) useful when waiting line models are too complex. B) useful for conducting experiments using the real system. C) preferred because they find optimal solutions. D) usually inexpensive relative to other approaches. Answer: A Difficulty: Moderate Keywords: simulation model, waiting line model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

5) Using a simulation model to gather a year of operating data in a few minutes is known as: A) historical search data collection. B) Monte Carlo optimization. C) sub-optimization. D) time compression. Answer: D Difficulty: Moderate Keywords: time compression Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

6) ________ is the act of reproducing the behavior of a system using a model that describes the processes of the system. Answer: Simulation Difficulty: Easy Keywords: simulation model, system behavior Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

7) ________ is a feature of simulation models that allows them to obtain operating-characteristic estimates in much less time than is required to gather the same operating data from a real system. Answer: Time compression Difficulty: Moderate Keywords: time compression Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

8) What is the difference between a waiting line model as described in Supplement B and a simulation model of a waiting line problem? Answer: The waiting line model describes the operating characteristics of interest with known equations. The simulation model actually mimics the arrival of customers and their service, empirically calculating the operating characteristics. Difficulty: Moderate Keywords: simulation model, waiting line model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

9) What is meant by time compression in a simulation model? Answer: Simulation models gather data on operating characteristics in much less time than gathering the same data from the real system. Difficulty: Moderate Keywords: time compression, simulation model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

10) What are the motivations for using simulation for analyzing processes? Answer: Simulation models are useful when waiting line models are too complex. When the relationship between variables is nonlinear, or when there are too many variables or constraints to handle with optimizing approaches, simulation is an attractive option. Simulation can be used to conduct experiments without disrupting the real system. Simulation can also be used to discover operating characteristics of a system in much less time than the data could be gathered from the real system. Finally, simulation can be used to sharpen managerial decision making through gaming. Difficulty: Moderate Keywords: simulation model, time compression, waiting line model Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

11) What are the differences between decision variables and uncontrolled variables? Describe the differences and provide an example from a simulation model. Answer: A decision variable is one that is under control of the decision maker and will change from one simulation run to the next as different events are simulated. Uncontrolled variables are random events that the decision maker cannot control. Both are functions of random numbers in the simulation model, but the decision maker realizes that the uncontrolled variables, such as weather, customer arrival patterns, state of the economy, and so on are outside his influence. Examples will vary. Difficulty: Moderate Keywords: decision variables, uncontrolled variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Identify four reasons for using simulation models.

E.2 The Monte Carlo Simulation Process 1) Monte Carlo simulation is a simulation process that uses deterministic values to generate simulation events. Answer: FALSE Difficulty: Moderate Keywords: Monte Carlo Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

2) Random numbers have different random probabilities of being selected, depending on how recently it has been selected. Answer: FALSE Difficulty: Moderate Keywords: random number Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

3) Random variables are random events that the decision maker cannot control. Answer: TRUE Difficulty: Easy Keywords: random variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

4) Monte Carlo simulation is a simulation process that uses random numbers to generate simulation events. Answer: TRUE Difficulty: Moderate Keywords: Monte Carlo Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

5) The manager of a restaurant is building a simulation model to measure and improve service performance. They use the table shown below generate random numbers. Which of the following statements is true? Range 00-29 30-59 60-79 80-99

# Customers 10 15 20 25

A) The probability of having ten customers in the store is 0.3. B) There are 15 customers in store 50 percent of time. C) The relative frequency of having twenty customers in the store is 0.60. D) 25 percent of time there are anywhere from 80 to 99 customers in the store. Answer: A Difficulty: Moderate Keywords: random number, frequency, probability Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

6) Which one of the following relationships is correct? A) Decision variables reflect the value of uncontrollable variables. B) Dependent variables reflect the value of decision and uncontrollable variables. C) Uncontrollable variables reflect the value of decision variables. D) Uncontrollable variables reflect the values of dependent variables. Answer: B Difficulty: Moderate Keywords: decision variables, uncontrollable variables, dependent variables Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

7) The manager of a branch bank wants to build a simulation model of the lobby operation to reduce the waiting time of her customers. The number of tellers is an example of: A) a decision variable. B) an uncontrollable variable. C) a time-compressed variable. D) a dependent variable. Answer: A Difficulty: Moderate Keywords: decision variables Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

8) The manager of a branch bank wants to build a simulation model of the lobby operation to reduce the waiting time of her customers. The number of customers arriving at any point of time is an example of a(n): A) decision variable. B) uncontrollable variable. C) time-compressed variable. D) dependent variable. Answer: B Difficulty: Moderate Keywords: uncontrollable variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

9) The manager of a branch bank wants to build a simulation model of the lobby operation to reduce the waiting time of her customers. The number of customers waiting in line at any point of time is an example of a(n): A) decision variable. B) dependent variable. C) uncontrollable variable. D) time-compressed variable. Answer: B Difficulty: Moderate Keywords: dependent variable Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

10) Which one of the following statements regarding simulation analysis is false? A) Simulation analysis is a form of hypothesis testing. B) In simulation, dependent variables reflect the values of both the decision variables and the uncontrollable variables. C) Statistical methods require the replication of simulation runs. D) Each time a simulation model is run for a given set of decision variables, the same random numbers must be used. Answer: D Difficulty: Challenging Keywords: random number Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

11) To generate 100 random numbers in an Excel simulation, the "=RAND()" function is first typed into the A1 cell on an Excel spreadsheet. A1 can then be copied and pasted in a rectangular area on the spreadsheet to cover the cells: A) A1:E5. B) A1:H12. C) A1:J10. D) A1:E22. Answer: C Difficulty: Easy Keywords: random number, Excel simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

12) To generate 80 random numbers in an Excel simulation, the "=RAND()" function is first typed into the C2 cell on an Excel spreadsheet. C2 is then copied and pasted in a rectangular area on the spreadsheet to cover the cells: A) C2:G13. B) C2:J11. C) C2:F20. D) C2:D40. Answer: B Difficulty: Moderate Keywords: random number, Excel simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

13) When using Excel for simulation, it is important to freeze the random numbers used in order to compare the effectiveness of different policies. To do this, you must select the cells holding the random numbers with the mouse, click Edit/Copy at the top of the spreadsheet, and: A) click Edit/Paste Special and select the Values option. B) click Edit/Paste to freeze the cells. C) click Edit/Paste Special and select the Formulas option. D) move to a different section of the spreadsheet, then click Edit/Paste to freeze the cells. Answer: A Difficulty: Moderate Keywords: random number, Excel simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

14) This table shows the distribution of grades in an operations management class. Probability .10 .15 .25 .30 .20

Grade A B C D F

Add a column to the table that shows the cumulative probability and indicate what letter grade is obtained when the RAND() function is equal to 0.2750. A) A B) B C) C D) D Answer: C Difficulty: Moderate Keywords: Monte Carlo, random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

15) This table shows the distribution of grades in an operations management class. Probability .10 .15 .25 .30 .20

Grade A B C D F

Add a column to the table that shows the cumulative probability and indicate what letter grade is obtained when the RAND() function is equal to 0.2225. A) A B) B C) C D) F Answer: B Difficulty: Moderate Keywords: Monte Carlo, random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

16) This table shows the distribution of grades in an operations management class. Probability .32 .20 .25 .18 .05

Grade F D C B A

Lower Range 0 0.32 0.52 0.77 0.82

Add a column to the table that shows the cumulative probability and indicate what letter grade is obtained when the RAND() function is equal to 0.7406. A) A B) B C) C D) D Answer: C Difficulty: Moderate Keywords: Monte Carlo, random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

17) ________ uses random numbers to generate simulation events. Answer: Monte Carlo Difficulty: Easy Keywords: Monte Carlo, random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

18) If the data needed to set up a simulation are available in company records, the technique used to obtain them is called ________. Answer: historical search Difficulty: Moderate Keywords: Monte Carlo, random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

19) A number that has the same probability of being selected as any other number is a(n) ________. Answer: random number Difficulty: Moderate Keywords: random number, probability Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

20) A variable that is controlled by the decision-maker and will change from one run to the next as different events are simulated is a(n) ________. Answer: decision variable Difficulty: Moderate Keywords: decision variables, controlled Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

21) ________ are random events that the decision maker cannot control. Answer: Uncontrollable variables Difficulty: Moderate Keywords: uncontrollable variable, random Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

22) If the difference in results between different simulation runs results in a mathematical difference in system performance, the difference is said to be ________. Answer: statistically significant Difficulty: Moderate Keywords: statistical significance, managerial significance Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

23) Why would data need to be collected prior to conducting a simulation? Answer: Data should be collected so the simulation modeler can set realistic parameters for the model. If customer arrivals are being simulated, the modeler would know exactly what the arrival pattern is rather than guessing or using an exponential interarrival time with constant parameters throughout the simulation period. Without some grounding in reality, the simulation would become a case of garbage-in garbage-out and the results of the exercise would not be useful. Difficulty: Moderate Keywords: data collection, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

24) How can random numbers be generated? Answer: Random numbers can be generated by a computer, looking them up in a collection, or generation by some mechanical means. A package like Excel can generate random numbers using the RAND() function, which generates uniformly distributed random numbers within the interval [0,1]. In the absence of a computer, random numbers can be looked up in published tables of random numbers. Finally, the modeler can observe some physical phenomenon as a source of random numbers, such as flipping a coin. Difficulty: Moderate Keywords: random numbers, simulation Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Perform a manual simulation using the Monte Carlo simulation process.

E.3 Simulation with Excel Spreadsheets 1) In Excel, the RAND() function generates a number between 0 and 100, purely at random. Answer: FALSE Difficulty: Moderate Keywords: random variable, Excel, RAND() Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

2) To achieve steady state, a simulation should be repeated over enough time using different input values of the model parameters till the average results for performance measures remain constant. Answer: FALSE Difficulty: Moderate Keywords: steady state, simulation repetition Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

3) A simulation model is used to test the impact of the number of sample customers at a supermarket. As the model is run, the decision maker watches the average number of customers in the store rapidly increase from zero until it levels off and holds a constant value. The simulation model is: A) not valid due to the lack of change. B) in steady state. C) not valid due to the fluctuation in the statistics. D) a random variable. Answer: B Difficulty: Moderate Keywords: steady state Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

4) Which Excel function can be used to calculate the number of observations in each category out of a total of "n" observations? A) VLOOKUP B) FREQUENCY C) OBSERVATIONS D) CALCULATE Answer: B Difficulty: Moderate Keywords: frequency, Excel Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

5) In Excel, typing the function ________ will generate random numbers within the interval 0 to 1. Answer: =RAND() Difficulty: Moderate Keywords: random numbers, RAND(), Excel Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

6) ________ occurs when the simulation is repeated over enough time that the average results for performance measures remain constant. Answer: Steady state Difficulty: Moderate Keywords: steady state Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

7) What is steady state in a simulation model? Why is it important to achieve steady state? Answer: Steady state occurs when the model under testing has moved past the transient state and reached an equilibrium. Prior to achieving steady state, the model is essentially getting up to speed, perhaps customers or product have not fully populated all of the phases in the service process or stations in the manufacturing line. It is important to clear the data collection once steady state has been achieved so that all the data reflect process performance. Difficulty: Moderate Keywords: steady state Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

8) Describe a general procedure for generating normally distributed random numbers with a mean of 450 and standard deviation of 50 using Excel functions. Answer: Use the RAND() function to generate random numbers on the 0-1 interval. Using these numbers as the input, use the NORM.INV function to generate the inverse of the normal cumulative distribution with a specified mean and standard deviation. In a single cell in Excel, this could be accomplished by NORM.INV(RAND(),450,50). Difficulty: Challenging Keywords: random numbers, RAND(), Excel Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Create a simple simulation model with an Excel spreadsheet.

E.4 Simulation with SimQuick Software 1) SimQuick uses building blocks to create the flowchart of a process? Answer: TRUE Difficulty: Easy Keywords: SimQuick, building blocks Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

2) An operations manager is using SimQuick to build a simulation model of the passenger security process at an airport. They must use the buffer building block to model the inspection station. Answer: FALSE Difficulty: Moderate Keywords: SimQuick, building blocks Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

3) An operations manager is using SimQuick to build a simulation model of the passenger security process at an airport. They must use the entrance building block to model the arrival of passengers at the security process. Answer: TRUE Difficulty: Easy Keywords: SimQuick, building blocks Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

4) Which of the following statements about SimQuick is true? A) SimQuick requires some knowledge of programming languages, such as VISUAL BASIC or C++. B) SimQuick can be used to simulate the flow of materials, but cannot be used to study the process flows that involve people or information. C) SimQuick is an easy-to-use package that is simply an Excel spreadsheet with some macros. D) The primary disadvantage of SimQuick is that it is more costly and more difficult to set up when compared to other models, such as SIMPROCESS and ProModel. Answer: C Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

5) SimQuick can be used to simulate all of the following except: A) a call center with completely random call arrivals and processing times. B) a hospital emergency room with arrivals that vary during different time periods throughout the day. C) a manufacturing process with a constant arrival rate (e.g., every 2 minutes) at one of the process steps. D) the hiring of production workers, based on skill requirements throughout the year. Answer: D Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

Scenario E.1 SimQuick is being used to simulate the following bank process:

Customer arrivals at the Entrance Door of the bank with an average time between arrivals of 2.5 minutes. The Line Buffer holds 6 customers. If a customer arrives and the buffer line is filled, the customer leaves. The Work Station Teller's processing time per customer is normally distributed, with a mean of 3.0 minutes and a standard deviation of 0.5 minutes. The Served Customer Buffer in the flow chart is used to count the number of customers processed during the period simulated. A 2-hour period was simulated. The SimQuick simulation is run, and the results are as follows: Element Types Element Names

Statistics

Overall Means

Entrance

Door

Objects entering process Objects unable to enter Service level

41.80 6.23 0.87

Buffer

Line

Objects leaving Final inventory Minimum inventory Maximum inventory Mean inventory Mean time in buffer

37.83 3.98 0.00 5.85 3.08 9.75

Work Station

Teller

Work cycles started Fraction time working

37.83 0.94

Buffer

Served Customers Final inventory

36.85

6) Use the information in Scenario E.1. Approximately how many total customers arrived during the 2hour period simulated? A) 42 B) 38 C) 44 D) 48 Answer: D Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

7) Use the information in Scenario E.1. Approximately what percentage of total customers who arrived during the 2-hour period found the buffer full and were not able to enter? A) 87% B) 13% C) 94% D) 6% Answer: B Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

8) Use the information in Scenario E.1. Approximately how much time did the average customer who entered the system spend waiting in line? A) 9.75 minutes B) 3.08 minutes C) 5.85 minutes D) 3.98 minutes Answer: A Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

9) Use the information in Scenario E.1. On average, approximately how many customers were waiting in line during the 2-hour simulation period? A) 5 B) 4 C) 3 D) 2 Answer: C Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

10) The arrival of customers at a lemonade stand is modeled in SimQuick using a(n): A) entrance block. B) buffer block. C) workstation block. D) decision point. Answer: A Difficulty: Moderate Keywords: SimQuick, entrance block Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

11) A patient's interminable wait for the first available physician is modeled in SimQuick using a(n): A) entrance block. B) buffer block. C) workstation block. D) decision point. Answer: B Difficulty: Moderate Keywords: SimQuick, buffer block Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

12) An operations manager is using SimQuick to build a simulation model of the passenger security process at an airport. They must use the ________ building block to model the inspection station. Answer: workstation Difficulty: Moderate Keywords: SimQuick, building blocks Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

13) An operations manager is using SimQuick to build a simulation model of the passenger security process at an airport. They must use the ________ building block to model the arrival of passengers at the security process. Answer: entrance Difficulty: Moderate Keywords: SimQuick, building blocks Learning Outcome: Describe major approaches to forecasting AACSB: Application of Knowledge Learning Objective: Describe the advanced capabilities of SimQuick.

14) SimQuick is to be used to simulate the following bank process:

Customers arrive at the Entrance Door of the bank with an average time between arrivals of 2.5 minutes. The Line Buffer holds 6 customers. If a customer arrives and the buffer line is filled, the customer leaves. The Work Station Teller's processing time per customer is normally distributed, with a mean of 3.0 minutes and a standard deviation of 0.5 minutes. The Served Customer Buffer in the flowchart is used to count the number of customers processed during the simulation period. A 2-hour period is to be simulated and the simulation should be repeated 30 times. Determine: A) The number of customers served during the 2-hour period; B) The percentage of customers who arrived at the bank and left because the buffer line was full; C) The utilization of the teller (% of time working) during the 2-hour period; Answer: The Model View of the completed elements for the simulation is shown below, followed by the results of the simulation.

A) The number of customers served is the final inventory in the Served Customers Buffer: 36.63. B) The service level (% of customers served) is 88%. The percent who balked (left without being served is 1.00 - 0.88 = 12%. C) The teller's utilization level is shown as the "Fraction time working" under Work Station Teller = 0.93 or 93%. Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

15) Refer to the bank process model. The Marketing Department for the bank has decided to run a special promotion for new customers that will increase the number of customers arriving at the bank. The new arrival rate is expected to be an average time between arrivals of 2.0 minutes instead of the current average time between arrivals of 2.5 minutes. With the potential increase in business, the bank manager is concerned about the number of customers who will arrive and leave because the line is full (with 6 customers) and the average wait time in line at the bank. All other parameters of the model remain the same. Using SimQuick, estimate the new arrive and immediately leave rate and average time in line. Should the manager be concerned? Answer: In the SimQuick model used for the bank process model, the Entrance Door Time Between Arrivals is revised to an average time between arrivals of 2.0 minutes and the model is run again:

Results show an Entrance Door service level of approximately 74%; therefore approximately 26% of the customers will walk away without being serviced ("balk" is defined in the SimQuick book, more than double the percentage in the earlier problem. In addition, the average time in line per customer has increased to 12.73 minutes, almost 2 minutes per customer longer than the original scenario. The Bank Manager is justified in her concerns. Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

16) Refer to the bank process model. The bank's process improvement group has developed a number of process and technology changes that will improve the Teller's process rate per customer from a mean of 3.0 minutes to 2.5 minutes (standard deviation remains at 0.5 minutes). The Bank Manager wants to determine if the improved process rate, along with the special promotion for new customers, will allow the "arrive and immediately leave" rate and average customer wait time in line achieved to still be met (12% balk rate, 9.95 minutes in line). If so, the manager will implement the process and technology changes and allow the special promotion to proceed. Using SimQuick, estimate the new arrive and immediately leave rate and average time in line. What decision should the manager make?

Answer: In the SimQuick model used for the bank process model, the Entrance Door Time Between Arrivals is revised to an average time between arrivals of 2.0 minutes and the Work Station Teller's Working Time is revised to a process time that has a normal distribution, with a mean of 2.5 minutes and a standard deviation of 0.5 minutes. All other parameters remain the same, and the model is run again (an abbreviated results summary is shown):

Results show an Entrance Door service level of approximately 88%; therefore, the arrive and immediately leave rate has decreased to approximately 12%, the same "balk" rate as in the original bank process formulation. In addition, the average time in line per customer has decreased to 8.05 minutes, almost 2 minutes per customer less than in the original bank process formulation. The Bank Manager should implement the process changes and the new promotion, recognizing that her arrive and immediately leave rate is no greater than it was originally, and her customers will, on average, have approximately 2 minutes less wait time when they come to the bank. Difficulty: Moderate Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

17) Big Bills McGee does not carry any paper money in his wallet that has a denomination less than $10, preferring to have a ready supply of $10, $20, $50, and $100 denominations at all times. He is concerned about pickpockets and has an amusing anecdote about thwarting a pickpocket on the Athens subway he likes to tell. His business associate conducts a Monte Carlo simulation for Big Bills using POM for Windows software and prints out the results copied below. Using this output, provide your interpretation for Big Bills pickpocket scenario.

Answer: The four denominations of bills are shown in the column labeled Value and the relative frequency with which they occur appears in the column labeled Frequency. The modeler knew that 10% of the time, Big Bills had a $10 bill in his wallet. The Monte Carlo simulation was run 2,000 times and the result "$10 bill" occurred 191 times, which is 9.55%. The simulation results indicate that 29.25% of the time, a $20 was in his wallet. The remaining percentages are also close as we would expect with this many trials. The bottom-line conclusion of the Monte Carlo simulation is that Big Bills can expect to lose $48.13 if his pocket is ever picked. This is close to $50, which is an amount that he might actually be carrying, but of course, he cannot lose a $48.13 bill to a pickpocket. If his pocket was picked repeatedly, this result would be the average of all of these instances, just as in the simulation. Difficulty: Challenging Keywords: SimQuick Learning Outcome: Describe major approaches to forecasting AACSB: Analytical Thinking Learning Objective: Describe the advanced capabilities of SimQuick.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement F Financial Analysis F.1 Time Value of Money 1) The time value of money implies that a dollar in hand today is worth less than a dollar to be received in the future. Answer: FALSE Difficulty: Easy Keywords: time value of money Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

2) If an invested amount and its accumulated interest is continually reinvested, its future value is the principle multiplied by one plus the interest rate raised to the number of periods the investment continues. Answer: TRUE Difficulty: Moderate Keywords: compounding interest Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

3) Discounting is the process of finding the present value of an investment when the future value and interest rate are unknown. Answer: FALSE Difficulty: Moderate Keywords: discounting, present value Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

4) The value of an investment at the beginning of the period over which interest is compounded is called the future value of the investment. Answer: FALSE Difficulty: Moderate Keywords: future value Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

5) The present value of an investment is the amount that must be invested now to accumulate to a certain amount in the future at a specific interest rate. Answer: TRUE Difficulty: Easy Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

6) The interest rate is also called the discount rate. Answer: TRUE Difficulty: Easy Keywords: interest rate, discount rate Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

7) An annuity is a series of payments of a fixed amount for a specified number of years. Answer: TRUE Difficulty: Easy Keywords: annuity payments Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

8) The value of an investment at the end of the period over which interest is compounded is called the: A) time value of money. B) present value of an investment. C) future value of an investment. D) none of the above Answer: C Difficulty: Easy Keywords: future value, investment Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

9) The amount to be invested now to accumulate to a certain amount in the future at a specified interest rate is called the: A) time value of money. B) present value of an investment. C) future value of an investment. D) none of the above Answer: B Difficulty: Moderate Keywords: present value, investment Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

10) An investor puts $10,000 in an account earning 4 percent compounded interest. At the end of three years, the account will have a value of: A) less than $11,000. B) between $11,000 and $11,200. C) between $11,200 and $11,400. D) more than $11,400. Answer: C Difficulty: Easy Keywords: future value, investment Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

11) It is estimated that the cost for the first year of college at Massive University, the state school with the best operations management program, will be $60,000 by the time your son is ready to enroll as a student. If prevailing interest rates will average 5 percent, what amount should you invest now to pay his first year's tuition eight years from now? A) less than $35,000 B) between $35,000 and $38,000 C) between $38,000 and $41,000 D) more than $41,000 Answer: C Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

12) Conhugeco is eyeing a new Plotzer 3,000, which has a list price of $12,000,000. How much should they set aside today if they want to make their purchase one year from now and their interest-bearing checking account pays 3% annually? A) about $11.6 million B) about $11.2 million C) about $12.3 million D) about $12.8 million Answer: A Difficulty: Easy Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

13) What is the future value of an investment of $5,000 at 10% interest after 5 years? A) less than $5,500 B) between $5,500 and $6,000 C) between $6,000 and $6,500 D) more than $6,500 Answer: D Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

14) Conhugeco's CEO is ready to step down and wants to sock away enough money in his offshore Caribbean accounts to generate $150,000 per year for the next ten years. If he can secure a 4% interest rate from the bank, how much does he need to earmark today? A) about $1.1 million B) about $1.2 million C) about $1.5 million D) about $1.4 million Answer: B Difficulty: Easy Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

15) What is the future value of an investment of $10,000 at 8% interest after 10 years? A) less than $20,000 B) between $20,000 and $22,500 C) between $22,500 and $25,000 D) more than $25,000 Answer: B Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

16) The ________ is the concept that a dollar in hand today is worth more than a dollar to be received in the future. Answer: time value of money Difficulty: Easy Keywords: time value of money Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

17) The process by which interest on an investment accumulates and then earns interest itself for the remainder of the investment period is called ________. Answer: compounding interest Difficulty: Moderate Keywords: compounding interest Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

18) The amount that must be invested now to accumulate to a certain amount in the future at a specified interest rate is called the ________. Answer: present value of an investment Difficulty: Moderate Keywords: present value, investment Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

19) The value of an investment at the end of the period over which interest is compounded is called the________. Answer: future value of the investment Difficulty: Moderate Keywords: future value, investment Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

20) The reduction of the value of money received in the future when the interest rate is known is called ________. Answer: discounting Difficulty: Moderate Keywords: present value, discounting Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

21) The interest rate used in discounting the future value of an investment to its present value is also called ________. Answer: discount rate Difficulty: Moderate Keywords: present value, discounting, discount rate Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

22) In the formula P =

the term r is ________.

Answer: the interest rate Difficulty: Easy Keywords: present value, discounting Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

23) A(n) ________ is a series of payments of a fixed amount for a specified number of years. Answer: annuity Difficulty: Moderate Keywords: annuity payments Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

24) The present value factors found in Table F.1 were calculated by changing the values of ________ and ________. Answer: time (number of periods), interest rate Difficulty: Moderate Keywords: annuity payments Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

25) Cash flows should be converted to ________ amounts before applying the net present value, payback, or internal rate of return method to them. Answer: after-tax Difficulty: Moderate Keywords: cash flow, after-tax cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

26) Explain the time-value-of-money concept. Answer: Basically, a dollar in hand today is worth more than a dollar to be received in the future. Difficulty: Easy Keywords: time value of money Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Explain the time value of money concept.

27) What is the future value of an investment of $10,000 at 8% interest after 10 years? Answer: Using the future value equation: F = P(1 + r)n F = $10.000(1 + .08)10 F = $10.000(2.1589) F = $21,589 Difficulty: Moderate Keywords: future value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

28) Nathan would have to wait until he was 35 to receive his inheritance, which was entirely too long in light of his impressive shopping list. He had almost given up hope when he saw an interesting offer one afternoon while watching television. In the advertisement, a company expressed a willingness to give him cash now if he would sign over his inheritance 11 years from now. If they use a 15% interest rate, what percentage of his inheritance will Nathan receive today? Answer: Using the present value equation: P=

= $0.215

Nathan will receive about 21% of the inheritance. Difficulty: Moderate Keywords: future value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

29) Acapella University offers to lock-in a student's tuition for a four year period. If tuition is $30,000 per year (payable at the end of each year) and the interest rate is currently 8%, what amount of money now would enable you to withdraw the $30,000 figure at the end of each of the next four years? Answer: Using the present value equation: P= P= P=

+ +

P = $27,777.78 + $25,720.16 + $23,814.97 + $22,050.89 P = $99,363.81 A balance of $99,363 will be needed for four equal withdrawals of $30,000 in the next four years. Difficulty: Moderate Keywords: future value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

30) Jake buys a new work truck every four years regardless of the condition of his current vehicle. His next truck will cost $45,000 and Jake estimates it will have a salvage value of $20,000 when it's time to buy a replacement. What is the annual depreciation? Answer: Using the depreciation equation: D= D= D = $6,250 Difficulty: Easy Keywords: future value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Explain the time value of money concept.

F.2 Methods of Financial Analysis 1) Depreciation is cash that is generated or paid out every year. Answer: FALSE Difficulty: Moderate Keywords: depreciation, cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

2) Straight-line depreciation is an accelerated depreciation method. Answer: FALSE Difficulty: Moderate Keywords: depreciation, accelerated depreciation, straight-line depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

3) Straight-line depreciation is the simplest way to calculate depreciation and usually is adequate for internal planning purposes. Answer: TRUE Difficulty: Moderate Keywords: depreciation, straight-line depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

4) To calculate straight-line depreciation, you divide the purchase price of the investment by the asset's expected economic life. Answer: FALSE Difficulty: Moderate Keywords: depreciation, straight-line depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

5) The net present value (NPV) method evaluates an investment by simply adding the future values of all after-tax total cash flows. Answer: FALSE Difficulty: Moderate Keywords: NPV, net present value, after-tax cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

6) The hurdle rate is the interest rate that is the highest desired return on an investment. Answer: FALSE Difficulty: Moderate Keywords: hurdle rate Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

7) The Modified Accelerated Cost Recovery System (MACRS) is one among many other accelerated depreciation methods. Answer: FALSE Difficulty: Moderate Keywords: depreciation, accelerated depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

8) The internal rate of return (IRR) is the discount rate that makes the NPV of a project positive. Answer: FALSE Difficulty: Moderate Keywords: internal rate of return, IRR Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

9) The term NPV in the context of a financial analysis of an investment stands for Net Positive Value. Answer: FALSE Difficulty: Easy Keywords: NPV, net present value Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

10) Depreciation: A) is not an allowance for the consumption of capital. B) is not a legitimate cash flow. C) does not act as a tax shield. D) does not consider the salvage value of an item. Answer: B Difficulty: Moderate Keywords: depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

11) Which method of analysis does not consider the time value of money? A) net present value (NPV) B) internal rate of return (IRR) C) payback D) future value of an investment (FVI) Answer: C Difficulty: Moderate Keywords: time value, payback, NPV, IRR Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

12) A poultry farmer is interested in purchasing an egg tester that can measure weight, albumin height, yolk color, and Haugh units all at the touch of a button. The unit will cost $6,900 and is expected to last 10 years at which point it can be sold for $500 to a farmer in a less stringently controlled egg market. What is the annual depreciation under the straight line method? A) $640 B) $690 C) $50 D) $740 Answer: A Difficulty: Easy Keywords: straight-line depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

13) A poultry farmer is interested in purchasing an industrial egg tester that can measure weight, albumin height, yolk color, and Haugh units all at the touch of a button. The unit will cost $6900 and is expected to last 10 years at which point it can be sold for $1,000 to a farmer in a less stringently controlled egg market. What is the annual depreciation for year 4 under the MACRS method? A copy of Table F.3 is appended to your exam. A) $862 B) $795 C) $737 D) $680 Answer: B Difficulty: Moderate Keywords: MACRS, depreciation, modified accelerated cost recovery Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

14) Which of the following is an accelerated depreciation method? A) straight-line depreciation B) MACRS C) net present value D) after-tax cash flow Answer: B Difficulty: Moderate Keywords: depreciation, accelerated depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

15) Lisa is pondering the construction and operation of a home-based cattery. She expects it will cost $35,000 to construct and will have a lifespan of four years before it collapses due to faulty construction and ammonia rot. Cash flows during those four glorious years are estimated as follows: Year 1 2 3 4

Inflow 6,000 7,000 8,000 9,000

Outflow 3,000 3,300 3,600 3,900

If the interest rate is 5%, what is the present value of the cattery project? A) -18,800 B) -20,790 C) -26,378 D) -47,168 Answer: B Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

16) Lisa is pondering the construction and operation of a home-based cattery. She expects it will cost $15,000 to construct and will have a lifespan of four years before it collapses due to faulty construction and ammonia rot. Cash flows during those four glorious years are estimated as follows: Year 1 2 3 4

Inflow 7,000 8,000 9,000 10,000

Outflow 3,000 3,300 3,600 3,900

If the interest rate is 5%, what is the present value of the cattery project? A) 2,756 B) 3,124 C) 2,983 D) 3,277 Answer: A Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

17) Lisa is pondering the construction and operation of a home-based cattery. She expects it will cost $25,000 to construct and will have a lifespan of four years before it collapses due to faulty construction and ammonia rot. Cash flows during those four glorious years are estimated as follows: Year 1 2 3 4

Inflow 10,000 12,000 13,000 10,000

Outflow 3,000 4,000 5,000 6,000

If the interest rate is 5%, what is the present value of the cattery project? A) 8,522 B) 8,823 C) 9,124 D) 9,625 Answer: C Difficulty: Moderate Keywords: present value Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

18) The NCX10 now features a coffee brewing subassembly, so Alex budgets the following cash outlays and incomes for the next three years. If the interest rate is 25%, what is the present value of this investment? Period 0 1 2 3

Inflow $5,000 7,000 8,000 7,000

Outflow $20,000 1,000 1,500 2,000

A) -$3,264 B) -$3,397 C) -$3,422 D) -$3,480 Answer: D Difficulty: Moderate Keywords: cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

19) The NCX10 now features a coffee brewing subassembly, so Alex budgets the following cash outlays and incomes for the next five years. If the interest rate is 8%, what is the present value of this investment after the second year? Period 0 1 2 3 4 5

Inflow $5,000 7,000 8,000 7,000 6,000 5,000

Outflow $20,000 1,000 1,500 2,000 3,000 5,000

A) $3,264 B) $5,572 C) -$3,871 D) -$9,444 Answer: C Difficulty: Moderate Keywords: cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Analytical Thinking Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

20) ________ is the cash that will flow into and out of the organization. Answer: Cash flow Difficulty: Easy Keywords: cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

21) ________ are the amounts of cash that flow into and out of the organization solely because of the project. Answer: Incremental cash flows Difficulty: Moderate Keywords: cash flow Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

22) ________ is an allowance for the consumption of capital. Answer: Depreciation Difficulty: Moderate Keywords: depreciation, allowance Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

23) The ________ method of calculating annual depreciation is the simplest, and usually is adequate for internal planning purposes. Answer: straight-line Difficulty: Moderate Keywords: straight-line depreciation Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

24) Since 1986, the only acceptable accelerated depreciation method is the ________. Answer: Modified Accelerated Cost Recovery System (MACRS) Difficulty: Moderate Keywords: accelerated depreciation, Modified Accelerated Recovery, MACRS Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

25) The cash flow from the sale or disposal of plant and equipment at the end of a project's life is its ________. Answer: salvage value Difficulty: Moderate Keywords: salvage value Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

26) The ________ is the interest rate that is the lowest desired return on an investment. Answer: hurdle rate Difficulty: Moderate Keywords: hurdle rate Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

27) The ________ is the discount rate that makes the NPV of a project zero. Answer: internal rate of return, IRR Difficulty: Moderate Keywords: internal rate of return, IRR Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

28) The ________ is used to evaluate projects by calculating the amount of time that will elapse before the total of after-tax cash flows will equal the initial investment. Answer: payback method Difficulty: Moderate Keywords: payback method Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

29) The term ________ is often used to describe the common U.S. business practice of focusing on shortterm results from low-risk projects via analysis by NPV or IRR calculations. Answer: managing by the numbers Difficulty: Moderate Keywords: managing by the numbers Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

30) Describe the basic techniques of financial analysis. Answer: The three techniques discussed in this textbook are net present value, internal rate of return, and payback. Net present value (NPV) calculates the present value of all future after-tax cash flows and then subtracts the original investment amount from their total. The internal rate of return (IRR) is the discount rate that makes the NPV of a project zero. Payback determines how much time will elapse before the total of after-tax cash flows will equal, or pay back, the initial investment. Difficulty: Moderate Keywords: financial analysis, NPV, IRR, payback, net present value, internal rate of return Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

31) What are the different types of depreciation? What are the advantages and disadvantages of each? Answer: The two types of depreciation discussed in the text are straight-line and accelerated. The straight-line depreciation method of calculating annual depreciation is the simplest and usually is adequate for internal planning purposes. If the tax shields come earlier, they are worth more. Tax laws allow just that with what is called accelerated depreciation. Since 1986, the only acceptable accelerated depreciation method in the United States is the Modified Accelerated Cost Recovery System (MACRS). MACRS shortens the lives of investments, giving firms larger tax deductions. It requires the firm to categorize their investments into one of six classes, each of which has a recovery period or class life. Difficulty: Moderate Keywords: depreciation, MACRS Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

32) What is payback from the financial perspective? Why would a manager choose to use this approach to investment analysis? Answer: The payback method determines how much time will elapse before the total of after-tax cash flows will equal, or pay back, the initial investment. Even though it is scorned by many academics, the payback method continues to be widely used, particularly at lower management levels. It can be quickly and easily applied and gives decision makers some idea of how long recovery of invested funds will take. Uncertainty surrounds every investment project. The costs and revenues on which analyses are based are best estimates, not actual values. An investment project with a quick payback is not considered as risky as one with a long payback. The payback method also has drawbacks. A major criticism is that it encourages managers to focus on the short run. A project that takes a long time to develop but generates excellent cash flows later in its life usually is rejected under the payback method. The payback method also has been criticized for its failure to consider the time value of money. Difficulty: Moderate Keywords: managing by the numbers Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

33) What are the problems and advantages of managing by the numbers? Answer: Financial analysis provides tools to objectively weigh decisions involving the deployment of capital. As such, it allows managers within a firm to make direct comparisons and standardize investment analysis. Managing by the numbers tends to favor short-term, low-risk projects that provide quick paybacks in favor of more strategic, long-term investments. Difficulty: Moderate Keywords: managing by the numbers Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Demonstrate the use of the net present value, internal rate of return, and payback methods of financial analysis.

F.3 Using Judgment with Financial Analysis 1) What is managing by the numbers? Explain whether this is beneficial and support your position. Answer: Managing by the numbers is a term used to describe an overreliance on easily quantifiable courses of action that typically are realizable in the short-term (i.e., will produce results that are reflected in quarterly reports). The precision and analytical detachment that come from using the NPV, IRR, or payback method can be deceiving. U.S. business has been accused of managing by the numbers, with a preference for short-term results from low-risk projects. Part of the problem lies with managers who are on the fast track to the top of their organizations. They occupy a rung on the ladder for a short time and then move up, and so they perceive it to be in their career interests to favor investments that give quick results. They establish short paybacks and high hurdle rates. They ignore or forgo long-term benefits from technological advances, innovative product plans, and strategic capacity additions. Over the long run, this narrow vision jeopardizes the firm's competitive advantage–and even its survival. Managing by the numbers has a second cause. Projects with the greatest strategic impact are likely to be riskier and have qualitative benefits that cannot be easily quantified. The mistake is to ignore these less-quantifiable benefits simply because they cannot be easily reported or justified. Including risks and qualitative factors as part of the analysis is far better than ignoring them. Difficulty: Moderate Keywords: managing by the numbers Learning Outcome: Describe the goals and stages of project management AACSB: Application of Knowledge Learning Objective: Discuss the importance of combining managerial judgment with quantitative techniques when making investment decisions.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement G Acceptance Sampling Plans G.1 Acceptance Sampling Quality and Risk Decisions 1) Acceptance sampling helps consumers by limiting the risk of rejecting bad-quality items. Answer: FALSE Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

2) In acceptance sampling, if the chosen sample fails the test, the entire lot is always rejected and returned back to the supplier. Answer: FALSE Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

3) As more firms initiate total quality management systems, the need for acceptance sampling will increase. Answer: FALSE Difficulty: Easy Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

4) The lot tolerance proportion defective (LTPD) is the worst level of quality the consumer can tolerate. Answer: TRUE Difficulty: Moderate Keywords: lot tolerance, proportion defective, LTPD Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

5) The acceptable quality level (AQL) is the consumer's desired level of quality. Answer: TRUE Difficulty: Moderate Keywords: acceptable quality level, AQL Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

6) The producer's risk (α) is the probability of accepting a lot with LTPD quality. Answer: FALSE Difficulty: Moderate Keywords: producer's risk, consumer's risk, LTPD Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

7) The consumer's risk (β) is the probability of rejecting a lot with LTPD quality. Answer: FALSE Difficulty: Moderate Keywords: consumer's risk, LTPD Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

8) The producer's risk (α) is also known as type II error. Answer: FALSE Difficulty: Moderate Keywords: producer's risk, consumer's risk, type I error, type II error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

9) The consumer's risk (β) is also known as type I error. Answer: FALSE Difficulty: Moderate Keywords: producer's risk, consumer's risk, type I error, type II error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

10) Acceptable quality level can be defined as the: A) quality level desired by the consumer. B) worst quality level the consumer can tolerate. C) probability of rejecting a good lot (i.e., when a lot is, in fact, acceptable to the consumer). D) probability of accepting a bad lot (i.e., when a lot is, in fact, not acceptable to the consumer). Answer: A Difficulty: Moderate Keywords: AQL, acceptable quality level Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

11) Which of the following is an example of a type I error? A) buying a carton of eggs at the store and discovering that one was broken B) releasing a guilty defendant C) returning your computer for warranty repair when the fault was caused by user error D) passing defective materials from a supplier into your processes to keep your workers busy Answer: C Difficulty: Moderate Keywords: type I error, producer risk, alpha Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

12) Which of the following is an example of a type II error? A) convicting an innocent defendant B) returning your "dead" stereo for warranty repair when its malfunction was caused by it not being plugged in C) halting production to adjust a machine when your process was actually in control D) eating food that has spoiled Answer: D Difficulty: Moderate Keywords: type II error, consumer risk, beta Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

13) Lot tolerance proportion defective (LTPD) can be defined as the: A) quality level desired by the consumer. B) worst quality level the consumer can tolerate. C) probability of rejecting a good lot (i.e., when a lot is, in fact, acceptable to the consumer). D) probability of accepting a bad lot (i.e., when a lot is, in fact, not acceptable to the consumer). Answer: B Difficulty: Moderate Keywords: LTPD, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

14) ________ is an inspection procedure used to determine whether to accept or reject a specific quantity of material. Answer: Acceptance sampling Difficulty: Easy Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

15) ________ is the quality level desired by the consumer. Answer: Acceptable quality level, AQL Difficulty: Moderate Keywords: AQL, acceptable quality level Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

16) ________ is the risk that the sampling plan will fail to verify an acceptable lot's quality and thus reject it—a type I error. Answer: Producer's risk, α Difficulty: Moderate Keywords: producer's risk, type I error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

17) ________ is the worst level of quality that the customer can tolerate. Answer: Lot tolerance proportion defective, LTPD Difficulty: Moderate Keywords: LTPD, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

18) ________ is the risk that a lot with LTPD will be accepted–a type II error. Answer: Consumer's risk, β Difficulty: Moderate Keywords: consumer's risk, beta, type II error, LTPD, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

19) Discuss the two incorrect conclusions that can be made when using acceptance sampling. Answer: The two incorrect conclusions are to reject a lot of good product and to accept a lot of defective product. The chance of rejecting a lot of good product is called the producer's risk or a type I error, and is usually set at 5 percent. The chance of accepting a defective lot is called consumer's risk or a type II error, and is usually set at 10 percent. Difficulty: Moderate Keywords: producer's risk, consumer's risk, type I error, type II error Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

20) What is the basic idea of incoming inspection? Why does a producer perform it? Answer: The idea of incoming inspection is to ensure that only good (or acceptable) components enter the production stream. If production uses faulty components, the output will be faulty and the effort wasted. Using only quality components brings the producer one step closer to creating quality output. The producer performs it at its own cost, because the up-front effort is less expensive than fixing defective finished goods at the end of the line or once they have reached consumers' hands. Difficulty: Moderate Keywords: inspection Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

21) Discuss producer's risk and consumer's risk. Answer: Producer's risk is the chance that good product is rejected and consumer's risk is the chance that bad product is accepted. Although producers are interested in low risk, they often have no control over the consumer's acceptance sampling plan. Fortunately, the consumer also is interested in a low producer's risk because sending good materials back to the producer (1) disrupts the consumer's production process and increases the likelihood of shortages in materials, (2) adds unnecessarily to the lead time for finished products or services, and (3) creates poor relations with the producer. Difficulty: Moderate Keywords: producer's risk, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Describe the tradeoffs between risk and quality level in the design of acceptance sampling plans.

G.2 Sampling Plans 1) A double-sampling plan requires two sample sizes, but only one common acceptance number for both samples. Answer: FALSE Difficulty: Moderate Keywords: double-sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

2) If a lot has a higher number of defectives, a double-sampling plan is usually more expensive than a single-sampling plan because of the need to inspect multiple samples. Answer: FALSE Difficulty: Moderate Keywords: double-sampling, single-sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

3) A single-sampling plan has n = 100 and c = 8. A sample is taken and four items are found to be defective. In this case, the quality manager would make the correct decision by accepting the entire lot. Answer: TRUE Difficulty: Easy Keywords: single sampling plan, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

4) A double-sampling plan has n1 = 100, n2 = 200, c1 = 5, and c2 = 10. Suppose on the first sample, three defective items were discovered. In this case, the quality manager would make the correct decision by inspecting the second sample before accepting or rejecting the lot. Answer: FALSE Difficulty: Moderate Keywords: double-sampling plan, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

5) A double-sampling plan has n1 = 100, n2 = 200, c1 = 5, and c2 = 10. Suppose on the first sample, seven defective items were discovered. In this case, the quality manager would make the correct decision by inspecting the second sample before accepting or rejecting the lot. Answer: TRUE Difficulty: Moderate Keywords: double-sampling plan, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

6) A double-sampling plan has n1 = 100, n2 = 200, c1 = 5, and c2 = 10. Suppose on the first sample, seven defective items were discovered. In this case, the quality manager would make the correct decision by rejecting the lot because the number of defects in the first sample exceeded the specified acceptance number. Answer: FALSE Difficulty: Moderate Keywords: double-sampling plan, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

7) A double-sampling plan is usually less expensive than a single-sampling plan if the lot has a low number of defectives. Answer: TRUE Difficulty: Moderate Keywords: double-sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

8) A single-sampling plan usually results in a smaller ANI compared to other sampling plans. Answer: FALSE Difficulty: Moderate Keywords: single-sampling, average number inspected, ANI Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

9) A single-sampling plan has n = 200 and c = 6. A sample is taken and five items are found to be defective. What should be done? A) Another sample should be taken. B) The lot should be rejected. C) The lot should be accepted. D) The five items should be repaired, and then the entire lot should be rejected. Answer: C Difficulty: Moderate Keywords: single sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

10) A double-sampling plan has n1 = 50, n2 = 100, c1 = 2, and c2 = 4. Suppose on the first sample, one defective item was discovered. What should be done? A) Reject the entire lot. B) Take a second sample of 100 units. C) Accept the entire lot. D) Repair the defective units, and accept the entire lot. Answer: C Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

11) A double-sampling plan has n1 = 50, n2 = 100, c1 = 2, and c2 = 4. Suppose on the first sample, five defectives were discovered. How many total items will be inspected before a decision is reached? A) 50 B) 100 C) 150 D) This cannot be determined with the information provided. Answer: A Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

12) A double-sampling plan has n1 = 100, n2 = 200, c1 = 5, and c2 = 10. Suppose on the first sample, seven defectives were discovered. How many more items will need to be inspected before a decision to either accept or reject the lot is reached? A) 0 B) 50 C) 100 D) 200 Answer: D Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

13) A double-sampling plan has n1 = 100, n2 = 200, c1 = 5, and c2 = 10. Suppose on the first sample, three defectives were discovered. How many more items will need to be inspected before a decision to either accept or reject the lot is reached? A) 0 B) 50 C) 100 D) 200 Answer: A Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

14) A double-sampling plan has n1 = 50, n2 = 100, c1 = 2, and c2 = 4. Suppose the first sample revealed two defectives. What should be done? A) Reject the entire lot. B) Take a second sampling of 100 units. C) Accept the entire lot. D) Repeat the tests on the first sample. Answer: C Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

15) Which of the following statements is true? A) Sequential-sampling plans are preferred to single-sampling plans because the average number of items inspected is generally lower. B) With a sequential-sampling plan, each time an item is inspected, a decision is made to accept or reject a lot. C) With a sequential-sampling plan, sampling continues until the lot is rejected. D) Sequential-sampling plans are defined by four parameters: n1, n2, c1, c2. Answer: A Difficulty: Moderate Keywords: sequential sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

16) A sampling plan whereby a decision is made to accept or reject a lot based on the results of one random sample from the lot is known as a(n) ________. Answer: single-sampling plan Difficulty: Easy Keywords: single-sampling, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

17) A sampling plan in which management specifies two sample sizes and two acceptance numbers is known as a(n) ________. Answer: double-sampling plan Difficulty: Easy Keywords: double-sampling, acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

18) A double-sampling plan has a lower ________ than a single-sampling plan. Answer: ANI, average number of items inspected Difficulty: Moderate Keywords: ANI, average number of items inspected Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

19) In general, a sequential sampling strategy will require a lower number of items be inspected if the actual percentage of defectives in the lot is ________. Answer: very low or very high Difficulty: Moderate Keywords: ANI, average number of items inspected Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

20) A(n) ________ is when the consumer randomly selects items from the lot and inspects them one by one. Answer: sequential-sampling plan Difficulty: Moderate Keywords: sequential sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

21) If you were interested in minimizing the average number of items inspected, which type of sampling plan would you choose? Why? Answer: The sequential sampling plan minimizes the average number of items inspected because with each item inspected, there is a chance that a decision can be made to accept or reject the lot. Difficulty: Moderate Keywords: ANI, average number of items inspected Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

22) Describe the process of a single-sampling plan. Answer: The single-sampling plan is a decision rule to accept or reject a lot based on the results of one random sample from the lot. The procedure is to take a random sample of size (n) and inspect each item. If the number of defects does not exceed a specified acceptance number (c), the consumer accepts the entire lot. Any defects found in the sample are either repaired or returned to the producer. If the number of defects in the sample is greater than c, the consumer subjects the entire lot to 100 percent inspection or rejects the entire lot and returns it to the producer. The single-sampling plan is easy to use but usually results in a larger ANI than the other plans. Difficulty: Moderate Keywords: single-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

23) Describe the process of a double-sampling plan. Answer: In a double-sampling plan, management specifies two sample sizes (n1 and n2) and two acceptance numbers (c1 and c2). If the quality of the lot is very good or very bad, the consumer can make a decision to accept or reject the lot on the basis of the first sample, which is smaller than in the singlesampling plan. To use the plan, the consumer takes a random sample of size n1. If the number of defects is less than or equal to (c1), the consumer accepts the lot. If the number of defects is greater than (c2), the consumer rejects the lot. If the number of defects is between c1 and c2, the consumer takes a second sample of size n2. If the combined number of defects in the two samples is less than or equal to c2, the consumer accepts the lot. Otherwise, it is rejected. A double-sampling plan can significantly reduce the costs of inspection relative to a single-sampling plan for lots with a very low or very high proportion defective because a decision can be made after taking the first sample. However, if the decision requires two samples, the sampling costs can be greater than those for the single-sampling plan. Difficulty: Moderate Keywords: double-sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Distinguish between single-sampling, double-sampling, and sequential-sampling plans, and describe the unique characteristics of each.

G.3 Operating Characteristic Curves 1) An operating characteristic curve is a graph that describes how well a sampling plan discriminates between good and bad lots. Answer: TRUE Difficulty: Easy Keywords: OC operating characteristic, probability, proportion Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

2) The distance between 1.0 and where the AQL intersects the OC curve is the value β (Beta). Answer: FALSE Difficulty: Moderate Keywords: OC, operating characteristic, probability, Beta, AQL Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

3) Increasing c while holding n constant decreases the producer's risk and increases the consumer's risk. Answer: TRUE Difficulty: Moderate Keywords: OC operating characteristic, producer risk, consumer risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

4) For a given AQL and LTPD, which one of the following statements about the single-sampling plan is true? A) If c stays constant but n is increased, both the producer's risk and the consumer's risk will increase. B) If c stays constant but n is increased, both the producer's risk and the consumer's risk will decrease. C) If n stays constant but c is increased, the producer's risk will decrease and the consumer's risk will increase. D) If n stays constant but c is increased, the producer's risk will increase and the consumer's risk will decrease. Answer: C Difficulty: Challenging Keywords: AQL, LTPD, acceptable quality level, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

5) Which one of the following will increase the consumer's risk? A) Decrease sample size and hold constant the number of defective items in a sample. B) Decrease the acceptable number of defective items in a sample and hold constant the sample size. C) Increase the sample size and decrease the acceptable number of defective items in a sample. D) Decrease the acceptable quality level and hold constant both sample size and the acceptable number of defective items in a sample. Answer: A Difficulty: Challenging Keywords: consumer's risk, sample size Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

6) Which one of the following alternatives will reduce the consumer's risk for a given AQL and LTPD? A) Reduce n and keep c constant. B) Increase n and keep c constant. C) Reduce n and increase c. D) Increase beta. Answer: B Difficulty: Challenging Keywords: AQL, LTPD, acceptable quality level, lot tolerance percent defective, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

7) Which one of the following alternatives will reduce the producer's risk for a given AQL and LTPD? A) Reduce n and keep c constant. B) Increase n and keep c constant. C) Increase n and reduce c. D) Increase alpha. Answer: A Difficulty: Challenging Keywords: AQL, LTPD, acceptable quality level, lot tolerance percent defective, producer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

8) Which one of the following actions will decrease the producer's risk? A) Increase n and keep c constant. B) Decrease n and keep c constant. C) Keep n constant and decrease c. D) Increase n and decrease c. Answer: B Difficulty: Challenging Keywords: producer's risk, sample size, acceptance number Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

9) The management of a company wishes to develop a new acceptance sampling plan that keeps acceptable quality level, lot tolerance proportion defective, and c constant. If the sample size (n) is increased, compared to the prior plan, which of the following is true? A) α increases B) α decreases C) β increases D) α and β increase Answer: A Difficulty: Challenging Keywords: AQL, LTPD, acceptable quality level, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

10) The average outgoing quality (AOQ) is: A) the average number of good units produced per hour. B) the expected proportion of defects a sampling plan will allow. C) the level of quality desired by the customer. D) the worst level of quality tolerated by the consumer. Answer: B Difficulty: Moderate Keywords: AOQ, average outgoing quality Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

11) An item is purchased with one surface polished to a specified finish quality. From each incoming shipment, a sample of items is randomly selected and the polished surface of each sample item is compared with a standard and judged to be either acceptable or unacceptable. The following parameters have been established: AQL = 0.02, = 0.05, LTPD = 0.09, and = 0.10. Table G.1 is appended to this exam. What are the sample size and the acceptance number? A) n = 89, c = 4 B) n = 39, c = 1 C) n = 43, c = 1 D) n = 237, c = 15 Answer: A Difficulty: Moderate Keywords: OC, operating characteristic curve, sample size, acceptance number Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

12) A company wants to develop an acceptance sampling plan that keeps the producer's risk at 0.03 or less and the customer's risk at 0.10 or less. The acceptable quality level (AQL) is 0.01, and the lot tolerance proportion defective (LTPD) has been set at 0.10. Which one of the following plans gives us the desired protection? Table G.1 is appended to this exam. A) c = 3, n = 190 B) c = 2, n = 54 C) c = 1, n = 30 D) c = 1, n = 20 Answer: B Difficulty: Moderate Keywords: AQL, LTPD, average quality level, lot tolerance percent defective Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

13) Use Table G.1 for the following question. What is the acceptance number of a single-sampling plan if n = 400, AQL = 0.002, and α= 0.01? A) c = 0 B) c = 1 C) c = 2 D) c = 3 Answer: D Difficulty: Moderate Keywords: acceptance number Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

14) Use Table G.1 for the following question. What is the acceptance number of a single-sampling plan if n = 300, LPTD = 0.02, and = 0.15? A) c = 0 B) c = 1 C) c = 2 D) c = 3 Answer: D Difficulty: Moderate Keywords: acceptance number Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

15) A manufacturer wants a sampling plan in which AQL = 0.02, LPTD = 0.12, α = 0.05, and β = 0.10. Which of the following values for n and c best satisfy these specifications? Table G.1 is appended to this exam. A) n = 54, c = 3 B) n = 100, c = 2 C) n = 200, c = 1 D) n = 162, c = 0 Answer: A Difficulty: Moderate Keywords: sampling plan, sample size Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

16) A company is developing an acceptance sampling plan to monitor quality. The acceptable quality level (AQL) is 0.01, and a sampling plan having c = 5 is being considered. If a producer's risk of 0.03 is desired, what should be the sample size? Table G.1 is appended to this exam. A) less than or equal to 25 B) more than 25 but less than or equal to 175 C) more than 175 but less than or equal to 325 D) more than 325 Answer: C Difficulty: Moderate Keywords: sample size Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

17) An ideal OC curve is shaped like a(n) ________. Answer: rectangle Difficulty: Moderate Keywords: OC, operating characteristic curve Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

18) A graph that demonstrates how well a sampling plan distinguishes between shipments that should be accepted and shipments that should be rejected is a(n) ________. Answer: OC Curve Difficulty: Moderate Keywords: OC, operating characteristic curve Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

19) The ideal operating characteristic (OC) curve can be achieved only with ________. Answer: 100 percent inspection Difficulty: Moderate Keywords: OC, operating characteristic curve Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

20) Why is an operating-characteristic (OC) curve useful? Answer: OC curves describe how well a sampling plan discriminates between good and bad lots. It shows the probability of accepting a lot for each proportion defective in a specified range. Difficulty: Moderate Keywords: OC, operating characteristic curve Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

21) Relative to an acceptance sampling plan, what is the net effect of increasing n while holding c constant? Answer: The producer's risk will increase and the consumer's risk will decrease. Difficulty: Moderate Keywords: n, sample size, c, acceptance number, OC, operating characteristic curve, acceptance sampling plan Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

22) A single-sampling plan by attributes is needed for a purchased component. Table G.1 is appended to this exam. Sample size = 80 Acceptance number (c) = 1 Acceptance quality level (AQL) = 0.02 Lot tolerance proportion defective (LTPD) = 0.06 Given the preceding information, draw the OC curve for this plan. Answer: Pct Defective Pac AOQ 0.00 1.0000 0.0000 0.01 0.8092 0.0081 0.02 0.5230 0.0105 0.03 0.3038 0.0091 0.04 0.1654 0.0066 0.05 0.0861 0.0043 0.06 0.0433 0.0026 0.07 0.0211 0.0015 0.08 0.0101 0.0008 0.09 0.0047 0.0004 0.10 0.0022 0.0002

Difficulty: Challenging Keywords: OC, operating characteristic curve Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Develop an operating characteristic curve for a single-sampling plan, and estimate the probability of accepting a lot with a given proportion defective.

G.4 Selecting a Single-Sampling Plan 1) If the sample size is increased and the acceptance level is unchanged, the OC curve will have a higher producer's risk. Answer: TRUE Difficulty: Moderate Keywords: sample size, acceptance level, consumer's risk, OC Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

2) If the sample size is increased and the acceptance level is unchanged, the OC curve will have a slope that is more negative. Answer: TRUE Difficulty: Moderate Keywords: sample size, acceptance level, consumer's risk, OC Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

3) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 50 Acceptance number (c) = 3 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.04 A) greater than or equal to 0 but less than or equal to 0.25 B) greater than 0.25 but less than or equal to 0.50 C) greater than 0.50 but less than or equal to 0.75 D) greater than 0.75 but less than or equal to 1.00 Answer: D Difficulty: Moderate Keywords: consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

4) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the producer's risk? Table G.1 is appended to this exam. Sample size = 75 Acceptance number (c) = 2 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.04 A) .01 B) .02 C) .03 D) .04 Answer: D Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

5) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the producer's risk? Table G.1 is appended to this exam. Sample size = 75 Acceptance number (c) = 3 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.04 A) .007 B) .008 C) .009 D) .010 Answer: A Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

6) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 75 Acceptance number (c) = 3 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.05 A) .46 B) .48 C) .50 D) .52 Answer: B Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

7) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 75 Acceptance number (c) = 2 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.05 A) .25 B) .27 C) .29 D) .31 Answer: B Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

8) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 100 Acceptance number (c) = 1 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.05 A) .028 B) .033 C) .037 D) .041 Answer: C Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

9) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 100 Acceptance number (c) = 1 Acceptance quality level (AQL) = 0.02 Lot tolerance proportion defective (LTPD) = 0.07 A) .003 B) .004 C) .005 D) .006 Answer: D Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

10) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the consumer's risk? Table G.1 is appended to this exam. Sample size = 125 Acceptance number (c) = 4 Acceptance quality level (AQL) = 0.02 Lot tolerance proportion defective (LTPD) = 0.07 A) .057 B) .061 C) .065 D) .069 Answer: A Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

11) A single-sampling plan by attributes is needed for a purchased component. Given the following information, what is the producer's risk? Table G.1 is appended to this exam. Sample size = 125 Acceptance number (c) = 4 Acceptance quality level (AQL) = 0.02 Lot tolerance proportion defective (LTPD) = 0.07 A) .06 B) .11 C) .16 D) .21 Answer: A Difficulty: Moderate Keywords: acceptance sampling Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

12) A sample of 100 items is randomly selected from a shipment of incoming materials. AQL and LTPD have been established at 0.01 and 0.07, respectively. When four or more defective items are found in a sample, the shipment is rejected. What is the value of α? Table G.1 is appended to this exam. A) less than or equal to 0.04 B) greater than 0.04 but less than or equal to 0.06 C) greater than 0.06 but less than or equal to 0.08 D) greater than 0.08 Answer: A Difficulty: Moderate Keywords: alpha, producer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

13) A sample of 100 items is randomly selected from a shipment of incoming materials. AQL and LTPD have been established at 0.01 and 0.07, respectively. When four or more defective items are found in a sample, the shipment is rejected. What is the value of β? Table G.1 is appended to this exam. A) less than or equal to 0.05 B) greater than 0.05 but less than or equal to 0.10 C) greater than 0.10 but less than or equal to 0.15 D) greater than 0.15 Answer: B Difficulty: Moderate Keywords: beta, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

14) Increasing c while holding n constant decreases the ________ risk and increases the ________ risk. Answer: producer's, consumer's Difficulty: Moderate Keywords: producer's risk, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

15) Increasing c while holding n constant ________ the producer's risk and________ the consumer's risk. Answer: decreases, increases Difficulty: Moderate Keywords: producer's risk, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

16) A single-sampling plan by attributes is needed for a purchased component. Table G.1 is appended to this exam. Sample size = 100 Acceptance number (c) = 2 Acceptance quality level (AQL) = 0.01 Lot tolerance proportion defective (LTPD) = 0.04 Given the preceding information, draw the OC curve for this plan. Answer:

Difficulty: Challenging Keywords: OC, operating characteristic curve, producer's risk, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Select a single-sampling plan with a given acceptable quality level (AQL) and lot tolerance percent defective (LTPD).

G.5 Average Outgoing Quality 1) Rectified inspection occurs when all defective items in the lot are replaced with good items if the lot is rejected and any defective items in the samples are replaced if the lot is accepted. Answer: TRUE Difficulty: Moderate Keywords: rectified inspection Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

2) The AOQL is the highest point in the plot of AOQ over all possible values of the proportion defective. Answer: TRUE Difficulty: Moderate Keywords: AOQ, AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

3) A lot of 1,000 items is on the loading dock. A single-sampling plan calls for a sample size of 10. The following table gives the probability of acceptance for the plan over a range of possible quality levels. Proportion Defective 0.01 0.02 0.03 0.04 0.05 0.06

Probability of Acceptance 0.97 0.85 0.60 0.50 0.24 0.05

What is the average outgoing quality limit for this plan? A) less than or equal to 0.018 B) greater than 0.0180 but less than or equal to 0.0200 C) greater than 0.0200 but less than or equal to 0.0220 D) greater than 0.0220 Answer: B Difficulty: Challenging Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

4) A single-sampling plan has the following performance: Proportion Defective 0.01 0.02 0.03 0.04 0.05 0.06

Probability of Acceptance 0.99 0.94 0.74 0.5 0.21 0.03

What is the average outgoing quality limit if the sample size is 200 and the lot size is 6,000? A) less than or equal to 0.0200 B) greater than 0.0200 but less than or equal to 0.0220 C) greater than 0.0220 but less than or equal to 0.0230 D) greater than 0.0230 Answer: B Difficulty: Challenging Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

5) The average outgoing quality (AOQ) is the: A) proportion of defectives that the sampling plan will allow to pass. B) proportion of non-defectives that the sampling plan will allow to pass. C) highest proportion of defectives that the sampling plan will allow to pass. D) lowest proportion of defectives that the sampling plan will allow to pass. Answer: A Difficulty: Easy Keywords: AOQ, average outgoing quality Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

6) A rectified inspection plan requires that: A) a rejected lot be returned to the supplier. B) a rejected lot be subjected to 100% inspection. C) a sample with too many defectives be returned to the lot for mixing and resampling. D) all units in the sample be returned to the lot if it is rejected. Answer: B Difficulty: Moderate Keywords: AOQ, average outgoing quality Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

7) A single-sampling plan using a sample size of 50 on a lot size of 2,000 has the following performance: Proportion Defective 0.01 0.02 0.03 0.04 0.05 0.06

Probability of Acceptance 0.98 0.95 0.90 0.74 0.41 0.15

Today the company making the purchase receives two lots of 2,000 items and the inspection department is in a big hurry. Which action will result in an identical AOQL for the purchasing company? A) Take a random sample of 25 from each lot and accept or reject both lots based on the results. B) Take a random sample of 50 from one lot and accept or reject the second lot based on the first lot's results. C) Take a random sample of 100 from one lot and accept or reject the second lot based on the first lot's results. D) Take a random sample of 50 from each lot and accept or reject each lot based on the results. Answer: D Difficulty: Moderate Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

8) This OC curve represents a sampling plan developed for a lot size of 1,000, a sample size of 15, and an acceptance number of 2. The probability of acceptance for each of the first six points appears next to the plotted point. What is the average outgoing quality for an incoming fraction defective of 0.25?

A) less than 0.045 B) greater than or equal to 0.045 but less than 0.055 C) greater than or equal to 0.055 but less than 0.065 D) greater than or equal to 0.065 Answer: C Difficulty: Moderate Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

9) This OC curve represents a sampling plan developed for a lot size of 500, a sample size of 15, and an acceptance number of 2. The probability of acceptance for each of the first six points appears next to the plotted point. What is the average outgoing quality for an incoming fraction defective of 0.15?

A) less than 0.06 B) greater than or equal to 0.06 but less than 0.07 C) greater than or equal to 0.07 but less than 0.08 D) greater than or equal to 0.08 Answer: D Difficulty: Moderate Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

10) This OC curve represents a sampling plan developed for a lot size of 1,000, a sample size of 15, and an acceptance number of 2. The probability of acceptance for each of the first six points appears next to the plotted point. What incoming fraction defective is associated with the average outgoing quality limit?

A) 0.10 B) 0.15 C) 0.20 D) 0.25 Answer: B Difficulty: Challenging Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

11) This OC curve represents a sampling plan developed for a lot size of 500, a sample size of 15, and an acceptance number of 2. The probability of acceptance for each of the first six points appears next to the plotted point. What is the average outgoing quality limit?

A) less than 0.08 B) greater than or equal to 0.08 but less than 0.09 C) greater than or equal to 0.09 but less than 0.10 D) greater than or equal to 0.10 Answer: B Difficulty: Moderate Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

12) Champion Cooling Company has developed a sampling plan calling for a sample size of 25 and an acceptance number of 1. The proportion defective and probability of acceptance appear in the table. Floyd Electric, their supplier ships whatever Champion Cooling asks; sometimes the lot size is as small as 30 units and it has been as large as 10,000 units. Champion Cooling decides to stick with what they know, a sample size of 25 and an acceptance number of 1 despite advice to the contrary. Which statement regarding their sampling plan is best? p 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10

Pa 0.9980 0.9868 0.9620 0.9235 0.8729 0.8129 0.7466 0.6768 0.6063 0.5371

A) The average outgoing quality level will remain constant since the sample size and the acceptance number do not change. B) The average outgoing quality level will vary as the lot size varies, but the average outgoing quality limit will remain constant. C) The incoming fraction defective that produces the average outgoing quality limit will remain the same regardless of lot size. D) The incoming fraction defective that produces the average outgoing quality limit will vary as the lot size varies. Answer: C Difficulty: Challenging Keywords: AOQL, average outgoing quality limit, lot size Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

13) A quality manager has established a sampling plan that calls for a sample size of 75 units and an acceptance number of 2. The supplier has agreed to a contract that calls for an AQL of 0.02 and an LTPD of .04. What is the AOQL? Table G.1 is appended to this exam. A) less than 0.11 B) between 0.11 and 0.14 C) between 0.14 and 0.17 D) greater than 0.17 Answer: D Difficulty: Moderate Keywords: OC, operating characteristic curve, AOQL Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

14) A quality manager has established a sampling plan that calls for a sample size of 75 units from a shipment of 5,000 pieces and an acceptance number of 2. The supplier has agreed to a contract that calls for an AQL of 0.02 and an LTPD of .04. What is the AOQ if the actual percentage of defectives in the lot is 2%? Table G.1 is appended to this exam. A) less than 0.014 B) between 0.014 and 0.018 C) between 0.018 and 0.022 D) greater than 0.022 Answer: B Difficulty: Moderate Keywords: OC, operating characteristic curve, producer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

15) A lot of 2,000 items has just arrived. A single sampling calls for a sample size of 100 and c = 3. What is the average outgoing quality limit, assuming that all defectives in the entire lot are replaced if it is rejected and all defectives are replaced in the sample if it is accepted? Table G.1 is appended to this exam. A) less than or equal to 0.0150 B) greater than 0.0150 but less than or equal to 0.0175 C) greater than 0.0175 but less than or equal to 0.0200 D) greater than 0.0200 Answer: C Difficulty: Moderate Keywords: AQL, acceptable quality level Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

16) Replacing all defective items in a rejected lot and all defective items in a sample with good items is called ________ inspection. Answer: rectified Difficulty: Moderate Keywords: rectified inspection Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

17) The maximum value of the average outgoing quality over all possible values of the proportion defective is called the ________. Answer: average outgoing quality limit, AOQL Difficulty: Moderate Keywords: AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

18) A small ________ can be disregarded in AOQ calculations involving an extremely large lot size. Answer: samples size (n) Difficulty: Moderate Keywords: AOQ, average outgoing quality, lot, sample size Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

19) The AOQ is often lower for a supplier with a high fraction defective than for a supplier with a comparatively lower fraction defective. Why wouldn't a supplier with a lower fraction defective always have a better AOQ? Answer: Average outgoing quality is based on the probability of accepting a lot with a certain fraction defective, given a sample (and lot) size. If a supplier has a very small fraction defective, it is unlikely that the inspection sample contains any defectives, so the lot will be accepted. A supplier with a much higher fraction defective will produce lots that trigger 100% inspection, resulting in more defective product being weeded out and a better AOQ. Difficulty: Moderate Keywords: AOQ, average outgoing quality Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Application of Knowledge Learning Objective: Compute the average outgoing quality for a single-sampling plan.

20) This OC curve represents a single sampling plan conducted on a lot size of 200 with a sample size of 20 and an acceptance number of 1. The y-coordinates of the first few points have been labeled; the x coordinates appear on the x-axis. If the receiving company uses rectified inspection, what is the greatest fraction defective that will enter their production process?

Answer: Average outgoing quality is calculated as the product of the OC curve XY coordinates adjusted by the sample and lot sizes. The first few points in the graph are: AOQ = AOQ =

= 0.03392

AOQ =

= 0.03523 = AOQL

AOQ =

= 0.02371

AOQ =

= 0.01246

The largest value (0.03523) is the AOQL, which is the greatest fraction defective that will enter the receiving company's product stream. Difficulty: Moderate Keywords: OC, operating characteristic curve, AQL, acceptance quality level, AOQL, average outgoing quality limit Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

21) A single-sampling plan by attributes is needed for a purchased component. Table G.1 is appended to this exam. Sample size = 80 Acceptance number (c) = 1 Acceptance quality level (AQL) = 0.02 Lot tolerance proportion defective (LTPD) = 0.06 Given the preceding information draw the AOQ curve and determine the AOQL. Answer: The AOQL is .0105. Pct Defective 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10

Pac 1.0000 0.8092 0.5230 0.3038 0.1654 0.0861 0.0433 0.0211 0.0101 0.0047 0.0022

AOQ 0.0000 0.0081 0.0105 0.0091 0.0066 0.0043 0.0026 0.0015 0.0008 0.0004 0.0002

Difficulty: Moderate Keywords: OC, operating characteristic curve, producer's risk, consumer's risk Learning Outcome: Apply basic statistical process control (SPC) methods AACSB: Analytical Thinking Learning Objective: Compute the average outgoing quality for a single-sampling plan.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement H Measuring Output Rates H.1 Work Standards 1) A work standard is used usually used to establish the time required for a new worker to perform a task following the implementation of a new process design. Answer: FALSE Difficulty: Moderate Keywords: work standard Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

2) A work standard should never be used for performance appraisals because it can demotivate workers. Answer: FALSE Difficulty: Moderate Keywords: work standard, normal performance Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

3) The work measurement process creates labor standards based on the judgment of skilled observers. Answer: TRUE Difficulty: Easy Keywords: work measurement, labor standard Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

4) Work standards would not be helpful for management in which area? A) developing costs for current and new products B) determining current and projected capacity requirements for a given demand C) comparing different routings for an item and evaluating new work methods and equipment D) forecasting demand for current products Answer: D Difficulty: Moderate Keywords: work standard Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

5) A(n) ________ is the time required for a trained worker to perform a task following a prescribed method with normal effort and skill. Answer: work standard Difficulty: Easy Keywords: work standard Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

6) The process of creating labor standards based on the judgment of skilled observers is ________. Answer: work measurement Difficulty: Easy Keywords: work measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

7) Are time standards more useful for manufacturing or service processes? Why? Answer: Answers will vary. Human output is more difficult to evaluate because skill, effort, intellect, and stamina vary from one employee to another. Humans are involved in both manufacturing and service processes, so time standards would be helpful in either case. However, they should not be used to set standards for jobs in which the nature of the task is different each time. Difficulty: Moderate Keywords: time standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

8) How can work standards be developed for higher level services and creative processes? Answer: Answers will vary. For processes with a lot of variation, the work sampling method could be used to estimate proportions of time spent by people based upon a larger number of observations. This will provide insight about the proportions of time spent on certain activities and could aid in the creation of work standards, but only if the jobs are well-defined and somewhat repetitive. Difficulty: Moderate Keywords: time standards, work standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Provide examples of the uses of work standards by managers.

H.2 Time Study Method 1) A time study is the method most often used for setting time standards for a job. Answer: TRUE Difficulty: Easy Keywords: study time, standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

2) The select time is the average observed time based only on representative times. Answer: TRUE Difficulty: Moderate Keywords: select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

3) A larger sample size is required when the job being studied is more consistent in completion time. Answer: FALSE Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

4) A larger sample size is required when the job being studied is shorter in average duration. Answer: TRUE Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

5) A larger sample size is required when the time estimate must be more certain. Answer: TRUE Difficulty: Easy Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

6) The snap-back method of time study resets the stopwatch to zero on the completion of each work element. Answer: TRUE Difficulty: Moderate Keywords: snap-back method, time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

7) The standard time for a work element is found by multiplying the select time by a performance rating factor. Answer: FALSE Difficulty: Moderate Keywords: standard time, work element Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

8) The performance rating factor in a time study is a totally objective measure. Answer: FALSE Difficulty: Moderate Keywords: performance rating factor Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

9) Fatigue, rest, or unavoidable delays are not factored into a work standard by the performance rating factor. Answer: TRUE Difficulty: Moderate Keywords: allowance time, performance rating factor Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

10) Time studies are appropriate for setting time standards for tasks that are different each time. Answer: FALSE Difficulty: Moderate Keywords: time study, standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

11) The method used most often for setting time standards for a job is the: A) elemental standard data approach. B) time study method. C) predetermined data approach. D) work sampling method. Answer: B Difficulty: Moderate Keywords: stopwatch study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

12) Timing the work elements using the snap-back method requires: A) the worker to perform each job element as quickly as possible. B) a larger sample size than using the continuous method. C) the use of two stopwatches. D) a smaller sample size than using the continuous method. Answer: C Difficulty: Moderate Keywords: stopwatch study, snap-back method Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

13) The warehouse manager observes a worker packing a standard shipping box and records the data displayed in the table below. What is the select time for this job element? Time (seconds) Observations 45 20 50 15 60 22 A) 47 seconds B) 52 seconds C) 55 seconds D) 60 seconds Answer: B Difficulty: Easy Keywords: stopwatch study, select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

14) The warehouse manager observes a worker packing a standard shipping box and records the data displayed in the table below. During one of the cycles (last observation row in the table below), the worker drops the shipping tape and takes time to recover and reset it. What is the select time for this job element? Time (seconds) Observations 45 20 50 15 60 22 300 1 A) less than 50 seconds B) greater than or equal to 50 seconds but less than 53 seconds C) greater than or equal to 53 seconds but less than 56 seconds D) greater than or equal to 56 seconds Answer: B Difficulty: Moderate Keywords: stopwatch study, select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

15) A warehouse worker loads packages onto a truck and the recorded data is displayed in the table below. What is the select time for this job element? Time (minutes) Observations 2 15 2.5 20 3 18 A) greater than or equal to 2.8 minutes B) less than 2.8 minutes but greater than or equal to 2.6 minutes C) less than 2.6 minutes but greater than or equal to 2.4 minutes D) less than 2.4 minutes Answer: C Difficulty: Easy Keywords: stopwatch study, select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

16) A warehouse worker loads packages onto a truck and the recorded data is displayed in the table below. During one of the cycles, the worker pauses to answer a query from a colleague. Although the worker fields such queries regularly, but that is not considered part of the worker's routine job responsibilities. What is the select time for this job element? Time (minutes) Observations 2 15 2.5 20 3 18 12 1 A) greater than or equal to 2.8 minutes B) less than 2.8 minutes but greater than or equal to 2.6 minutes C) less than 2.6 minutes but greater than or equal to 2.4 minutes D) less than 2.4 minutes Answer: B Difficulty: Moderate Keywords: stopwatch study, select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

17) A warehouse worker working at the loading dock recorded the time it took to load packages on a truck. Since the worker has done this several times, they assign themselves a rating of 1.10. The allowance factor for this endeavor is 10%. What is the select time for this job? Observation 1 2 3 4 5

Time (min) 4 5 4 3 5

A) 4.2 minutes B) 4.6 minutes C) 4.7 minutes D) 5 minutes Answer: A Difficulty: Easy Keywords: stopwatch study, select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

18) A warehouse worker working at the loading dock recorded the time it took to load packages on a truck. Since the worker has done this several times, they assign themselves a rating of 1.10. The allowance factor for this endeavor is 10%. What is the normal time for this job element? Observation 1 2 3 4 5

Time (min) 4 5 4 3 5

A) 4.2 minutes B) 4.6 minutes C) 4.7 minutes D) 5 minutes Answer: B Difficulty: Moderate Keywords: stopwatch study, normal time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

19) A warehouse worker working at the loading dock recorded the time it took to load packages on a truck. Since the worker has done this several times, they assign themselves a rating of 1.10. The allowance factor for this endeavor is 10%. What is the standard time for this job element? Observation 1 2 3 4 5

Time (min) 4 5 4 3 5

A) 4.2 minutes B) 4.6 minutes C) 4.7 minutes D) 5 minutes Answer: D Difficulty: Moderate Keywords: stopwatch standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

20) A warehouse worker working at the loading dock recorded the time it took to load packages on a truck. Since the worker has done this several times, they assign themselves a rating of 1.20. The allowance factor for this endeavor is 5%. What is the normal time for this job element? Observation 1 2 3 4 5

Time (min) 4 5 4 3 5

A) 4.2 minutes B) 4.6 minutes C) 4.7 minutes D) 5 minutes Answer: D Difficulty: Moderate Keywords: stopwatch study, standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

21) Which one of the following statements about the time study method is true? A) It is most appropriate for "thinking" jobs such as an automobile mechanic's diagnosis of a problem. B) It is used most often for setting time standards. C) Using the time study method technique, time standards can be set for new jobs before production begins. D) Performance ratings are not needed in the derivation of time standards. Answer: B Difficulty: Moderate Keywords: time study, standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

22) A time study analyst is attempting to determine the standard time for a work element. She or he observes a worker performing the work element at a lower-than-average pace. How will this fact be reflected in the time standard that is eventually created? A) The frequency of the work element per cycle will be increased. B) The proportion of allowance time will be increased above 1.0. C) The performance rating factor will be set less than 1.0. D) The normal time for the work element will be increased. Answer: C Difficulty: Moderate Keywords: performance rating factor Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

23) To set a time standard for a machining operation, the least likely approach to be used is the: A) time study method. B) elemental standard data approach. C) predetermined data approach. D) work sampling method. Answer: D Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

24) With a time study approach, the: A) nature of the task can be different with each replication, and the standards will still be good. B) skill of the observer is not very important. C) sample size is a function of the desired precision of the time estimate. D) sample size is typically larger than required for the work sampling approach. Answer: C Difficulty: Moderate Keywords: time study, sample size, precision Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

25) When using a time study approach, the standard time is the: A) normal time per cycle multiplied by 1.0 plus the allowance. B) select time multiplied by the rating factor, summed over all work elements. C) select time plus z times the standard deviation. D) normal time plus z times the standard deviation. Answer: A Difficulty: Moderate Keywords: time study, standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

26) An analyst using a time study approach: A) observes the worker at random times, categorizing what he or she is doing at that time. B) must rate the performance of the worker on each element of the total task. C) divides the total task into micro-motions such as "reach" and "grasp" and then times the worker on each one. D) should use all observations in determining the standard, regardless of how irregular they might be, to be fair to the worker. Answer: B Difficulty: Moderate Keywords: time study, performance rating Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

27) During a time study, the following times were observed for a particular job using the continuous (non-snapback) method: 22, 51, 72, 98, 128, and 150 seconds. There is only one element per cycle. The sample standard deviation of the observed times has already been computed as 3.9 seconds. If an estimate for the average time that is within 4 percent of the true long-range average 95 percent (z = 1.96) of the time is desired, how many additional observations are needed? A) fewer than or equal to 40 B) greater than 40 but fewer than or equal to 55 C) greater than 55 but fewer than or equal to 70 D) greater than 70 Answer: C Difficulty: Moderate Keywords: sample size, continuous stopwatch method Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

28) An industrial engineer is conducting a time study for a work element. The select time is 7.5 minutes, and the sample standard deviation of the observed time is one minute. What is the appropriate sample size if the estimate is to be 3 percent of the true average time 95 percent of the time (z = 1.96)? A) fewer than or equal to 70 B) greater than 70 but fewer than or equal to 80 C) greater than 80 but fewer than or equal to 90 D) greater than 90 Answer: B Difficulty: Moderate Keywords: sample size, time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

29) An industrial engineer is conducting a time study for a work element. The select time is 4.5 minutes, and the sample standard deviation of the observed time is 20 seconds. What is the appropriate sample size if the estimate is to be 5 percent of the true average time 95 percent of the time? A) fewer than or equal to seven B) greater than seven but fewer than or equal to eight C) greater than eight but fewer than or equal to nine D) greater than nine Answer: C Difficulty: Moderate Keywords: sample size, time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

30) A worker was observed for four cycles of a repetitive task. The observer used the continuous method for recording the times. The continuous times (in seconds) for each element are:

Which one of the following are the "select times" ( ) for each element? The first number is the select time for the first element, the second number is the select time for the second element, and so on. A) 19.5, 23, 25, 30 B) 1.5, 3.5, 5, 2 C) 2, 3, 2, 5 D) 1.5, 3.5, 2, 5 Answer: D Difficulty: Moderate Keywords: select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

31) A time study analyst is determining the standard time for a work element. The select time is 6.0 minutes, and the standard deviation of the select time is 2.2 minutes, based on a pilot sample of 20 observations. What is the appropriate sample size if the estimate for the select time is to be within 10 percent of the true average time 95 percent of the time (z = 1.96)? A) fewer than 30 observations B) greater than or equal to 30 observations but fewer than 40 observations C) greater than or equal to 40 observations but fewer than or equal to 50 observations D) greater than or equal to 50 observations Answer: D Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

Table H.1 A worker was observed for four cycles in a repetitive task that contains four distinct elements. The observer recorded the following items in seconds, using the snap-back method: Element 1 2 3 4

Cycle 1 20 8 30 25

Cycle 2 22 10 28 28

Cycle 3 25 9 25 26

Cycle 4 20 10 30 27

Cycle 5 21 10 32 25

32) Use the information in Table H.1. The observer assigned a performance rating factor of 1.05 to the worker and the company employs an allowance factor of 15%. What is the select time for Element 1? A) 25.40 seconds B) 22.75 seconds C) 21.60 seconds D) 23.76 seconds Answer: C Difficulty: Easy Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

33) Use the information in Table H.1. The observer assigned a performance rating factor of 1.05 to the worker and the company employs an allowance factor of 15%. What is the normal time for Element 1? A) 25.40 seconds B) 22.75 seconds C) 21.60 seconds D) 22.68 seconds Answer: D Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

34) Use the information in Table H.1. The observer assigned a performance rating factor of 1.05 to the worker and the company employs an allowance factor of 15%. What is the standard time for Element 2? A) 9.40 seconds B) 10.34 seconds C) 11.35 seconds D) 13.20 seconds Answer: C Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

35) Use the information in Table H.1. How many total observations must be made in order to estimate the select time for Element 1 if the company wishes to be within 5% of the actual value with 95% confidence? A) 10 B) 12 C) 15 D) 25 Answer: C Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

36) Use the information in Table H.1. The observer assigned a performance rating factor of 1.10 to the worker and the company employs an allowance factor of 15%. What is the select time for Element 3? A) 29 seconds B) 32 seconds C) 36.69 seconds D) 38.28 seconds Answer: A Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

37) Use the information in Table H.1. The observer assigned a performance rating factor of 1.10 to the worker and the company employs an allowance factor of 15%. What is the normal time for Element 3? A) 29 seconds B) 31.9 seconds C) 36.69 seconds D) 38.28 seconds Answer: B Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

38) Use the information in Table H.1. The observer assigned a performance rating factor of 1.10 to the worker and the company employs an allowance factor of 15%. What is the standard time for Element 4? A) 26.2 seconds B) 33.14 seconds C) 36.69 seconds D) 37.28 seconds Answer: B Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

39) Use the information in Table H.1. The observer assigned a performance rating factor of 1.15 to the worker and the company employs an allowance factor of 20%. How many total observations must be made in order to develop an estimate of the select time for Element 2 that is within 3% of the actual with 95% accuracy? A) 25 B) 36 C) 39 D) 50 Answer: C Difficulty: Moderate Keywords: sample size, time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

40) Use the information in Table H.1. The observer assigned a performance rating factor of 1.15 to the worker and the company employs an allowance factor of 20%. How many total observations must be made in order to develop an estimate of the select time for Element 4 that is within 3% of the actual with 95% accuracy? A) 11 B) 20 C) 40 D) 50 Answer: A Difficulty: Challenging Keywords: sample size, time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

Table H.2 Work Element 1 2 3 4

t (sec) 5.6 3.1 1.9 4.0

RF 1.1 1.0 1.1 0.8

F 1 1 1 2

41) Use the information in Table H.2. Which work element will take the longest for an average worker to perform per cycle? A) work element 1 B) work element 2 C) work element 3 D) work element 4 Answer: D Difficulty: Moderate Keywords: normal time, standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

42) Use the information in Table H.2. If the allowance for this task is 20 percent, what is the standard time for the entire task? A) fewer than 20 seconds B) greater than or equal to 20 seconds but fewer than 22 seconds C) greater than or equal to 22 seconds but fewer than 24 seconds D) greater than 24 seconds Answer: B Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

43) A time study analysis was performed on a task with two work elements. The select times for these work elements are 21.0 seconds and 13.0 seconds, with rating factors of 1.1 and 1.2, respectively. Each work element is performed twice per cycle. If an allowance of 20 percent is used, what is the standard time for this task? A) fewer than 50 seconds B) greater than or equal to 50 seconds but fewer than 70 seconds C) greater than or equal to 70 seconds but fewer than 90 seconds D) greater than or equal to 90 seconds Answer: D Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

44) If a worker spends 10 hours per day performing a task, and the allowance for this task is 19 percent, how many hours during the average day is the worker involved in nonproductive activities? A) fewer than 1.75 B) greater than or equal to 1.75 hours but fewer than 5 hours C) greater than or equal to 5.00 hours but fewer than 8.25 D) greater than or equal to 8.25 hours Answer: A Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

Table H.3 A worker was observed for four cycles in a repetitive task. The observer recorded the following times, in seconds, using the continuous method. The ratings for each element and frequency it is performed are also indicated in the table. The allowance fraction is 20 percent. Element 1 2 3 4

Cycle 1 15 37 47 90

Cycle 2 106 131 143 190

Cycle 3 208 234 245 293

Cycle 4 309 334 348 392

Rating 1.10 1.05 1.20 1.15

Frequency 1.0 0.5 0.5 1.0

45) Use the information in Table H.3. What is the select time for work element 4? A) fewer than 40 seconds B) greater than or equal to 40 seconds but fewer than 60 seconds C) greater than or equal to 60 seconds but fewer than or equal to 80 seconds D) greater than or equal to 80 seconds Answer: B Difficulty: Moderate Keywords: select time, work element Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

46) Use the information in Table H.3. What is the normal time for work element 2? A) fewer than 10 seconds B) greater than or equal to 10 seconds but fewer than 11 seconds C) greater than or equal to 11 seconds but fewer than 12 seconds D) greater than or equal to 12 seconds Answer: D Difficulty: Moderate Keywords: normal time, performance rating factor Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

47) Use the information in Table H.3. What is the standard time for work element 1? A) fewer than 18 seconds B) greater than or equal to 18 seconds but fewer than 20 seconds C) greater than or equal to 20 seconds but fewer than 22 seconds D) greater than or equal to 22 seconds Answer: C Difficulty: Moderate Keywords: standard time, allowance Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

48) Use the information in Table H.3. What is the normal time for the complete cycle? A) fewer than 85 seconds B) greater than or equal to 85 seconds but fewer than 95 seconds C) greater than or equal to 95 seconds but fewer than 105 seconds D) greater than or equal to 105 seconds Answer: B Difficulty: Challenging Keywords: normal time, performance rating factor, cycle Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

49) Use the information in Table H.3. What is the standard time for the complete cycle? A) fewer than 90 seconds B) greater than or equal to 90 seconds but fewer than 97 seconds C) greater than or equal to 97 seconds but fewer than 104 seconds D) greater than or equal to 104 seconds Answer: D Difficulty: Challenging Keywords: standard time, allowance, cycle Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

50) A time study analyst has found the select time for a work element to be 14.0 minutes, with a sample standard deviation of 3.2 minutes. What is the minimum sample size needed if the estimate is to be within 4 percent of the average 95 percent of the time (z = 1.96)? A) fewer than 100 B) greater than or equal to 100 but fewer than 140 C) greater than or equal to 140 but fewer than 180 D) greater than or equal to 180 Answer: B Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

51) At a new watch assembly plant, a job is divided into three work elements. The element times for the first four cycles are recorded by the continuous method and are presented below along with a performance rating factor (RF) for each element.

The standard time for this job, assuming that the allowance is 18 percent, is: A) fewer than or equal to 1.9 minutes. B) greater than 1.9 minutes but fewer than or equal to 2.0 minutes. C) greater than 2.0 minutes but fewer than or equal to 2.1 minutes. D) greater than 2.1 minutes. Answer: D Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

52) An observer has recorded the following select ( ) for a five-part task and has applied a rating factor (RF) to each. The times are in seconds. If there is a 15 percent allowance for "nonproductive" activities, compute the standard time for the total task. Element 1 2 3 4 5

6.2 1.7 4.5 1.2 5.0

RF 0.9 1.1 1.2 0.8 1.2

The standard time for the task is: A) fewer than or equal to 21 seconds. B) greater than 21 seconds but fewer than or equal to 23 seconds. C) greater than 23 seconds but fewer than or equal to 25 seconds. D) greater than 25 seconds. Answer: B Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

53) A worker was observed for four cycles of a repetitive operation. The observed times for work elements are 11, 10, 8, and 11 seconds, respectively. What sample size is appropriate for estimating the time for this work element within ± 3 percent of the true mean time with 95 percent confidence (z = 1.96)? A) fewer than or equal to 70 B) greater than 70 but fewer than or equal to 75 C) greater than 75 but fewer than or equal to 80 D) greater than 80 Answer: D Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

54) The following times in seconds were observed for a particular one-element job using the continuous method: 12, 22, 35, and 50. The worker's rating factor is 1.1. What is the standard time for the job if an allowance of 20 percent is provided? A) fewer than or equal to 14 seconds B) greater than 14 but fewer than or equal to 15 seconds C) greater than 15 but fewer than or equal to 16 seconds D) greater than 16 Answer: D Difficulty: Moderate Keywords: standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

55) The key to creating a work standard is defining ________. Answer: normal performance Difficulty: Moderate Keywords: work standard, normal performance Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

56) The most commonly used method for setting a time standard is called a(n) ________. Answer: time study Difficulty: Moderate Keywords: time study, time standard Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

57) The ________ is a measurement found by multiplying the select time, the frequency of work, and the rating factor. Answer: normal time, NT Difficulty: Moderate Keywords: normal time, NT Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

58) The ________ is the average observed time based only on representative times. Answer: select time Difficulty: Moderate Keywords: select time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

59) The ________ of job element timing requires that the observer reset the stopwatch after each observation. Answer: snap-back method Difficulty: Moderate Keywords: snap-back method Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

60) The ________ of job element timing involves recording the stopwatch reading for each work element upon its completion. Answer: continuous method Difficulty: Moderate Keywords: continuous method Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

61) The sample size needed for a time study will increase as ________ and/or ________ increase. Answer: confidence (z-score), standard deviation Difficulty: Moderate Keywords: confidence, standard deviation Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

62) The ________ is time added to adjust for factors such as fatigue or equipment malfunction. Answer: allowance time Difficulty: Moderate Keywords: allowance, time, fatigue, equipment malfunction Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

63) Name the four steps in a time study. Answer: The four steps are selecting work elements, timing the elements, determining the sample size, and setting the standard. Difficulty: Moderate Keywords: time study, steps Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

64) Perform a time study on yourself as you answer this question. Explicitly record your data, determine how long it will take to complete this exam and comment on the accuracy of your estimate. Answer: Answers will vary, but the student is developing a time standard based on a sample size of one, and is far from an unbiased observer. Difficulty: Moderate Keywords: time study, steps Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

65) What are the limitations of time studies? Answer: Time standards should not be used to set standards for jobs in which the nature of the task is different each time, such as a student solving a problem, a professor preparing a lecture, or an automobile mechanic diagnosing the cause of a nonroutine problem. In addition, an inexperienced person should not conduct time studies because errors in recording information or in selecting the work elements to include can result in unreasonable standards. Finally, some workers may object to time studies because of the subjectivity involved. Time studies are an imperfect, tool for setting equitable time standards, but when conducted by an experienced observer, provide satisfactory results. Difficulty: Moderate Keywords: time study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the time study method for establishing a work standard.

66) A pilot work study has been conducted on a new operation with four work elements. The following times, in seconds, were obtained using the continuous method.

a. What is the normal time for this operation? b. If an allowance of 20 percent is used, what is the standard time for this task? c. What sample size is appropriate for estimating the time for element 3 within ± 3 percent of the true mean time with 95 percent confidence (z = 1.96)? Answer:

a. Normal time = 34.79 b. Standard time = 41.748 c. Sample size = 259 Difficulty: Moderate Keywords: standard time, normal time, sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

67) A work study has been conducted on a new operation with three work elements. The following times, in minutes, were obtained using the continuous method.

a. What is the normal time for this operation? b. If an allowance of 20 percent is used, what is the standard time for this task? Answer: Sample Std Average dev Normal Rating Element 1 22 1.22 20.9 95 Element 2 15.6 0.55 16.38 105 Element 3 10.6 1.67 9.54 90 Normal time 46.8 Standard time 56.2 a. Normal time = 46.8 minutes b. Standard time = 56.2 minutes Difficulty: Moderate Keywords: standard time, normal time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the time study method for establishing a work standard.

H.3 Elemental Standard Data Method 1) Elemental standard time data cannot be used to develop time standards for new work before production begins. Answer: FALSE Difficulty: Moderate Keywords: elemental standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Describe the elemental standard data method for creating a work standard.

2) The use of elemental standard time data is recommended when a high degree of differentiation exists in the work elements of different jobs. Answer: FALSE Difficulty: Moderate Keywords: elemental standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Describe the elemental standard data method for creating a work standard.

3) With the use of elemental standard time data, the need for time studies can be completely eliminated. Answer: FALSE Difficulty: Moderate Keywords: elemental standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Describe the elemental standard data method for creating a work standard.

4) The use of elemental standard time data can produce accurate estimates for the normal time of a job element. Answer: FALSE Difficulty: Moderate Keywords: elemental standard time Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Describe the elemental standard data method for creating a work standard.

5) With the use of the elemental standard data approach: A) there is no need to estimate allowances. B) managers can develop standards for new work before production begins. C) time studies are not needed. D) the need to specify job variables that affect times for each work element is eliminated. Answer: B Difficulty: Moderate Keywords: elemental standard data Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Describe the elemental standard data method for creating a work standard.

H.4 Predetermined Data Method 1) The methods time measurement system is a predetermined data system. Answer: TRUE Difficulty: Moderate Keywords: MTM, methods time measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

2) The predetermined data approach eliminates the need for time studies altogether. Answer: TRUE Difficulty: Moderate Keywords: predetermined data approach, time studies Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

3) A predetermined data approach can be used to develop time standards for new work before production begins. Answer: TRUE Difficulty: Moderate Keywords: methods time measurement, predetermined data approach Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

4) The advantage of using the predetermined data approach for setting standards is that: A) it allows the setting of standards for a new job before production begins. B) the predetermined data are representative of all workers, without question. C) it does not require any special training to use it. D) it can be used on jobs in which the times to perform the micro-motions are sequence dependent. Answer: A Difficulty: Moderate Keywords: predetermined data, standards Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

5) The work measurement technique that breaks down tasks into a series of generic micro-motions is the: A) time study method. B) elemental standard data approach. C) predetermined data approach. D) work sampling method. Answer: C Difficulty: Moderate Keywords: micro-motion, work measurement, predetermined data Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

6) With the use of the methods time measurement approach: A) stopwatches are needed to time the elements that go together to make a task. B) there is a problem of biased judgment because performance ratings are needed to derive standards. C) work must be broken down into micro-motions. D) an analyst consults tables that contain the select times for a variety of work elements. Answer: C Difficulty: Moderate Keywords: methods time management, micro-motions Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

7) Which of the following is true regarding the MTM approach? A) A performance rating factor greater than 1.0 means the worker under observation is working slowly. B) A frequency of less than 1.0 means that the job element is not performed during every cycle. C) A performance rating factor less than 1.0 means the worker under observation is not producing output that has high quality. D) A negative allowance time means that the worker under observation is taking excessive breaks. Answer: B Difficulty: Easy Keywords: methods time measurement, MTM, frequency Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

8) When using the MTM approach: A) stopwatches are needed to time the elements that go together to make a task. B) there is a problem of biased judgment because performance ratings are needed to derive standards. C) an analyst consults tables that contain the select times for a variety of work elements. D) new work methods can be compared without conducting a time study. Answer: D Difficulty: Moderate Keywords: methods time measurement, MTM Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

9) An analyst divides each work element into a series of micro-motions common to a variety of tasks when using the ________. Answer: predetermined data approach Difficulty: Moderate Keywords: predetermined data approach, micromotion Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

10) The ________ system features a database with micromotions such as reach, move, apply pressure, grasp, and turn. Answer: MTM, methods time measurement, MTM-1 Difficulty: Moderate Keywords: predetermined data approach, micromotion, MTM, methods time measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

11) The MTM system features a database with ________ such as reach, move, apply pressure, grasp, and turn. Answer: micromotions Difficulty: Moderate Keywords: predetermined data approach, micromotion, MTM, methods time measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the predetermined data method for developing work standards.

H.5 Work Sampling Method 1) When using work sampling, data samples should be collected at pre-determined intervals during the day to avoid external factors like worker breaks and worker fatigue skewing the data. Answer: FALSE Difficulty: Moderate Keywords: work sampling data Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

2) The larger the confidence interval for a work sampling study, a smaller sample size required. Answer: FALSE Difficulty: Moderate Keywords: work sampling, sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

3) Special training is required for observers using work sampling. Answer: FALSE Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

4) As the sample size increases in a work sampling study, the maximum error decreases. Answer: TRUE Difficulty: Moderate Keywords: sample, size, maximum, error Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

5) Which one of the following statements about work measurement methods is true? A) The two methods of using a stopwatch in time studies are historical and snap-back. B) The time study method is usually used for less-repetitive work with no definite work cycle. C) With the time study method, the analyst assigns a performance rating factor (RF) to the work's performance. A value of RF greater than 1 means the worker is slower than a standard worker. D) The work sampling method needs many observations. Answer: D Difficulty: Moderate Keywords: work measurement methods, work sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

6) Which one of the following statements about work measurement is true? A) Work sampling is a technique to determine the proportion of time spent on different activities. B) In determining the normal time for the cycle, using a rating factor less than one (1.0) will increase the total time allowed for a job to be performed, relative to the select time. C) Machine standards are more difficult to develop than labor standards. D) The time study method is most appropriate for non-repetitive jobs in which the nature of the task differs each time. Answer: A Difficulty: Moderate Keywords: work measurement, sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

7) A major disadvantage of the work sampling method of work measurement is that: A) observers must be specially trained. B) only one study can be conducted at a time. C) it can be used only in hospital settings. D) a large number of observations are often required. Answer: D Difficulty: Moderate Keywords: work sampling, work measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

8) A manager wants to determine the proportion of time a cashier is idle. A work sampling method was used, and the idle time was found to be 15 percent based on 150 observations. If the manager wants a degree of precision of ± 0.06 with a 95 percent confidence level (z = 1.96), how many more observations are needed? A) greater than 100 but fewer than or equal to 150 B) greater than 150 but fewer than or equal to 200 C) greater than 200 D) The current number of observations are enough. Answer: D Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

9) A work sampling method is used to determine the proportion of the time a worker is idle. The following information was gathered on a random basis.

Day Monday Tuesday Wednesday Thursday

No. Times Clerk Idle 5 3 2 3

Total No. Observations 20 20 20 20

If the manager wants a 95 percent confidence level (z = 1.96) and a degree of precision of ± 0.04, how many more observations are needed? A) fewer than or equal to 400 B) greater than 400 but fewer than or equal to 500 C) greater than 500 but fewer than or equal to 600 D) greater than 600 Answer: B Difficulty: Challenging Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

10) A supermarket administrator suspects that idle time is about 20 percent for the cashier and 15 percent for the office clerk. If the administrator wants a 95 percent confidence level (z = 1.96) and a degree of precision of ± 0.05 for both cashier and office clerk, how many total observations are needed? A) fewer than or equal to 200 B) greater than 200 but fewer than or equal to 300 C) greater than 300 but fewer than or equal to 400 D) greater than 400 Answer: B Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

11) A job shop manager wants to determine the proportion of time the workers are idle. The shop employs two types of workers. Type 1 includes three workers and Type 2 includes two workers. The manager suspects that the proportion of idle time is about 20 percent for Type 1 workers and 15 percent for Type 2 workers. If the manager wants a 95 percent confidence level (z = 1.96) and a degree of precision of ± 0.05, how many trips will the observers have to take through the group? A) fewer than or equal to 80 B) greater than 80 but fewer than or equal to 90 C) greater than 90 but fewer than or equal to 100 D) greater than 100 Answer: C Difficulty: Moderate Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

12) A work sampling method is used to determine the proportion of the time a worker is idle. The following information was gathered on a random basis.

Day Monday Tuesday Wednesday Thursday

No. Times Clerk Idle 8 8 7 7

Total No. Observations 26 32 28 34

If the manager wants a 95 percent confidence level (z = 1.96) and a degree of precision of ± 0.03, how many more observations are needed? A) fewer than or equal to 700 B) greater than 700 but fewer than or equal to 800 C) greater than 800 but fewer than or equal to 900 D) greater than 900 Answer: A Difficulty: Challenging Keywords: sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

13) ________ involves estimating the proportion of time spent by people and machines on activities, based on a large number of observations. Answer: Work sampling Difficulty: Moderate Keywords: work sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

14) Why is a sampling schedule important in a work sampling study? Answer: A sampling schedule should determine when the workers are to be observed because the observations are just snapshots of time. In addition, the observation times should be randomized to avoid biases in worker performance. Difficulty: Moderate Keywords: sampling schedule, work sampling study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

15) Why would the elemental standard data approach be used instead of a work sampling study when developing a time standard? Answer: If a plant requires thousands of work standards, the time and cost required for the time study method may be prohibitive. When a high degree of similarity exists in the work elements of certain jobs, analysts often use elemental standard data to derive standards for various jobs. In addition to reducing the number of time studies or informed opinions needed, the elemental standard data approach can help managers develop standards for new work before production begins. This feature is helpful in product costing, pricing, and production planning. Difficulty: Moderate Keywords: elemental standard data approach, work sampling study Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

16) What are the strengths and limitations of the time study method when compared to work sampling, and for which applications are each best suited? Answer: Both are direct observation methods. However, a time study observes several cycles of work elements to determine a time standard, whereas work sampling takes "snapshots" of the facility to determine the percentage of time engaged in an activity. Time studies require experienced analysts, should not be used for tasks that vary each time, and are many times found to be objectionable to workers. Work sampling does not require special training and is generally accepted by workers because it tends to examine activities of the group rather than of the individual. In addition, many work sampling studies can be conducted simultaneously. Difficulty: Moderate Keywords: time study, work sampling Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

17) An undergraduate business student studies diligently in the library during dead week in anticipation of an outstanding performance on her final exams. She asks a friend to spy on her at random intervals to determine what percentage of time she is actually studying. Over the course of three days, her friend records the following observations:

Observation Period Monday Tuesday Wednesday

Times Studying 20 21 10

Times Not Studying 3 4 1

Observations 23 25 11

Total

If the student wants a 95 percent confidence level (z = 1.96) and a degree of precision of ± 0.08, how many more observations are needed? Answer: n =

2 (p)(1 - p) =

= 70.35

n = 70.35 - 59 = 11.35 There have already been 59 observations, so 12 more observations are needed. Difficulty: Moderate Keywords: work sampling, sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

18) The Dean's office is interested in determining the percentage of students receiving A's in their study tour classes. The results of three classes are summarized in this table:

Observation Period Monday Tuesday Wednesday

A Grade 26 25 15

Other Grade 3 0 1

Total

Observations 23 25 16 70

The Assistant Dean wants a 98 percent confidence level and a degree of precision of ± 0.04. How many more observations are needed? Answer: n =

2 (p)(1 - p)

2 .9428(1 - .9428)

n = 182.8 There have already been 70 observations, so 113 more observations are needed. Difficulty: Moderate Keywords: work sampling, sample size Learning Outcome: Discuss options for measuring supply chain performance AACSB: Analytical Thinking Learning Objective: Use the work sampling method to estimate the proportion of time spent on an activity.

H.6 Managerial Considerations in Work Measurement 1) Companies should utilize traditional work measurement techniques when faced with technological change and process automation. Answer: FALSE Difficulty: Easy Keywords: work measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the managerial considerations of work measurement.

2) Traditional work measurement techniques are viewed as one avenue to establish cordial managementemployee relations. Answer: FALSE Difficulty: Moderate Keywords: work measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the managerial considerations of work measurement.

3) What is the impact of greater reliance on technology on work measurement? Answer: Technological change is a reason to reexamine work measurement techniques. For example, when a firm increases its level of automation, its methods of work measurement must also change. The need to use traditional work measurement techniques to develop work standards is less for automated processes because many computer-controlled machines can gather data on their processes. Hence, standards for machines can be set without having to sample unit processing times. Application of the techniques discussed in this supplement can then focus on less prevalent activities that are largely controlled by the pace of workers. Difficulty: Moderate Keywords: work measurement Learning Outcome: Discuss options for measuring supply chain performance AACSB: Application of Knowledge Learning Objective: Discuss the managerial considerations of work measurement.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement I Learning Curve Analysis I.1 The Learning Curve Concept 1) The learning effect can be represented by a line called a learning curve. Answer: TRUE Difficulty: Easy Keywords: learning effect, learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

2) The first learning curve was developed by the aircraft industry. Answer: TRUE Difficulty: Moderate Keywords: learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

3) An 80% learning rate means that the time required to complete a task falls by 20% for each successive unit of output. Answer: FALSE Difficulty: Moderate Keywords: learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

4) Which of the following statements about learning curves is generally true? A) Management can decide to achieve a certain rate of learning. B) Learning curves were first quantified by the U.S. Postal Service. C) Using the "doubling" model, a learning curve with a rate of learning of 70 percent means the tenth unit takes 70 percent of the time that the twentieth unit will take. D) Learning curves are recognition of the concept that the time a task takes usually decreases with experience. Answer: D Difficulty: Moderate Keywords: learning curve, repetition Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

5) Which one of the following statements is true about the relationship between learning curves and competitive strategy? A) Knowing where your process is on the learning curve will enable you to make frequent product modifications. B) Firms that emphasize low cost in their competitive strategy strive to move down the learning curve by increasing volume. C) Learning curves enable managers to project fixed manufacturing costs for future production quantities. D) Projecting the impact of learning curves into the future is one effective way of reducing the impact of environmental uncertainty. Answer: B Difficulty: Moderate Keywords: learning curve, competitive strategy Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

6) Which one of the following is an assumption of learning curves? A) The cumulative time of production decreases as production increases. B) Time reduction per unit increases as cumulative production increases. C) The same learning curve should be used when a company increases its level of automation. D) The reduction in time per unit follows an exponential curve. Answer: D Difficulty: Moderate Keywords: learning curve assumption, exponential curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

7) Once the learning curve has flattened, i.e., reached a mostly horizontal shape, the per-unit time could be described as ________. Answer: standard time Difficulty: Moderate Keywords: learning curve, standard time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

8) A business that relies on learning effects to achieve their strategic objectives is most likely in a(n) ________ volume ________ variety production sector. Answer: high, low Difficulty: Moderate Keywords: learning curve, output volume Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

9) The process of gaining experience with products and processes and making improvements in administrative methods or personnel is called as ________. Answer: organizational learning Difficulty: Moderate Keywords: learning curve, organizational learning Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Explain the concept of a learning curve and how volume is related to unit costs.

I.2 Developing Learning Curves 1) One assumption about learning curves is that the reduction in time obeys a normal distribution. Answer: FALSE Difficulty: Moderate Keywords: learning rate, exponential Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

2) One assumption about learning curves is that the reduction in time to complete a task will decrease with each successive unit of output. Answer: TRUE Difficulty: Moderate Keywords: learning rate, learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

3) A task that obeys learning effects will, in general, have a positive result to the equation tn+1tn, where tn is the completion time of the nth unit. Answer: FALSE Difficulty: Moderate Keywords: learning rate, learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

4) Which one of the following statements is not a typical assumption related to developing learning curves? A) The total direct labor hours needed to produce the first 100 units will be double the amount of hours needed to build the first 50 units. B) The direct labor needed per unit will decrease at a declining rate as cumulative production increases. C) The direct labor hours per unit will decrease according to an exponential curve as cumulative production increases. D) The direct labor needed to produce the 50th unit will always be more than the direct labor needed to produce the 51st unit. Answer: A Difficulty: Moderate Keywords: learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

5) The annual report for Luddite Corporation boasted of their ERP implementation and noted that, "while there were initially some growing pains, our learning rate for this system has been calculated at 100%." What are the implications of this statement? A) Luddite Corporation is twice as fast processing transactions now. B) Luddite Corporation is twice as slow processing transactions now. C) Luddite Corporation processes transactions at the same rate now. D) Luddite Corporation processes transactions instantaneously (takes zero time) now. Answer: C Difficulty: Moderate Keywords: learning curve, rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

6) Under learning curve theory, with a learning rate of 80 percent, the: A) time to produce the second unit will be 80 percent less than the time to produce the first unit. B) time to produce the fourth unit will be 20 percent less than the time to produce the third unit. C) time to produce the fourth unit will be 20 percent less than the time to produce the second unit. D) average time per unit will be cut in half for every 80 units. Answer: C Difficulty: Moderate Keywords: learning curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

7) Which one of the following statements about learning curves is false? A) The direct labor for the n+1st unit will always be less than the direct labor required for the nth unit. B) The reduction in time will follow an exponential curve. C) A benefit of learning curves is that they are unaffected by factors such as product complexity and the rate of capital additions. D) Using industry averages for learning curves can be risky because the type of work and competitive niches can differ from firm to firm. Answer: C Difficulty: Moderate Keywords: learning curve, capital expenditures, product complexity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

8) The first unit took ten hours to finish and the second unit was finished 8 hours later. How long will it take to finish the fourth unit? A) 7.5 hours B) 6.4 hours C) 6 hours D) 5.75 hours Answer: B Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

9) The first unit took ten hours to finish and the second unit was finished 8 hours later. How long will it take to finish the sixteenth unit? A) 6.4 hours B) 5.75 hours C) 5.1 hours D) 4.1 hours Answer: D Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

10) The first unit takes 25 hours to finish. The learning rate is 80%. What will be the average time per unit to complete the first 4 four units? A) less than 16 hours B) 16 hours or more but less than 18 hours C) 18 hours or more but less than 20 hours D) more than 20 hours Answer: C Difficulty: Moderate Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

11) Centurion Processing finishes the first unit in 100 hours and learns at a 75% rate. Their competitor, Ochenta Incorporated, completes their first unit in 80 hours but learns at an 80% rate. If they match total output with each other how many more units must each fierce rival make before Centurion is faster than Ochenta? A) four more B) six more C) eight more D) ten more Answer: D Difficulty: Challenging Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

12) Centurion Processing finishes the first unit in 120 hours and learns at a 70% rate. Their competitor, Ochenta Incorporated, completes their fist unit in 80 hours but learns at an 80% rate. If they match total output with each other how many units must each fierce rival make before Centurion's cumulative processing time is lower than Ochenta's? A) 30 units B) 33 units C) 36 units D) 39 units Answer: A Difficulty: Challenging Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

13) The fifth unit took 36.3406 hours to produce and the eighth unit took only 32.549 hours. If the producer, who shall remain nameless (for obvious reasons) learns at a constant rate, how long did the first unit take? A) 49 hours B) 53 hours C) 57 hours D) 61 hours Answer: B Difficulty: Challenging Keywords: learning curve analysis Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

14) In Troix City, the learning rate is based on a tripling of output instead of the traditional doubling. The first unit of a long production run was produced in 25 hours. The process has an estimated learning rate of 90 percent. At what level of output will the cumulative production time exceed 200 hours? A) 8 units B) 9 units C) 10 units D) 11 units Answer: C Difficulty: Challenging Keywords: learning curve, learning rate, total production time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

15) In Troix City, the learning rate is based on a tripling of output instead of the traditional doubling. The first unit of a long production run was produced in 25 hours. The process has an estimated learning rate of 90 percent. How long will the 15th unit take to produce? A) 18.67 hours B) 19.28 hours C) 20.74 hours D) 17.23 hours Answer: C Difficulty: Challenging Keywords: learning curve, learning rate, production time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

16) In Troix City, the learning rate is based on a tripling of output instead of the traditional doubling. The first unit of a long production run was produced in 25 hours. The process has an estimated learning rate of 80 percent. How long will the 9th unit take to produce? A) 22 hours B) 20 hours C) 18 hours D) 16 hours Answer: D Difficulty: Challenging Keywords: learning curve, learning rate, production time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

17) In Troix City, the learning rate is based on a tripling of output instead of the traditional doubling. The first unit of a long production run was produced in 20 hours. In Deux City across the river, the learning rate is based on the usual doubling of output. The first unit of the production run in Deux City took 30 hours. At what level of output will the workers in Deux City become faster than those in Troix City if both locations enjoy an 80% learning rate? A) 27 units B) 31 units C) 35 units D) 39 units Answer: B Difficulty: Challenging Keywords: learning curve, learning rate, production time Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

18) Given that the third unit took 100 minutes and the rate of learning is 80 percent, how much time will it take to build unit 96? A) fewer than or equal to 30 minutes B) greater than 30 minutes but fewer than or equal to 35 minutes C) greater than 35 minutes but fewer than or equal to 40 minutes D) greater than 40 minutes Answer: B Difficulty: Challenging Keywords: learning curve, time required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

19) It took 50 hours to produce the first unit and 45 hours to produce the second unit. How many hours are required to produce the eighth unit? [Note: a calculator is required to answer this question.] A) fewer than or equal to 33 hours B) greater than 33 hours but fewer than or equal to 37 hours C) greater than 37 hours but fewer than or equal to 41 hours D) greater than 41 hours Answer: B Difficulty: Moderate Keywords: learning curve, time required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

20) It took 100 hours to produce the first unit and the learning rate is 80 percent. How much time will it take to produce units 16 through 20? Refer to the copy of Table I.1 appended to this exam. A) fewer than or equal to 160 hours B) greater than 160 but fewer than or equal to 170 hours C) greater than 170 but fewer than or equal to 180 hours D) greater than 180 hours Answer: D Difficulty: Moderate Keywords: learning curve, time required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

21) Given that the fifth unit took 10 hours to build and the learning rate is 90 percent, how much time will it take to build units 11 through 15? Refer to the copy of Table I.1 appended to this exam. A) fewer than or equal to 38 hours B) greater than 38 hours but fewer than or equal to 40 hours C) greater than 40 hours but fewer than or equal to 42 hours D) greater than 42 hours Answer: D Difficulty: Moderate Keywords: learning curve, time required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

22) A company is introducing a new product. The first unit took 1,000 hours to complete, and the fourth unit took 750 hours to complete. What is the rate of learning for this product? A) less than 40 percent B) greater than or equal to 40 percent but less than 60 percent C) greater than or equal to 60 percent but less than 80 percent D) greater than 80 percent Answer: D Difficulty: Moderate Keywords: learning curve, learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

23) The mathematical model that is used to generate a learning curve is ________. Answer: logarithmic Difficulty: Moderate Keywords: learning curve, logarithm Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

24) The learning rate depends on factors such as ________ and ________, while replacing direct labor hours with ________ alters the learning rate, giving less opportunity to make reductions in the required hours per unit. Answer: process complexity, rate of capital additions, automation Difficulty: Moderate Keywords: learning rate, complexity, rate of capital, automation Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

25) What are the three major assumptions of the learning curve? Answer: (1) Direct labor required for the n+1st unit will always be less than that required for the nth unit. (2) Direct labor requirements will decrease at a declining rate as cumulative production increases. (3) Reductions in time will follow an exponential curve. Difficulty: Moderate Keywords: learning curve, assumptions Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Develop a learning curve using the logarithmic model.

26) A contractor is preparing a bid to install swimming pools at a new housing addition. The estimated time to build the first pool is 35 hours. The contractor estimates a 90 percent learning rate; what is the estimated time to install all 30 pools? Refer to the copy of Table I.1 appended to this exam. Answer: Using Table I.1, the coefficient for a 90 percent learning rate with n = 30 is 0.6909. The time for all 30 pools would be 35 hours × 0.6909 × 30 = 725.44 hours Difficulty: Moderate Keywords: learning, rate, curve Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

27) The estimated time to produce the first unit is 100 hours. If a 90 percent learning rate is applicable, what is the estimated time of producing the first ten units? Refer to the copy of Table I.1 appended to this exam. Answer:

Difficulty: Moderate Keywords: learning curve, learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

28) Tim usually exhibits a 90% learning rate for the mechanical tasks he undertakes. His next big project, the fence along the street, will require 24 iterations of the fencepost task. If he has 40 hours available to work on the project, how fast must he perform the first iteration in order to finish all 24 within his allotted time? Refer to the copy of Table I.1 appended to this exam. Answer: The first unit must be finished in 2.34 hours in order to get all 24 units done in 40 hours. Difficulty: Moderate Keywords: learning curve, learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

29) Tim usually exhibits an 80% learning rate for the mechanical tasks he undertakes. His next big project, the fence along the street, will require 35 iterations of the fencepost task. If he has 80 hours available to work on the project, how fast must he perform the first iteration in order to finish all 35 within his allotted time? Refer to the copy of Table I.1 appended to this exam. Answer: The first unit must be finished in 5.114 hours in order to get all 44 units done in 80 hours. Difficulty: Moderate Keywords: learning curve, learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

30) Two contract labor companies are competing for work being outsourced by Febrero SpA. One contractor, Terza, has a learning rate governed by a tripling of output at a 90% rate and the other contractor, Segundo, has a learning rate governed by the conventional doubling of output at a 90% rate. Both Terza and Segundo take 20 minutes to complete the first unit they are given for bid estimation purposes. How many more units must Terza make than Segundo before their time per unit drops below 15 minutes? [Note: a calculator is required to answer this question.] Answer: Segundo: 15 = 20 × n log(.90)/log(2) n log(.90)/log(2) = 0.75 log(n) = n = 6.63 → 7th unit Terza: 15 = 20 × n log(.90)/log(3) n log(.90)/log(3) = 0.75 log(n) = n = 20.079 → 21st unit Depending on rounding, students will determine that the 20th or 21st unit will do the trick for Terza, a difference of about 14 units. Difficulty: Challenging Keywords: learning curve, learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Develop a learning curve using the logarithmic model.

I.3 Using Learning Curves Case I.1 The production schedule for a new product follows. Month 1 2 3

No. Units 5 7 4

The first unit took 50 hours to complete, and the rate of learning is 90 percent. Each employee works 40 hours per month. Refer to the copy of Table I.1 appended to this exam. 1) Using the information in Case I.1, how much time will it take to produce the units in month 1? A) fewer than 200 hours B) greater than or equal to 200 hours but fewer than 225 hours C) greater than or equal to 225 hours but fewer than 250 hours D) greater than 250 hours Answer: B Difficulty: Moderate Keywords: learning curve, time required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Identify ways to use learning curves for managerial decision making.

2) Using the information in Case I.1, what is the minimum number of employees needed in month 3? A) fewer than 5 employees B) greater than or equal to 5 employees but fewer than 7 employees C) greater than or equal to 7 employees but fewer than 9 employees D) greater than 9 employees Answer: A Difficulty: Challenging Keywords: learning curve, employees required Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Identify ways to use learning curves for managerial decision making.

3) The production for a new product follows: Month 1 2 3 4

Units 4 5 6 7

The first unit will take 2,000 hours to produce and the learning rate is 90 percent. Currently, the company employs 40 workers, who each work 200 hours regular time per month. In which months will overtime be needed for the production schedule shown? Refer to the copy of Table I.1 appended to this exam. A) month 4 only B) months 3 and 4 only C) months 1 and 2 only D) month 1 only Answer: B Difficulty: Moderate Keywords: learning curve, overtime Learning Outcome: Describe major approaches to sales and operations planning AACSB: Analytical Thinking Learning Objective: Identify ways to use learning curves for managerial decision making.

4) How are learning curves useful in financial planning? Answer: Learning curves help the financial planner determine the amount of cash needed to finance operations and provide a basis for comparing prices and costs. They can be used to help determine a contract price by identifying the average direct labor cost per unit. Difficulty: Moderate Keywords: learning curves, financial planning Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Identify ways to use learning curves for managerial decision making.

5) For a company that produces hand held calculators, the Operations Manager knows that in the early stages of production for a new product, the expenditures exceed receipts, whereas in the latter stages, the reverse is true. Give an explanation for this phenomenon. Answer: The learning curve theory states that the direct labor costs will exceed the average in the early stages of production, whereas the reverse is true in the latter stages. Difficulty: Moderate Keywords: learning curves, direct labor Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Identify ways to use learning curves for managerial decision making.

6) When production time standards are being developed for a brand new process for several of the hand assembly components of the production line, what are the implications of learning effects on the time standards and the line balance? What could be done to address this situation? Answer: Learning curve theory states that the labor requirement will be greater in the early stages of production and lower as workers complete several repetitions of their jobs. A line balance that is performed using inflated times will have increased idle time and decreased efficiency as learning effects occur. Learning effects can be compensated for by applying a smaller performance rating factor or allowance factor. If management is unsure of the workers' learning rate, the line can be balanced, and then a second study performed to rebalance it. Difficulty: Moderate Keywords: learning curves, output rate, time standard, line balance Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Identify ways to use learning curves for managerial decision making.

I.4 Managerial Considerations in the Use of Learning Curves 1) The simpler the process, the less pronounced the learning rate. Answer: TRUE Difficulty: Moderate Keywords: learning rate Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

2) Learning curves provide their greatest advantage in the later stages of new service or product production. Answer: FALSE Difficulty: Moderate Keywords: learning curve, new service, new product Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

3) Using industry averages can provide more accurate estimates of the learning rate for a process. Answer: FALSE Difficulty: Moderate Keywords: learning rate, industry averages Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

4) As the cumulative number of units produced becomes large, the: A) learning effect is more noticeable. B) learning effect increases. C) learning effect is less noticeable. D) learning effect decreases. Answer: C Difficulty: Moderate Keywords: learning curve, learning effect Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

5) Which statement regarding the effect of automating some of the direct labor in a process is best? A) The overall learning rate should be unaffected. B) The overall learning rate will probably decrease. C) The overall learning rate will probably increase. D) The learning rate for the automated portion of the process should be higher than the learning rate for the portion that is not automated. Answer: B Difficulty: Moderate Keywords: learning curve, learning rate, automation Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

6) Why is the learning rate more pronounced for complex products than for simple products? Answer: Complex products offer more opportunity for improving work methods, materials, and processes. Difficulty: Moderate Keywords: learning rate, product complexity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

7) What are some managerial considerations when using learning curves? Answer: Although learning curves can be useful tools for operations planning, managers should keep several things in mind when using them. First, an estimate of the learning rate is necessary in order to use learning curves, and it may be difficult to get. Using industry averages can be risky because the type of work and competitive niches can differ from firm to firm. The learning rate depends on factors such as process complexity and the rate of capital additions. Learning curves are dynamic because they are affected by various factors. For example, a short service or product life cycle means that firms may not enjoy the flat portion of the learning curve for very long before the service or product is changed or a new one is introduced. In addition, organizations utilizing team approaches will have different learning rates than they had before they introduced teams. Total quality management and continual improvement programs also will affect learning curves. Finally, managers should always keep in mind that learning curves are only approximations of actual experience. Difficulty: Moderate Keywords: learning rate, product complexity Learning Outcome: Describe major approaches to sales and operations planning AACSB: Application of Knowledge Learning Objective: Discuss the key managerial considerations in the use of learning curves.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement J Operations Scheduling J.1 Performance Measures for Scheduling Processes 1) Schedules for continuous process can be developed with linear programming. Answer: TRUE Difficulty: Easy Keywords: operations scheduling, linear programming Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

2) Operations scheduling applies only to manufacturing, because services do not allow inventories. Answer: FALSE Difficulty: Easy Keywords: manufacturing, services, inventory Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

3) Makespan is the total amount of time required to complete a group of jobs. Answer: TRUE Difficulty: Moderate Keywords: makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

4) Makespan is the total amount of time to complete a single job or the first job in a group of jobs. Answer: FALSE Difficulty: Moderate Keywords: makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

5) In the context of operations scheduling, total inventory is the simply sum of on-hand inventories for all items. Answer: FALSE Difficulty: Moderate Keywords: total inventory, scheduled receipts Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

6) An appropriate objective for a manufacturing firm is to minimize total inventory. Answer: TRUE Difficulty: Easy Keywords: total inventory Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

7) A manufacturer's operation with line flows is often called a job shop. Answer: FALSE Difficulty: Moderate Keywords: job shop, flow shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

8) A manufacturer's operation with divergent flows is often called a flow shop. Answer: FALSE Difficulty: Moderate Keywords: job shop, flow shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

9) Utilization is the degree to which equipment, space, or the workforce is currently being used, measured as the ratio of maximum capacity to the average output rate. Answer: FALSE Difficulty: Moderate Keywords: utilization, output rate, maximum capacity Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

10) The back office would be the equivalent of a job shop for a service provider. Answer: FALSE Difficulty: Moderate Keywords: job shop, flow shop, back office, front office Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

11) The front office would be the equivalent of a flow shop for a service provider. Answer: FALSE Difficulty: Moderate Keywords: job shop, flow shop, back office, front office Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

12) Which of the following statements on an operations schedule is best? A) It determines when employees work. B) It assigns employees to tasks depending on availability. C) It assigns customers to a definite time for order fulfillment. D) It assigns jobs to workstations or employees to jobs for specified time periods. Answer: D Difficulty: Moderate Keywords: operations scheduling, workstations, job assignments Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

13) A job's flow time at a single workstation is defined as the: A) completion time of the job plus the time since it arrived at the workstation. B) processing time to complete the job. C) time of completion of the last job of a group minus the starting time of the first job. D) amount of time by which a group of jobs missed their due dates. Answer: A Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

14) In the context of operations scheduling, total inventory is equal to: A) scheduled receipts plus on-hand inventories. B) received orders minus scheduled receipts. C) on-hand inventories plus received orders. D) None of these is equal to total inventory. Answer: A Difficulty: Easy Keywords: total inventory, scheduled receipts, on-hand inventory Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

15) The percent of work time productively spent by an employee or a machine is called: A) activation. B) efficiency. C) effectiveness. D) utilization. Answer: D Difficulty: Easy Keywords: utilization Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

16) ________ scheduling assigns jobs to machines or employees to jobs. Answer: Operations Difficulty: Easy Keywords: operations scheduling Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

17) ________ is the time a job spends in the service or manufacturing system. Answer: Flow time Difficulty: Moderate Keywords: job flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

18) A(n) ________ is the object receiving service or being manufactured. Answer: job Difficulty: Easy Keywords: job Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

19) ________ is the total amount of time required to complete a group of jobs. Answer: Makespan Difficulty: Moderate Keywords: makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

20) ________ is the amount of time by which a job missed its due date. Answer: Past due, Tardiness Difficulty: Moderate Keywords: past due, tardiness Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

21) The sum of scheduled receipts for all items and the on-hand inventories for all items is ________. Answer: total inventory Difficulty: Moderate Keywords: total inventory Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

22) ________ is the degree to which equipment, space, or the workforce is currently being used. Answer: Utilization Difficulty: Moderate Keywords: utilization Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

23) A manufacturer's operation with line flows is often called a(n) ________. Answer: flow shop Difficulty: Moderate Keywords: job shop, flow shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

24) A manufacturer's operation with divergent flows is often called a(n) ________. Answer: job shop Difficulty: Moderate Keywords: job shop, flow shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

25) The back office would be the equivalent of a(n) ________ for a service provider. Answer: flow shop Difficulty: Moderate Keywords: job shop, flow shop, back office, front office Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

26) The front office would be the equivalent of a(n) ________ for a service provider. Answer: job shop Difficulty: Moderate Keywords: job shop, flow shop, back office, front office Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

27) Why is flow time an important measure of performance? Answer: Minimizing job flow times in a schedule tends to minimize work-in-process inventory and maximize utilization. In addition, flow times are related to the lead times (or cycle times) of products and have an influence on customer service. Difficulty: Moderate Keywords: job flow time, inventory, utilization Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

28) Describe the difference between front office and back office operations from the standpoint of scheduling customer jobs. Answer: Front office operations are customer-facing (high customer contact) and typically have highly divergent work flows and a high degree of customization. The demands on front-office operations are difficult to predict, which complicates scheduling. Further, since customer contact exists, the cultural norm is often a FCFS sequence, which performs poorly in most measures of schedule performance. A back-office operation is less divergent, and often is constructed in a linear fashion. Tasks are easier to schedule because they have a common flow pattern through the system. Difficulty: Moderate Keywords: job flow time, inventory, utilization Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Define new performance measures (beyond flow time and past due) for evaluating a schedule.

J.2 Job Shop Scheduling 1) Sequencing jobs does not affect tardiness, because processing times are unchanged with different sequences. Answer: FALSE Difficulty: Easy Keywords: sequencing of jobs, tardiness, processing time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

2) Once the schedule for a job show is finalized, new jobs are not accepted so as not to change the schedule. Answer: FALSE Difficulty: Moderate Keywords: job shop, dynamic Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

3) A job shop is accompanied by divergent flows and low-to-medium volume output rates. Answer: TRUE Difficulty: Moderate Keywords: job shop, flow, output rate Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

4) A manufacturer's flow shop utilizes line or continuous flow processes. Answer: TRUE Difficulty: Easy Keywords: flow shop, line flow process, continuous flow process Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

5) The earliest due date (EDD) rule gives the job with the shortest processing time the highest priority. Answer: FALSE Difficulty: Moderate Keywords: EDD, priority sequencing rule, early due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

6) A first-come, first-served schedule minimizes the average flow time for all jobs. Answer: FALSE Difficulty: Moderate Keywords: FCFS, first-come, first-served, flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

7) Critical ratio (CR) is a single-dimension priority rule. Answer: FALSE Difficulty: Moderate Keywords: critical ratio, dimension Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

8) Slack is the difference between the time remaining until a job's due date and the total shop time remaining, excluding that of the operation being scheduled. Answer: FALSE Difficulty: Moderate Keywords: slack Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

9) When using the critical ratio (CR) priority sequencing rule: A) a ratio of less than 1.0 implies that the job is ahead of schedule. B) a ratio of less than 1.0 implies the job is behind schedule. C) the job with the earliest due date is scheduled next. D) the job with the highest CR is scheduled next. Answer: B Difficulty: Moderate Keywords: critical ratio, priority sequencing rule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

10) Which one of the following rules tends to perform well with respect to percentage of jobs past due and variance of hours past due, but performs relatively poorly with respect to average flow time? A) earliest due date B) shortest processing time C) first-come, first-served D) longest processing time Answer: A Difficulty: Moderate Keywords: EDD, earliest due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

11) When choosing a priority sequencing rule: A) select multiple-dimension rules because they dominate single-dimension rules for all performance measures. B) always select the rule that minimizes the amount of past-due jobs. C) test a variety of rules before making a decision. D) select CR or S/RO because they use more information. Answer: C Difficulty: Moderate Keywords: priority sequencing rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

12) Determining a production sequence for a group of jobs in a two-station flow shop to minimize the makespan has the advantage of: A) maximizing the utilization of the shop. B) minimizing the percentage of jobs past due. C) minimizing the flow time of jobs on the first machine. D) minimizing the variance of past-due hours. Answer: A Difficulty: Moderate Keywords: utilization Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.1 The framing department has six jobs waiting to be processed. It is now time zero. Times are expressed in terms of days.

Job A B C D E F

Time Since Job Arrived 8 7 7 4 3 2

Processing Time 2 8 4 10 5 12

Due Date (days from now) 7 16 4 17 15 18

13) Using the information in Table J.1 and the SPT rule, what is the average flow time? A) fewer than or equal to 20 days B) greater than 20 days but fewer than or equal to 22 days C) greater than 22 days but fewer than or equal to 24 days D) greater than 24 days Answer: C Difficulty: Moderate Keywords: SPT, average flow time, shortest process time rule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

14) Using the information in Table J.1 and the EDD rule, what is the average flow time? A) fewer than or equal to 22 days B) greater than 22 days but fewer than or equal to 25 days C) greater than 25 days but fewer than or equal to 28 days D) greater than 28 days Answer: B Difficulty: Moderate Keywords: EDD, average flow time, earliest due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

15) Using the information in Table J.1 and the EDD rule, what is the average early time? A) less than or equal to 0.5 days B) greater than 0.5 but less than 1 day C) greater than 1 but less than 1.5 days D) greater than 1.5 days Answer: B Difficulty: Moderate Keywords: EDD, earliest due date, early time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

16) Using the information in Table J.1 and the SPT rule, what is the average past due? A) less than or equal to 7 days B) greater than 7 days but fewer than or equal to 10 days C) greater than 10 days but fewer than or equal to 13 days D) greater than 13 days Answer: A Difficulty: Moderate Keywords: SPT, shortest processing time, average flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

17) Using the information in Table J.1 and the FCFS rule, what is the average flow time? A) fewer than or equal to 20 days B) greater than 20 days but fewer than or equal to 24 days C) greater than 24 days but fewer than or equal to 28 days D) greater than 28 days Answer: C Difficulty: Moderate Keywords: FCFS, first-come, first served, average flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

18) Using the information in Table J.1 and the FCFS rule, what is the average past due? A) less than or equal to 5 days B) greater than 5 days but fewer than or equal to 8 days C) greater than 8 days but fewer than or equal to 11 days D) greater than 11 days Answer: C Difficulty: Moderate Keywords: FCFS, first-come, first served, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.2 Stu Dent reviews the syllabi he received on the first day of class and pulls out his planner. He has seven major assignments that must be completed before the end of the semester.

Job A B C D E F G

Time Since Job Processing Arrived Time Due Date 0 7 14 0 12 22 0 5 12 0 11 56 0 9 26 0 8 42 0 15 59

19) What is the average flow time for all assignments scheduled in an SPT sequence? A) 28.65 B) 32.14 C) 35.92 D) 36.88 Answer: B Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

20) Develop an SPT sequence and calculate the average number of assignments Stu has this semester. A) 3.36 B) 3.52 C) 3.78 D) 3.94 Answer: A Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

21) Stu decides to adopt an SPT sequence for the assignments, which at face value seems like an odd choice. Which assignments will he be submitting late? A) C, D and F B) B, C and F C) B, E and G D) F, E and G Answer: C Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

22) Stu decides to adopt an EDD sequence for the assignments, which seems like a very logical approach. Which assignments will he be submitting late? A) C, D and F B) B, C and F C) B, E and G D) F, E and G Answer: C Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

23) Stu applies the critical ratio method to scheduling his assignments. Which assignment is the fourth one in his sequence? A) E B) G C) C D) D Answer: A Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

24) What is the average flow time for all seven assignments if Stu schedules them using the critical ration criterion? A) 38.17 B) 37.43 C) 36.67 D) 38.26 Answer: B Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

25) Stu schedules his assignments using the critical ratio criterion. How many assignments are late? A) 3 B) 4 C) 5 D) 6 Answer: C Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

26) Stu whips up a schedule based on the critical ratio criterion. What is the average number of assignments in the system? A) 3.91 B) 3.71 C) 3.53 D) 3.14 Answer: A Difficulty: Moderate Keywords: job flow time, job completion time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.3 The following three jobs just arrived (end of hour 0) at Workstation A. They are the only ones waiting to be processed.

Job 1 2 3

Processing Time Time Remaining at Workstation A to Due Date (hours) (days) 12 3 18 10 7 7

Shop Time Remaining Including Workstation A (days) 5 8 10

Number of Remaining Operations 2 5 2

27) Use the information in Table J.3. The sequence of jobs using the slack per remaining operations (S/RO) rule, is: A) 1-3-2. B) 3-2-1. C) 1-2-3. D) 2-3-1. Answer: A Difficulty: Moderate Keywords: S/RO, sequence, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

28) Use the information in Table J.3. The operations sequence of jobs, using the critical ratio (CR) rule, is: A) 3-1-2. B) 3-2-1. C) 1-2-3. D) 2-3-1. Answer: C Difficulty: Moderate Keywords: CR, sequence, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

29) Use the information in Table J.3. The average past due using the slack per remaining operations (S/RO) rule is: A) fewer than or equal to 9.0. B) greater than 9.0 but fewer than or equal to 18.0. C) greater than 18.0 but fewer than or equal to 27.0. D) greater than 27.0. Answer: B Difficulty: Challenging Keywords: S/RO, past due, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

30) Use the information in Table J.3. The average past due using the ratio (CR) rule, is: A) fewer than or equal to 9.0. B) greater than 9.0 but fewer than or equal to 18.0. C) greater than 18.0 but fewer than or equal to 27.0. D) greater than 27.0. Answer: C Difficulty: Challenging Keywords: CR, past due, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.4 All of the following three jobs just arrived (end of hour 0) at Workstation A. They are the only ones waiting to be processed.

Job 1 2 3

Processing Time at Workstation A (hours) 6.1 5.0 4.3

Time Remaining to Due Date (days) 5 3 8

Shop Time Remaining Including Workstation A (days) 3.5 4.7 10.3

31) Use the information in Table J.4. What is the job sequence at Workstation A, using the critical ratio rule? A) 3-2-1 B) 1-2-3 C) 1-3-2 D) 2-1-3 Answer: B Difficulty: Moderate Keywords: CR, sequence, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

32) Use the information in Table J.4. What is the average flow time at Workstation A for the critical ratio rule? A) fewer than or equal to 8 hours B) greater than 8 hours but fewer than or equal to 9 hours C) greater than 9 hours but fewer than or equal to 10 hours D) greater than 10 hours Answer: D Difficulty: Challenging Keywords: flow time, CR, critical ratio rule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

33) Use the information in Table J.4. What is the average past due time at Workstation A for the critical ratio rule? A) 0 hours B) greater than 0 hours but fewer than or equal to 5 hours C) greater than 5 hours but fewer than or equal to 10 hours D) greater than 10 hours Answer: A Difficulty: Challenging Keywords: past due, CR, critical ratio rule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.5 The following four jobs just arrived (end of hour 0) at Workstation A. They are the only ones waiting to be processed.

Job 1 2 3 4

Processing Time Time Remaining at Workstation A to Due Date Shop Time (hours) (days) Remaining (days) 4.0 5 4 5.0 4 4 6.0 8 10 7.0 9 10

Number of Remaining Operations 2 1 3 1

34) Using the information in Table J.5 and the slack per remaining operations (S/RO) rule, what is the job sequence? A) A-B-C-D B) A-C-D-B C) C-D-B-A D) D-C-B-A Answer: D Difficulty: Moderate Keywords: S/RO, sequence, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

35) Using the information in Table J.5 and the S/RO rule, what is the average flow time at Workstation A? A) fewer than or equal to 14.0 hours B) greater than 14.0 but fewer than or equal to 14.5 hours C) greater than 14.5 but fewer than or equal to 15.0 hours D) greater than 15.0 hours Answer: C Difficulty: Challenging Keywords: S/RO, flow time, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

36) Using the information in Table J.5 and the critical ratio (CR) rule, what is the job sequence? A) C-D-B-A B) D-C-B-A C) A-C-D-B D) D-B-A-C Answer: A Difficulty: Moderate Keywords: CR, sequence, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

37) Using the information in Table J.5 and the CR rule, what is the average flow time at workstation A? A) fewer than or equal to 14.0 hours B) greater than 14.0 but fewer than or equal to 14.5 hours C) greater than 14.5 but fewer than or equal to 15.0 hours D) greater than 15.0 hours Answer: C Difficulty: Moderate Keywords: CR, flow time, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.6 Auto Data produces custom engineering testing equipment. The following six jobs are currently in the design department. The time since each one arrived, the processing time, and the due date are shown below. All times are expressed in terms of days. Let now be the beginning of Day 1.

Job A B C D E F

Time Since Job Arrived 10 9 7 6 3 1

Processing Time 5 9 7 2 3 8

Due Date (days from now) 7 5 9 3 4 8

38) Using the information in Table J.6 and the EDD rule, what is the average days past due? A) fewer than or equal to 8.0 days B) greater than 8.0 days but fewer than or equal to 9.5 days C) greater than 9.5 but fewer than or equal to 11.0 days D) greater than 11.0 days Answer: D Difficulty: Moderate Keywords: EDD, earliest due date, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

39) Using the information in Table J.6 and the SPT rule, what is the average days past due? A) fewer than or equal to 8.0 days B) greater than 8.0 days but fewer than or equal to 10.0 days C) greater than 10.0 days but fewer than or equal to 12.0 days D) greater than 12.0 days Answer: C Difficulty: Moderate Keywords: SPT, shortest processing time, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

40) Using the information in Table J.6 and the FCFS rule, what is the average days past due? A) fewer than or equal to 8.0 days B) greater than 8.0 days but fewer than or equal to 10.0 days C) greater than 10.0 days but fewer than or equal to 12.0 days D) greater than 12.0 days Answer: D Difficulty: Moderate Keywords: FCFS, first-come, first served, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

41) Using the information in Table J.6, and either the FCFS, SPT or EDD rule, what is the fewest number of late jobs possible? A) no late jobs B) two late jobs C) four late jobs D) five late jobs Answer: D Difficulty: Challenging Keywords: FCFS, SPT, EDD, number of late jobs Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.7 There are three jobs available for processing at Workstation 1. They just arrived at Workstation 1, at the end of Day 0.

Job A B C

Shop Time Processing Time Remaining Time at Remaining to Including Workstation 1 Due Date Workstation 1 (hours) (days) (days) 4.0 5 4 5.0 4 4 6.0 8 10

Remaining Number of Operations 2 1 3

42) Using the information in Table J.7 and the slack per remaining operations (S/RO) rule, what should be the sequence of jobs processed at Workstation 1? A) A-B-C B) B-C-A C) C-B-A D) B-A-C Answer: C Difficulty: Moderate Keywords: S/RO, sequence, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

43) Using the information in Table J.7 and the critical ratio rule, what should be the sequence of jobs processed at Workstation 1? A) C-B-A B) B-A-C C) A-B-C D) B-C-A Answer: A Difficulty: Moderate Keywords: CR, sequence, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

44) Using the information in Table J.7 and the slack per remaining operation (S/RO) rule, what is the average days past due? A) fewer than or equal to 6.0 days B) greater than 6.0 days but fewer than or equal to 8.0 days C) greater than 8.0 days but fewer than or equal to 9.0 days D) greater than 9.0 days Answer: A Difficulty: Challenging Keywords: S/RO, past due, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

45) Using the information in Table J.7 and the critical ratio rule, what is the average flow time? A) fewer than or equal to 9.0 days B) greater than 9.0 days but fewer than or equal to 10.0 days C) greater than 10.0 days but fewer than or equal to 11.0 days D) greater than 11.0 days Answer: C Difficulty: Challenging Keywords: critical ratio, flow time, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.8 A workstation has six jobs waiting to be processed. They arrived at the end of Day 0 and it is now the beginning of Day 1. It is now time zero. Times are expressed in terms of days.

Job A B C D E F

Time Since Job Arrived 12 7 18 5 6 19

Processing Time 8 2 6 12 7 5

Due Date 24 11 31 25 8 6

46) Using the information in Table J.8 and the earliest due date (EDD) rule, what is the average flow time? A) fewer than or equal to 20 days B) greater than 20 days but fewer than or equal to 22 days C) greater than 22 days but fewer than or equal to 24 days D) greater than 24 days Answer: D Difficulty: Challenging Keywords: EDD, flow time, earliest due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

47) Using the information in Table J.8 and the earliest due date (EDD) rule, which job(s) will be completed on or before their due dates? A) F only B) A and F only C) B, A, and E only D) E and B only Answer: B Difficulty: Challenging Keywords: EDD, earliest due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.9 Work center Q45 has four jobs that just arrived (the start of Day 1) to be processed, as shown in the following table. Assume the shop works eight hours per day.

Job A B C D

Work Time Processing Time Remaining at Workstation Time Remaining Including Q45 to Due Date Workstation Q45 (hours) (days) (days) 10 7 3 6 12 8 15 11 10 12 4 6

Remaining Number of Operations 3 2 5 2

48) Using the information in Table J.9 and the slack per remaining operations (S/RO) rule, what should be the sequence of jobs processed at Q45? A) D-C-A-B B) A-B-C-D C) D-A-C-B D) B-C-A-D Answer: A Difficulty: Moderate Keywords: S/RO, sequence, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

49) Using the information in Table J.9 and the shortest processing time (SPT) rule, what should be the sequence of jobs processed at Q45? A) C-D-A-B B) D-A-C-B C) A-D-B-C D) B-A-D-C Answer: D Difficulty: Moderate Keywords: SPT, sequence, shortest processing time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

50) Using the information in Table J.9 and the critical ratio rule, what should be the sequence of jobs processed at Q45? A) A-B-C-D B) D-A-C-B C) D-C-B-A D) B-C-A-D Answer: C Difficulty: Moderate Keywords: sequence, CR, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

51) Using the information in Table J.9 and the critical ratio rule, what is the flow time of job B? A) fewer than or equal to 10 hours B) greater than 10 hours but fewer than or equal to 20 hours C) greater than 20 hours but fewer than or equal to 30 hours D) greater than 30 hours Answer: D Difficulty: Moderate Keywords: CR, flow time, critical ratio Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

52) Using the information in Table J.9 and the slack per remaining operations ratio (S/RO) rule, what is the average past due? A) fewer than or equal to 10 hours B) greater than 10 hours but fewer than or equal to 20 hours C) greater than 20 hours but fewer than or equal to 30 hours D) greater than 30 hours Answer: C Difficulty: Challenging Keywords: S/RO, past due, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

Table J.10

Job A B C D E F

Production Time 10 15 17 20 16 20

Due Date 20 25 22 31 20 24

53) Use the information in Table J.10 and sequence the jobs using the SPT rule. What is the average flow time? A) fewer than or equal to 52 hours B) greater than 52 hours but fewer than or equal to 54 hours C) greater than 54 hours but fewer than or equal to 56 hours D) greater than 56 hours Answer: A Difficulty: Moderate Keywords: SPT, flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

54) Use the information Table J.10 and sequence the jobs using the SPT rule. What is the average past due? A) fewer than or equal to 29 hours B) greater than 29 hours but fewer than or equal to 31 hours C) greater than 31 hours but fewer than or equal to 33 hours D) greater than 33 hours Answer: B Difficulty: Moderate Keywords: SPT, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

55) Use the information in Table J.10 and sequence the jobs using the EDD rule. What is the average flow time? A) fewer than or equal to 48 hours B) greater than 48 hours but fewer than or equal to 50 hours C) greater than 50 hours but fewer than or equal to 52 hours D) greater than 52 hours Answer: D Difficulty: Moderate Keywords: EDD, flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

56) Use the information in Table J.10 and sequence the jobs using the EDD rule. What is the average past due? A) fewer than or equal to 32 hours B) greater than 32 hours but fewer than or equal to 34 hours C) greater than 34 hours but fewer than or equal to 36 hours D) greater than 36 hours Answer: A Difficulty: Moderate Keywords: EDD, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

57) A(n) ________ specializes in low- to medium-volume production using job or batch processes. Answer: job shop Difficulty: Moderate Keywords: job shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

58) A(n) ________ specializes in medium- to high-volume production and uses line or continuous flow processes. Answer: flow shop Difficulty: Moderate Keywords: flow shop Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

59) ________ specify the job processing sequence when several jobs are waiting in line at a workstation. Answer: Priority sequencing rules Difficulty: Moderate Keywords: job sequence, priority sequence rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

60) ________ is a priority sequencing rule that determines priority by dividing the difference between the due date and today's date less the processing time remaining by the number of processing steps left to complete the job. Answer: Slack per remaining operations (S/RO) Difficulty: Moderate Keywords: S/RO, priority, slack per remaining operations Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

61) The ________ is a priority sequencing rule that is calculated by dividing the time remaining until a job's due date by the total shop time remaining for the job, including the setup, processing, move, and expected waiting times of all remaining operations, including the operation being scheduled. Answer: critical ratio, CR Difficulty: Moderate Keywords: critical ratio, CR Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

62) ________ is a priority sequencing rule that specifies that the job that has the earliest due date is the next job to be processed. Answer: Earliest due date, EDD Difficulty: Moderate Keywords: EDD, earliest due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

63) Sometimes referred to as the world champion, the ________ rule is a priority sequencing rule that minimizes the mean flow time and tends to maximize utilization. Answer: shortest processing time (SPT) Difficulty: Moderate Keywords: shortest processing time, SPT Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

64) ________ is a priority sequencing rule that specifies that the job that arrived at the workstation first is given the highest priority. Answer: First come, first served, FCFS Difficulty: Moderate Keywords: FCFS, priority, first-come, first-served Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

65) The ________ priority sequencing rule is typically applied in a front-office customer service setting. Answer: first come, first served, FCFS Difficulty: Moderate Keywords: FCFS, priority, first-come, first-served Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

66) The shortest processing time rule tends to produce a large variance in ________. Answer: past due time Difficulty: Challenging Keywords: SPT, variance, past due, shortest processing time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

67) A rule that establishes a job's priority based on one piece of information, such as how long it will take to process or when the job arrived, is a(n) ________. Answer: single-dimension rule, priority rule Difficulty: Moderate Keywords: single-dimension rule, priority rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

68) ________ are a set of priority rules that apply to more than one aspect of a job. Answer: Multiple-dimension rules Difficulty: Moderate Keywords: multiple-dimension rules, priority rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

69) Why is makespan an important performance measure? Answer: Minimizing the makespan of a group of jobs allows for greater utilization of the flow shop. Also, makespan is important if all jobs are to be shipped to the same destination on the same truck or rail car. All jobs must be completed before any of them can be shipped. Difficulty: Moderate Keywords: makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

70) What are single-dimension scheduling rules? Provide examples and discuss how each rule performs. Answer: Single-dimension rules (e.g., FCFS, EDD, and SPT) base a job's priority assignment on a single aspect of the job, such as arrival time at the workstation, the due date, or the processing time. Studies have found that the EDD rule performs well with respect to the percentage of jobs past due and the variance of hours past due. For any set of jobs to be processed at a single workstation, it minimizes the maximum of the past due hours of any job in the set. Often referred to as the world champion, the SPT rule tends to minimize the mean flow time (assuming time since arrival is 0 for all jobs) and the percentage of jobs past due. It also tends to maximize shop utilization. For the single-workstation case, the SPT rule always will provide the lowest mean finish time. However, it could increase total inventory because it tends to push all work to the finished state. In addition, it tends to produce a large variance in past due hours because the larger jobs might have to wait a long time for processing. Also, it provides no opportunity to adjust schedules when due dates change. Finally, though the FCFS rule is considered fair to the jobs (or customers), it performs poorly with respect to all performance measures. However, FCFS usually is the only acceptable choice for service processes where the customer is present and demand leveling options such as appointments or reservations are not used. Difficulty: Moderate Keywords: single-dimension, EDD, SPT, FCFS Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

71) What are multiple-dimension scheduling rules? Provide examples and discuss how each rule performs. Answer: Multiple-dimension rules, such as critical ratio (CR) and slack per remaining operations (S/RO) are so named because they apply to more than one aspect of the job. These multiple-dimension priority rules incorporate information about the remaining workstations at which the job must be processed, in addition to the processing time at the present workstation or the due date considered by singledimension rules. Research studies have shown that S/RO is better than EDD with respect to the percentage of jobs past due, but worse than SPT and EDD with respect to average flow times. These studies also indicate that CR results in longer flow times than SPT, but CR also results in less variance in the distribution of past due hours. Difficulty: Moderate Keywords: multiple-dimension, DR, S/RO Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

72)

Job A B C D E F

Time Since Order Arrived (days) 8 7 7 4 3 2

Processing Time (days) 2 8 4 10 5 12

Due Date (days from now) 7 16 4 17 15 18

Use the information in the preceding table and sequence the six jobs using FCFS, SPT, and EDD. Calculate the average flow times, average early times, and average past due.

Answer: FCFS Job A B C D E F

Start Finish Flow Time Time Time 0 2 10 2 10 17 10 14 21 14 24 28 24 29 32 29 41 43

Average Flow Time = 25.17 Average Early Time = 1.83 Average Past Due = 9.00 SPT Job A C E B D F

Start Finish Flow Time Time Time 0 2 10 2 6 13 6 11 14 11 19 26 19 29 33 29 41 43

Average Flow Time = 23.17 Average Early Time = 1.50 Average Past Due = 6.67 EDD Job C A E B D F

Start Finish Flow Time Time Time 0 4 11 4 6 14 6 11 14 11 19 26 19 29 33 29 41 43

Average Flow Time = 23.50 Average Early Time = 0.83 Average Past Due = 6.33 Difficulty: Challenging Keywords: single-dimension, EDD, SPT, FCFS Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

73)

Job A B C D E F

Time Since Order Arrived (days) 10 9 7 6 3 1

Processing Time (days) 5 9 7 2 3 8

Due Date (days from now) 7 5 9 3 4 8

Use the information in the preceding table and sequence the six jobs using FCFS, SPT, and EDD. Calculate the average flow times, average early times, and average past due.

Answer: FCFS Job A B C D E F

Start Finish Flow Time Time Time 0 5 15 5 14 23 14 21 28 21 23 29 23 26 29 26 34 35

Average Flow Time = 26.50 Average Early Time = 0.33 Average Past Due = 14.83 SPT Job D E A C F B

Start Finish Flow Time Time Time 0 2 8 2 5 8 5 10 20 10 17 24 17 25 26 25 34 43

Average Flow Time = 21.50 Average Early Time = 0.17 Average Past Due = 11.00 EDD Job D E B A F C

Start Finish Flow Time Time Time 0 2 8 2 5 8 5 14 23 14 19 29 19 27 28 27 34 41

Average Flow Time = 22.83 Average Early Time = 0.17 Average Past Due = 11.00 Difficulty: Challenging Keywords: FCFS, SPT, EDD, average flow time, average early time, average past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

74) A workstation has five jobs that just arrived (the start of Day 1) to be processed, as shown in the following table. Use this information to sequence the five jobs using FCFS, SPT, EDD, S/RO, and CR. Calculate the average flow times, average early times, and average past due.

Job A B C D E

Processing Time at Work Time Remaining Workstation Time Remaining to Including Workstation (hours) Due Date (weeks) (weeks) 5 30 10 2 10 5 9 12 5 16 25 20 12 45 22

Remaining Number of Operations 2 1 3 2 4

Answer:

Difficulty: Challenging Keywords: FCFS, SPT, EDD, CR, S/RO, average flow time, average early time, average past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

75) Use the information in the table and sequence the six jobs using SPT and EDD. Calculate the average flow times and average lateness. All jobs arrived at time zero and are ready at time zero.

Job A B C D E F

Production Time 10 15 17 20 16 20

Due Date 20 25 22 31 20 24

Answer:

Average Flow Time = 51.67 Average Past Due = 29.67

Average Flow Time = 53 Average Past Due = 31 Difficulty: Moderate Keywords: SPT, EDD, flow time, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

76) Use the information in the table and sequence the six jobs using the critical ratio algorithm. Calculate the average flow times and average lateness. All jobs arrived at time zero and are ready at time zero.

Job A B C D E F

Production Time 10 15 17 20 16 20

Due Date 20 25 22 31 20 24

Answer:

Job A B C D E F TOTAL AVERAGE

Date Received 0 0 0 0 0 0

Prod Time 10 15 17 20 16 20 98

Due Date 20 25 22 31 20 24

Critical Ratio 2 1.67 1.29 1.55 1.25 1.2

Flow Order time sixth 98 fifth 88 third 53 fourth 73 second 36 first 20 368 61.33

Late 78 63 31 42 16 0 230 38.33

Average Flow Time = 61.33 Average Past Due = 38.33 Difficulty: Moderate Keywords: critical ratio, flow time, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

77) Use the information in the table and sequence the six jobs using the slack per remaining operation algorithm. Calculate the average flow times and average lateness. All jobs arrived at time zero and are ready at time zero.

Job A B C D E F

Production Time 10 15 17 20 16 20

Due Date 20 25 22 31 20 24

Answer:

Job A B C D E F TOTAL AVERAGE

Date Received 0 0 0 0 0 0

Prod Time 10 15 17 20 16 20 98

Due Date 20 25 22 31 20 24

Slack 10 10 5 11 4 4

Slack per Flow operation Order time 3.33 fifth 83 5 sixth 98 1.67 third 53 2.75 fourth 73 1.33 first 16 1.33 second 36 359 59.83

Late 63 73 31 42 0 12 221 36.83

Average Flow Time = 59.83 Average Past Due = 36.83 Difficulty: Moderate Keywords: slack per remaining operation, flow time, past due Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a single workstation using the EDD, SPT, CR, and S/RO priority sequencing rules.

J.3 Flow Shop Scheduling 1) Johnson's rule is a procedure that minimizes makespan in scheduling a group of jobs on two workstations. Answer: TRUE Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

Table J.11 The Feast Janice prepares a medley of pastas for her brother Tony. Each of the pastas must first be rolled and then formed (or in some cases stuffed) before cooking. The required time on each machine in minutes is indicated in the table. Job Farfalle Penne Ravioli Tortellini Ripiena Manicotti Liguria

Roller 16 20 8 9 15 14 15

Former/Stuffer 12 18 13 17 11 14 19

2) Janice decides to minimize the average flow time of the pastas using Johnson's rule. Which pasta occupies the middle position of her schedule? A) Liguria B) Farfalle C) Manicotti D) Penne Answer: A Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

3) Janice decides to minimize the average flow time of the pastas using Johnson's rule. How much idle time does the Roller/Former machine experience? A) none B) 8 minutes C) 12 minutes D) 16 minutes Answer: B Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

4) Janice uses Johnson's rule to schedule her pasta production. When is the Manicotti done on the Roller? A) 22 minutes B) 14 minutes C) 31 minutes D) 43 minutes Answer: C Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

5) Janice uses Johnson's rule to schedule her pasta production. What is the average flow time of her seven pastas? A) 81 minutes B) 77 minutes C) 73 minutes D) 69 minutes Answer: D Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

6) Janice uses Johnson's rule to schedule her pasta production. How long will it take her to complete the seven pastas? A) one hour and fifty two minutes B) one hour and forty three minutes C) two hours and two minutes D) one hour and fifty eight minutes Answer: A Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

Table J.12 Gable Bakery has five cake orders to be processed today. Each cake has to go through the baking and decorating processes. The baking and decorating times are estimated as follows:

7) Use the information in Table J.12. In what sequence should the orders be processed to minimize the total processing time? A) 5-3-1-4-2 B) 3-5-4-1-2 C) 3-5-1-4-2 D) 5-1-4-3-2 Answer: A Difficulty: Moderate Keywords: Johnson's rule, sequence Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

8) Use the information in Table J.12. If all cakes are to be picked up at 11:00 a.m., what is the latest time that Gable should start making these cakes? A) 8:00 a.m. B) 8:30 a.m. C) 9:00 a.m. D) 9:30 a.m. Answer: C Difficulty: Moderate Keywords: Johnson's rule, due date Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

Table J.13 Consider the following problem in which four jobs that arrived this morning are to be processed on two machines. They start with the cutting machine and then go to the painting machine. The following processing times are available (in hours): Job A B C D

Cutting 5 8 3 10

Painting 4 3 2 9

9) Use the information in Table J.13. If the SPT rule is used to determine the sequence at the cutting machine and the same sequence is also used at the painting machine, what is the makespan through both machines? A) fewer than or equal to 32 hours B) greater than 32 hours but fewer than or equal to 34 hours C) greater than 34 hours but fewer than or equal to 36 hours D) greater than 36 hours Answer: C Difficulty: Moderate Keywords: SPT, makespan, shortest processing time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

10) Use the information in Table J.13. What is the makespan through both machines if Johnson's rule is used? A) fewer than or equal to 30 hours B) greater than 30 hours but fewer than or equal to 32 hours C) greater than 32 hours but fewer than or equal to 34 hours D) greater than 34 hours Answer: A Difficulty: Moderate Keywords: makespan, Johnson's rule Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

Table J.14 Five jobs are currently waiting to be processed. Each job has to go through Machine 1 first and then Machine 2 before it is completed. The processing times (in hours) for the five jobs on each machine are: Job A B C D E

Machine 1 3 7 5 6 4

Machine 2 5 1 7 8 2

11) Use the information in Table J.14. What is the makespan through both machines if the SPT rule is used to determine the sequence at Machine 1 and the same sequence is also used at Machine 2? A) fewer than or equal to 27 hours B) greater than 27 hours but fewer than or equal to 28 hours C) greater than 28 hours but fewer than or equal to 29 hours D) greater than 29 hours Answer: B Difficulty: Moderate Keywords: SPT, makespan, shortest processing time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

12) Use the information in Table J.14. What is the makespan through both machines if Johnson's rule is used? A) fewer than or equal to 26 hours B) greater than 26 hours but fewer than or equal to 27 hours C) greater than 27 hours but fewer than or equal to 28 hours D) greater than 28 hours Answer: A Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

Table J.15 A company must take on seven new projects. Each project has a planning stage and a design stage, and the planning stage must be completed before the design stage can begin. Also, two project teams are available to work on these projects: Team 1 works only on planning stages of projects, and Team 2 works only on design stages of projects. The times to complete the project stage, in days, are shown in the following table. Job A B C D E F G

Team 1 9 12 8 10 4 11 2

Team 2 5 8 3 6 13 11 9

13) Using the information in Table J.15 and Johnson's rule, what is the sequence of projects that minimizes makespan? A) C-A-D-G-E-F-B B) C-A-D-B-G-F-E C) G-E-C-A-D-F-B D) G-E-F-B-D-A-C Answer: D Difficulty: Moderate Keywords: Johnson's rule, sequence Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

14) Using the information in Table J.15 and Johnson's rule, on which day will project F be completed? A) day 33 or earlier B) day 33-day 36 C) day 37-day 40 D) day 41 or later Answer: B Difficulty: Challenging Keywords: Johnson's rule, flow time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

15) Using the information in Table J.15 and Johnson's rule, what is the makespan for these seven jobs? A) 58 days or greater B) greater than or equal to 55 days but less than 58 days C) greater than or equal to 52 days but less than 55 days D) less than 52 days Answer: A Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

16) Using the information in Table J.15 and Johnson's rule, how much idle time does Team 2 have from the start of the first project through completion of the seventh? A) 2 days B) 3 days C) 4 days D) 5 days Answer: C Difficulty: Moderate Keywords: Johnson's rule, idle time Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

17) Using the information in Table J.15 and Johnson's rule, develop a schedule that minimizes makespan for these seven jobs. Assume that job C could be neatly split into two equal parts, each having half of the processing time on each machine as the full job C. Using your original sequence, but splitting job C, what is the makespan for the seven jobs? A) between 58 and 59 days B) between 56 and 57 days C) between 55 and 56 days D) between 57 and 58 days Answer: D Difficulty: Challenging Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

18) Using the information in Table J.15 and Johnson's rule, develop a schedule that minimizes makespan for these seven jobs. Assume that job C could be neatly split into two equal parts, each having half of the processing time on each machine as the full job C. Using your original sequence, but splitting job C, what is the reduction in makespan for the seven jobs? A) The schedule with job C split is almost a day longer. B) The schedule with job C split is almost 2 days shorter. C) The schedule with job C split is almost 2 days longer. D) There is no difference between the makespan for the original schedule and that made with job C split into two halves. Answer: B Difficulty: Challenging Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

19) ________ is a procedure that minimizes makespan in scheduling a group of jobs on two workstations. Answer: Johnson's rule Difficulty: Moderate Keywords: Johnson's rule, makespan Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

20) Consider the following problems in which four jobs must each be processed on two machines starting with Machine A and then going to Machine B. The following processing times are available (in hours):

Job A B C D

Processing Time Machine A 1 8 3 7

Processing Time Machine B 5 2 9 7

What is the minimum makespan for this group of jobs? Depict it graphically using a Gantt chart. Answer: The optimal sequence using Johnson's rule is A—C—D—B, with a makespan of 24 hours

Difficulty: Moderate Keywords: Johnson's rule, makespan, Gantt chart Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Analytical Thinking Learning Objective: Determine schedules for a two-station flow shop using Johnson's rule.

21) Lee Beedo, a hip bachelor in Edmond, has a date for Saturday night and finds himself without a thing to wear. Faced with the daunting task of doing enough laundry to fully accessorize during his night out, Lee has sorted his clothes into loads according to fabric and color. Based on his vast experience doing laundry, Lee knows how long each load will take in both the washer and the dryer. He glances at his watch; it is now 2:00 p.m. and he has to have the last load dry by 8:30 p.m. to be there in time. Help Lee develop a schedule that will enable him to make his date on time and depict that schedule using a Gantt chart. Can he make it and, if so, by how much?

Load Polyesters Leathers Whites Unmentionables Silks

Wash Time (hrs.) 0.50 2.00 0.75 1.00 0.50

Dry Time (hrs.) 0.75 1.50 1.25 1.25 0.25

Answer: The optimal sequence using Johnson's rule is P-W-U-L-S with a makespan of 6 hours, so he can make it with 30 minutes to spare.

Sequence 1 2 3 4 5

Load Polyesters Whites Unmentionables Leathers Silks

Wash Start 0.0 0.50 1.25 2.25 4.25

Wash Done 0.50 1.25 2.25 4.25 4.75

Dry Start 0.50 1.25 2.50 4.25 5.75

Dry Done 1.25 2.50 3.75 5.75 6.00

22) Consider this list of jobs that have just arrived and are ready for processing. They all require processing first on machine 1 and then on machine 2. Both machines are now idle. Develop a schedule that minimizes makespan and calculate this makespan time. Now assume that each job can be split into two jobs, each having half the duration on both machine 1 and machine 2. Using the original sequence that minimized average flow time, calculate the flow times for all split jobs What is the effect of this new schedule on the average flow time for these split jobs? Job 1 2 3 4 5 6 7 8

Machine 1 Machine 2 14 6 11 12 16 14 12 8 22 9 13 15 10 12 8 13

Answer: The original sequence and schedule follow: Job 8 7 2 6 3 5 4 1

Machine 1 Machine 2 8 13 10 12 11 12 13 15 16 14 22 9 12 8 14 6

Done 1 8 18 29 42 58 80 92 106

Done 2 21 33 45 60 74 89 100 112

The average flow time is 66.75.

Splitting each task into equal halves (Job 1 becomes Job 1a and Job 1b, and so forth) results in this schedule: Job 8b 8a 7b 7a 2b 2a 6b 6a 3a 3b 5a 5b 4a 4b 1a 1b

Machine 1 Machine 2 4 6.5 4 6.5 5 6 5 6 5.5 6 5.5 6 6.5 7.5 6.5 7.5 8 7 8 7 11 4.5 11 4.5 6 4 6 4 7 3 7 3

Done 1 4 8 13 18 23.5 29 35.5 42 50 58 69 80 86 92 99 106

Done 2 10.5 17 23 29 35 41 48.5 56 63 70 74.5 84.5 90 96 102 109

The average flow time is 62.8125, a savings of about 4. (If you consider each half job to have its own completion time then the average flow time drops to 59.31, a saving of about 7.4.)

J.4 Labor-Limited Environments 1) Acme has an overabundance of machinery available, but most of the workforce has called in sick after the local team's devastating loss on Monday Night Football. This scheduling problem is a labor-limited environment. Answer: TRUE Difficulty: Easy Keywords: labor-limited environment Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

2) Training workers on a variety of machines and tasks increases flexibility of operations and leads to labor-limited environments. Answer: TRUE Difficulty: Easy Keywords: labor-limited environment, training Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

3) An example of a labor-assignment rule would be to assign personnel to the workstation with the job that has the latest due date. Answer: FALSE Difficulty: Easy Keywords: labor-limited environment, labor-assignment rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

4) An example of a labor-assignment rule would be to assign personnel to the workstation with the job that has been in the system longest. Answer: TRUE Difficulty: Easy Keywords: labor-limited environment, labor-assignment rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

5) An example of a labor-assignment rule would be to assign personnel to the workstation with least jobs waiting for processing. Answer: FALSE Difficulty: Moderate Keywords: labor-limited environment, labor-assignment rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

6) An example of a labor-assignment rule would be to assign personnel to the workstation with the smallest standard work content. Answer: FALSE Difficulty: Moderate Keywords: labor-limited environment, labor-assignment rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

7) Of the following examples for labor-assignment rules, which of the following is least likely to be utilized: A) assign personnel to the workstation with the job that has been in the system for the shortest amount of time. B) assign personnel to the workstation with the most jobs waiting to be processed. C) assign personnel to the workstation with the largest standard work content. D) assign personnel to the workstation with the job that has the earliest due date. Answer: A Difficulty: Moderate Keywords: labor-limited environment, labor-assignment rules Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

8) ________ is an environment in which the resource constraint is the amount of labor available. Answer: Labor-limited environment Difficulty: Moderate Keywords: labor-limited environment Learning Outcome: Describe the stages of short-term and long-term scheduling AACSB: Application of Knowledge Learning Objective: Provide several labor assignment rules useful in developing schedules in a labor-limited environment.

Operations Management: Processes and Supply Chains, 13e (Krajewski) Supplement K Layout K.1 Step 1: Gather Information 1) When designing an office layout, the departments having the most interaction are given a closeness matrix score of 1 and departments having the least interaction are given a closeness matrix score of 10. Answer: FALSE Difficulty: Moderate Keywords: closeness matrix score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Identify the information requirements for designing a layout.

2) A closeness matrix can reflect the qualitative judgments of managers and employees, or can be based upon the number of trips between each pair of departments. Answer: TRUE Difficulty: Moderate Keywords: closeness matrix, judgment Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Identify the information requirements for designing a layout.

3) A(n) ________ gives the relative importance of each pair of operations or departments being located close together. Answer: closeness matrix Difficulty: Moderate Keywords: closeness matrix Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Identify the information requirements for designing a layout.

4) Describe the appearance and use of a closeness matrix. Answer: A closeness matrix is a table that lists each department (or operation) across the top and down the left side of the table. At the intersection points of each pair of departments there is a closeness factor that gives a measure of the relative importance of each pair of centers being located together. The layout planner uses these factors in conjunction with a block plan to assign departments to a physical location in the facility. Difficulty: Moderate Keywords: closeness matrix Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Identify the information requirements for designing a layout.

K.2 Step 2: Develop a Block Plan 1) A block plan allocates space but does not indicate the placement of each department within the framework of a new or existing facility. Answer: FALSE Difficulty: Easy Keywords: block plan Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

2) A block plan is a table that gives a measure of the relative importance of each pair of centers being located close together. Answer: FALSE Difficulty: Easy Keywords: block plan, closeness matrix, relative importance Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

3) Rectilinear distance calculations are usually more realistic than Euclidean distance calculations when determining the walking distance between operations in a building. Answer: TRUE Difficulty: Moderate Keywords: Euclidean distance, rectilinear distance Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.1 Acme Machine is a job shop that makes specialty parts for the airline industry. Figure #1 below shows the block plan for key manufacturing operations in its current facility. Acme believes there may be a way to reduce the total distance traveled between departments. Consider the two revisions that have been suggested, based on the closeness matrix shown below the block plans. The aisles are shown by the dotted lines in Figure 1.

Closeness Original Dept. Pair Factor (w) Distance (dO) w dO 1-2 1-3 1-4 1-5 1-6 2-3 2-4 2-5 2-6 3-4 3-5 3-6 4-5 4-6 5-6 TOTAL

Revision #1 Distance (d1)

w d1

Revision #2 Distance (d2)

w x d2

4) Use the information in Scenario K.1. If travel between departments is restricted to the aisles shown in Figure 1, what is the total weighted-distance (wd) score for the block plan shown in Figure 1? A) less than or equal to 30 B) greater than 30 but less than or equal to 60 C) greater than 60 but less than or equal to 90 D) greater than 90 Answer: D Difficulty: Moderate Keywords: layout, block plan, closeness matrix, total weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

5) Use the information in Scenario K.1. If travel between departments is restricted to the aisles shown in Figure 1, what is the total weighted-distance (wd) score for the block plan shown in Revision 1? A) less than or equal to 30 B) greater than 30 but less than or equal to 60 C) greater than 60 but less than or equal to 90 D) greater than 90 Answer: B Difficulty: Moderate Keywords: layout, block plan, closeness matrix, total weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

6) Use the information in Scenario K.1. If travel between departments is restricted to the aisles shown in Figure 1, what is the total weighted-distance (wd) score for the block plan shown in Revision 2? A) less than or equal to 30 B) greater than 30 but less than or equal to 60 C) greater than 60 but less than or equal to 90 D) greater than 90 Answer: C Difficulty: Moderate Keywords: layout, block plan, closeness matrix, total weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

7) Use the information in Scenario K.1. Considering the current facility situation and the two suggested revisions, if Acme wishes to minimize the total weighted-distance score, which option should be selected? A) current situation–stay with Figure 1 B) Revision 1 C) Revision 2 D) either Revision 1 or Revision 2–they have the same what is the total weighted-distance (wd) score Answer: B Difficulty: Moderate Keywords: layout, block plan, closeness matrix, total weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

8) Use the information in Scenario K.1. By picking Revision 1, how much would the total wd score be reduced (from the current facility's situation) if the revision that minimizes the total wd score were chosen? A) None–the current situation in Figure 1 provides the lowest total weighted-distance (wd) score. B) less than or equal to 30 C) greater than 30 but less than or equal to 60 D) greater than 60 but less than or equal to 90 Answer: C Difficulty: Moderate Keywords: layout, block plan, closeness matrix, total weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.2 A department store chain is designing a layout for a new store. The store manager wants to provide as much convenience as possible for her customers. Based on historical data, the number of trips between departments per hour is given in the following closeness matrix. A block plan showing a preliminary layout is also shown.

Customer travel between departments is restricted to the aisles shown in the block plan as dotted lines.

Closeness Original Dept. Pair Factor (w) Distance (dO) w dO 1—2 1—3 1—4 1—5 1—6 2—3 2—4 2—5 2—6 3—4 3—5 3—6 4—5 4—6 5—6 TOTAL

Revision 1 Distance (d1)

w d1

9) Use the information in Scenario K.2. What is the total weighted-distance (wd) score between Office Supplies and Hardware? A) less than or equal to 50 B) greater than 50 but less than or equal to 150 C) greater than 150 but less than or equal to 250 D) greater than 250 Answer: C Difficulty: Moderate Keywords: layout, block plan, closeness matrix, weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

10) Use the information in Scenario K.2. What is the total weighted-distance (wd) score between Hardware and Toys? A) less than or equal to 50 B) greater than 50 but less than or equal to 150 C) greater than 150 but less than or equal to 250 D) greater than 250 Answer: C Difficulty: Moderate Keywords: process layout, block plan, closeness matrix, weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

11) Use the information in Scenario K.2. What is the total weighted-distance (wd) score for the entire store? A) less than or equal to 1,500 B) greater than 1,500 but less than or equal to 2,000 C) greater than 2,000 but less than or equal to 2,500 D) greater than 2,500 Answer: B Difficulty: Moderate Keywords: layout, block plan, closeness matrix, weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

12) Use the information in Scenario K.2. A suggestion has been made to switch Hardware and Automotive. What would the total weighted-distance (wd) score for the entire store if these two departments were switched? A) less than or equal to 1,000 B) greater than 1,000 but less than or equal to 1,500 C) greater than 1,500 but less than or equal to 2,000 D) greater than 2,000 Answer: C Difficulty: Moderate Keywords: layout, block plan, closeness matrix, weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

13) Use the information in Scenario K.2. Based on your calculations, would you support the recommendation to switch Hardware and Toys? A) Yes, and this is an improvement of 100 — 300 in the weighted-distance (wd) score. B) No, the travel distances are the same. C) Yes, and this is a difference of over 300 feet in the weighted-distance (wd) score. D) We don't have enough information to determine this. Answer: A Difficulty: Moderate Keywords: process layout, block plan, closeness matrix, weighted-distance (wd) score Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.3 The marketing and supply chain management departments of a major retailer is now designing its layout for newly built office space. An overhead view of the available office space reveals the following (note: assume all locations are measured from center point to center point):

14) Use the information in Scenario K.3. What is the Euclidean distance between offices B and D? A) less than or equal to 25 feet B) greater than 25 but less than or equal to 30 feet C) greater than 30 but less than or equal to 35 feet D) greater than 35 feet Answer: A Difficulty: Moderate Keywords: Euclidean distance, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

15) Use the information in Scenario K.3. What is the rectilinear distance between offices B and D? A) less than or equal to 25 feet B) greater than 25 but less than or equal to 30 feet C) greater than 30 but less than or equal to 35 feet D) greater than 35 feet Answer: B Difficulty: Easy Keywords: rectilinear distance Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

16) Use the information in Scenario K.3. What is the rectilinear distance between offices D and F? A) greater than 75 feet B) greater than 65 but less than or equal to 75 feet C) greater than 55 but less than or equal to 65 feet D) less than or equal to 55 feet Answer: C Difficulty: Easy Keywords: rectilinear distance, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

17) Use the information in Scenario K.3. What is the Euclidean distance between offices D and F? A) greater than 75 feet B) greater than 65 but less than or equal to 75 feet C) greater than 55 but less than or equal to 65 feet D) less than or equal to 55 feet Answer: D Difficulty: Moderate Keywords: Euclidean distance, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

18) Use the information in Scenario K.3. What pair of locations has Euclidean and rectilinear distances that are identical? A) C and D B) F and E C) B and E D) B and A Answer: C Difficulty: Moderate Keywords: Euclidean distance, rectilinear distance, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.4 A company of four departments has the following closeness factors and current locations of all departments. Assume rectilinear distance.

19) Use the information in Scenario K.4. Which pair of departments has the greatest weighted-distance score? A) 1 & 2 B) 1 & 3 C) 1 & 4 D) 2 & 3 Answer: C Difficulty: Moderate Keywords: weighted-distance score, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

20) Use the information in Scenario K.4. What is the overall weighted-distance score for the arrangement? A) 52 B) 48 C) 63 D) 58 Answer: A Difficulty: Moderate Keywords: weighted-distance score, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

21) Using the information in Scenario K.4, which of these arrangements has the best weighted-distance score? A)

Answer: A Difficulty: Moderate Keywords: weighted distance score, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.5 A company of five departments has the following closeness factors and current locations of all departments:

22) Use the information from Scenario K.5. The departmental pair that has the greatest weighted distance between them is: A) A & B. B) A & C. C) A & D. D) A & E. Answer: B Difficulty: Moderate Keywords: weighted distance, facility layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

23) Use the information from Scenario K.5. What is the total weighted distance for the current layout? A) 69 B) 73 C) 77 D) 81 Answer: D Difficulty: Moderate Keywords: weighted distance, layout Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

Scenario K.6 The Deans' Suite The College of Business allocates some leftover funds for a complete remodel of the deans' suite. The project, titled "Use It or Lose It" has a number of objectives, one of which is to place departments or areas which have the greatest demand closest to each other as to minimize the total travel. Maintenance completely guts the top floor of the college and identifies 9 natural room locations within this space. These room locations are flexible, meaning that any one of them could be turned into an office, lounge, or other use. The room at the upper left of the grid has windows on two walls and has been claimed by the dean. The occupants of the deans' suite and their frequency of interaction is shown in the table. Dean 0

Dean Assoc Dean Asst Dean 1 Asst Dean 2 Admin Asst

Assoc Dean Asst Dean 1 Asst Dean 2 Admin Asst 12 5 2 9 0 8 12 12 0 22 13 0 14 0

Copier Restroom 0 16 10 3 3 2 3 3 15 3

The layout of this new great space is shown in the graph. Each square represents 15' × 15' and thus their midpoints could be considered to be 15' apart if adjacent in a row or column. Adjacent diagonal rooms can be calculated as 21' apart. Dean 1 3 4 6 7

2 5 8

24) Using Scenario K.6, what is the rectilinear distance between the dean's office and the opposite corner of this great space, area 8? A) 60' B) 42' C) 30' D) 15' Answer: A Difficulty: Easy Keywords: block plan Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

25) Using Scenario K.6, what is the best location for the restroom? A) area 1 B) area 2 C) area 4 D) area 5 Answer: A Difficulty: Easy Keywords: block plan Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

26) Using Scenario K.6, what is the best area for the associate dean? A) area 1 B) area 2 C) area 3 D) area 4 Answer: D Difficulty: Moderate Keywords: block plan Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

27) A(n) ________ allocates space and indicates placement of each department. Answer: block plan Difficulty: Moderate Keywords: block plan, space allocation, department placement Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

28) The ________ method is a mathematical model used to evaluate layouts based on proximity factors. Answer: weighted distance Difficulty: Moderate Keywords: weighted distance, proximity factors Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

29) The ________ method measures distance between two points with a series of 90-degree turns. Answer: rectilinear distance Difficulty: Easy Keywords: rectilinear distance, weighted distance Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Develop and evaluate a block plan for a layout.

30) A firm of four departments has the following trip matrix and current block plan of all departments:

a. What is the weighted-distance score for the current layout? (Assume rectilinear distance and that the distance between departments A and B is one unit of distance.) b. What would be the weighted-distance score for the following layout?

Answer: a. Department Pair B-D 2, 4 A-B 1, 2 A-D 1, 4 B-C 2, 3 A-C 1, 3 C-D 3, 4

Closeness Factor 16 14 9 7 6 2

Distance 2 1 1 1 2 1

wd Score 32 14 9 7 12 2

Total

Distance 1 2 1 1 1 2

wd Score 16 28 9 7 6 4

Total

B-D A-B A-D B-C A-C C-D

Department Pair 2, 4 1, 2 1, 4 2, 3 1, 3 3, 4

Load Factor 16 14 9 7 6 2

Difficulty: Moderate Keywords: weighted-distance, rectilinear Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

31) A firm of six departments has the following trip matrix and current block plan of all departments:

a. What is the weighted—distance score for the current layout? (Assume rectilinear distance and that the distance between departments A and B is one unit of distance.) b. What would be the weighted—distance score for the following layout?

Answer: a. Department Pair C-E 3, 5 B-F 2, 6 A-D 1, 4 A-C 1, 3 A-B 1, 2 B-C 2, 3 E-F 5, 6 B-D 2, 4 D-E 4, 5 A-F 1, 6 C-D 3, 4

Closeness Factor 12 10 9 8 7 6 6 3 3 2 2

Distance 2 2 1 2 1 1 1 2 1 3 3

Wd Score 24 20 9 16 7 6 6 6 3 6 6

Total

109

Distance 1 1 1 1 2 1 1 1 3 3 2

Wd Score 12 10 9 8 14 6 6 3 9 6 4

Total

C-E B-F A-D A-C A-B B-C E-F B-D D-E A-F C-D

Department Pair 3, 5 2, 6 1, 4 1, 3 1, 2 2, 3 5, 6 2, 4 4, 5 1, 6 3, 4

Closeness Factor 12 10 9 8 7 6 6 3 3 2 2

Difficulty: Moderate Keywords: weighted distance, rectilinear Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

32) A department store chain is designing a layout for a new store. The store manager wants to provide as much convenience as possible for her customers. Based on historical data, the number of trips between departments per hour is given in the following closeness matrix. A block plan showing a preliminary layout is also shown.

Customer travel between departments is restricted to the aisles shown in the block plan as dotted lines.

CALCULATIONS TABLE

Dept. Pair 1—2 1—3 1—4 1—5 1—6 2—3 2—4 2—5 2—6 3—4 3—5 3—6 4—5 4—6 5—6 TOTAL

Closeness Factor (w)

Original Distance (dO)

Revision #1 w × dO Distance (d1)

w × d1

a. What is the total expected weighted-distance score between Office Supplies and Hardware? b. What is the total weighted-distance score between Hardware and Toys? c. What is the total weighted-distance score for the entire store? d. A suggestion has been made to switch Hardware and Automotive. What would the total weighteddistance score for the entire store be if these two departments were switched? e. Based on your calculations, would you recommend that Hardware and Automotive be switched?

Answer: COMPLETED CALCULATIONS TABLE

Dept. Pair 1—2 1—3 1—4 1—5 1—6 2—3 2—4 2—5 2—6 3—4 3—5 3—6 4—5 4—6 5—6 TOTAL

Closeness Factor (w) 40 100 50 20 10 100 80 60 80 70 100 50 70 90 60 N/A

Original Revision #1 Distance (dO) w × dO Distance (d1)

w × d1

1 2 1 2 3 1 2 1 2 3 2 1 1 2 1 25

40 200 50 40 30 100 160 60 160 70 200 50 210 180 60 1,610

40 200 50 40 30 100 160 60 160 210 200 50 70 180 60 1,610

1 2 1 2 3 1 2 1 2 1 2 1 3 2 1 25

a. The weighted-distance score between Office Supplies and Hardware (#1 and #3) is two distance lengths (see block plan) times the # of trips per hour. (2 distance lengths)(100 trips per hour) = weighted-distance score of 200 b. The weighted-distance score between Hardware and Toys (#3 and #4) is three distance lengths (see block plan) times the # of trips per hour. (3 distance lengths)(70 trips per hour) = weighted-distance score of 210 c. The total weighted-distance score for the entire store is (see completed calculation table above) = 1,610. d. Switching Hardware and Automotive results in the same total weighted-distance score for the entire store as the original layout (see completed calculation table, Revision #1): 1,610. e. The travel distances are the same, so the switch of Hardware and Automotive should not be made. Difficulty: Challenging Keywords: weighted distance, rectilinear Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Analytical Thinking Learning Objective: Develop and evaluate a block plan for a layout.

K.3 Step 3: Design a Detailed Layout 1) A detailed visual representation of the block plan is not particularly necessary or useful when evaluating high customer-contact processes. Answer: FALSE Difficulty: Easy Keywords: detailed layout, visual representation Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe what is needed to arrive at a detailed layout plan.

2) Detailed layouts should always be three-dimensional to be as realistic as possible. Answer: FALSE Difficulty: Easy Keywords: detailed layout, visual representation Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe what is needed to arrive at a detailed layout plan.

3) Describe what is depicted in the visual representation of the detailed layout. Answer: The detailed representation shows the exact size and shape of each department, the arrangement of elements within the department (such as desks, machines, and storage areas). Additionally, it shows the location of aisles, stairways, and other service spaces. Difficulty: Moderate Keywords: detailed layout, visual representation Learning Outcome: Describe the main types of operations processes and layouts in manufacturing and in services AACSB: Application of Knowledge Learning Objective: Describe what is needed to arrive at a detailed layout plan.