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Solution Manual For Production And Operations Analysis, 6th Edition

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    Chapter 01 - Strategy and Competition 1 - 1 Strategy and Competition Solutions To Problems From Chapter 1 1.1 Several problems arise if the jobs shift from manufacturing to service. One is that service jobs pay less. Many service jobs are minimum wage, while hourly wages for manufacturing jobs have historically exceeded the minimum wage by a substantial margin. As a result the standard of living will necessarily decline. Furthermore, manufacturing allows the firm to capture the payoff for the development of new technology. If this payoff is lost, so is the incentive to invest in research. 1.2 The focus on short term ROI may discourage investment in research projects, especially those that might not bear fruit for many years. It promotes a short term view of strategy that could ultimately hurt the firm’s competitive position in the marketplace. 1.3 There are certainly examples of low cost providers that have been successful, but overall it is a risky strategy. Some examples here include the Korean automakers, who continue to struggle to break into the American marketplace. Another example is Packard Bell Computers. The company positioned itself as a low cost provider of personal computers, and at first was successful selling through discount channels. However, inferior product quality led to the demise of the firm. 1.4 If we define quality as the degree that a product performs relative to its intended purpose, then both GEO and Ferrari product quality products. The Geo automobile is designed to provide basic transportation with high reliability at low cost. Ferrari aims to provide maximum performance regardless of cost. These two products compete in entirely different markets. 1.5 a) Time Horizon. Strategy decisions may be distinguished by the length of time required for the decision to take effect. Short term decisions include purchasing, production and personnel scheduling, and short - term inventory control. Medium - range decisions include demand and requirements forecasting, determining the size and mix of the work force, establishing channels of distribution, and setting target levels for inventory and service. Long - range decisions include the timing, locating, and scaling of new facilities. b) Focus. Focus refers to the particular aspect of a plant or production facility to which the facility is primarily directed. Facilities may be focused on process technologies, market demands, product volumes, quality level, or manufacturing tasks. c) Evaluation. The performance of a strategy may be evaluated by the cost of the items produced, product quality, or product profitability.

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    Chapter 01 - Strategy and Competition 1 - 2 d) Consistency. A strategy should be aimed towards optimizing few objectives and different segments of POM strategy should not compete along different dimensions and lead management and labor to assume conflicting objectives. 1.6 Advantages: The primary advantage is that the costs of new facilities can be saved. Also, there may be logistic benefits if new products interact with existing ones or existing equipment can be utilized to produce the new products. Disadvantages: Old facilities may use outmoded technology, be located in undesirable areas, or may have already reached capacity. Furthermore, by locating new processes in existing facilities, the plant may lose focus. 1.7 a) The focus of the current facility will be compromised. b) The Operations V.P. may be taking a short - term view that could be costly to the firm in the long run. c) In order to maximize the current ROI, the CFO has chosen to limit current investment. This could be a poor long - run strategy decision. d) The reliability requirements for the second application are likely to be much higher. The firm should consider producing these products in different plants. 1.8 They are: 1) Factor Conditions, 2) Demand Conditions, 3) Related and Supporting Industries, and 4) Firm Strategy, structure, and rivalry. Examples: 1: An industry that has prospered from factor conditions in the United States is the forest products industry. 2: Sony has benefited from the interest and willingness of Japanese consumers to try new electronic gear. Pharmaceutical companies are very successful in the United States due to the large population, and significant funds spent on health care. 3: Silicon Valley abounds with examples of firms that have done well because they are closely related to other strong industries. One example is Applied Materials that produces semiconductor fabrication and testing equipment. 4: Finally, one of the reasons for Toyota's success is the willingness of top management to employ the latest manufacturing thinking. 1.9 Because aluminum is highly energy intensive, production costs are closely tied to energy costs. In the United States, the Pacific Northwest has abundant hydroelectric power, one of the least expensive means of generating power.

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    Chapter 01 - Strategy and Competition 1 - 3 1.10 The effect of foreign competition has been devastating for many major industries in the United States. At one time the U.S. dominated world steel production. Today most of the major steel mills in the U.S. have closed. The domestic clothing and textile industries have suffered as a result of overseas competition. And, as we all know, the American auto companies have lost significant market share to overseas competitors. 1.11 Several industries in the United States have felt the sting of foreign competition in cases where overseas firms may be subsidized (such as Airbus), or use their strong position in the marketplace to "dump" products (such as the dumping of D - RAMS by the Japanese in the 1980's). Our government must be sure that a "level playing field" is maintained at all times. While the issues raised in this and the preceding question are subject to debate, it is the belief of this writer that international competition remains an important concern. 1.12 Pros: Labor costs could be considerably cheaper in the location where markets are located. Also: transportation costs and transportation lead times are reduced. In addition, there may be tax incentives provided by the host country. Cons: New manufacturing facilities must be constructed with attendant capital costs. The labor force in the new location may require special training. Also, it might be more difficult for the management to keep close tabs on the operation of an assembly plant far from the firm’s center of operation. 1.13 Quality may be defined as the degree to which an item performs its intended purpose. In this way it is possible for the $75 TV to be a higher quality item than the one selling for $3,000. 1.14 Several reasons have been suggested for these differences. They include a) The Japanese have a better educated and more motivated work - force, b) The Japanese use the latest technological developments in their plants, c) Japanese management techniques are more effective in motivating employees to do their best. d) There are few labor unions in Japan. e) The Japanese can borrow funds at lower interest rates. f) Japanese industry receives support from the government. While there is probably some truth to all of these reasons, based on experiences in the United States, it would appear that Japanese management methods are far more effective than American methods.

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    Chapter 01 - Strategy and Competition 1 - 4 1.15 Time based competition refers to getting a product to market before your competitors and getting to volume production before your competitors as well. A company which has had several commercial successes by introducing innovative products to the marketplace first is Gillette. Gillette has had significant successes with its Atra and Sensor razors as well as the Good News disposable razor line. 1.16 Getting to the market first is clearly not the only determinant of success. The phrase refers to the fact that the better quality product eventually captures the markets. Software is an example where "a better mousetrap" eventually dominates. Visicalc was the first spreadsheet program, but was significantly improved upon by Lotus, whose program 1 - 2 - 3 dominated the market until it was also pushed aside by Microsoft's Excel. In word processing, Wordstar was the CPM standard, later dominated by Wordperfect for PC's. Today Microsoft's Word is the best selling word processing program. 1.17 Many of the successes of BPR have followed the formula of reducing a complex process consisting of many steps to a simpler one consisting of only a few steps. This was the case of IBM Credit Corp. 1.1 8 1. Computer - based simulation is useful for trying out process configurations without having to actually effect changes on the operating system. 2. Flowcharting can help to understand how a process is currently working and where improvements can be made. 3. Re - engineering can only work with employee “buy - in” and direct involvement. Management structure is an important component to a successful re - engineering effort. 4. Mathematical models, like simulation, allow one to see the effects of re - engineering “off line.” 5. Cross - functional teams relate to a successful management effort and structure to facilitate the re - engineering effort. 1.19 Both of these scenarios are clearly a recipe for failure. The re - engineering effort must have support from both the management and the employee ends. Even with good intentions on both sides, many efforts never reach successful implementation. 1.20 JIT vendor relationships allow the firm to arrange to receive goods as they are needed. In this way excess inventories of raw materials or subcontracted goods do not build up. Relationships with too many vendors makes duplication a potential problem and increases the demands on the firm to keep an accurate track of the status of orders. JIT is particularly effective for minimizing WIP inventory. WIP inventory occurs when too much inventory builds between processes. JIT is a system in which items are moved from one work center to another only when requested, avoiding unreasonable build - ups of in process inventories.

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    Chapter 01 - Strategy and Competition 1 - 5 1.21 In JIT systems, defective products are located quickly before large inventories of defectives have an opportunity to accumulate. By moving items in small lots through the system, JIT facilitates the quick recognition of quality problems so that they can be corrected before they get out of hand. 1.22 a) 1. start - up 2. rapid growth 3. maturation 4. stabilization or decline b) In most circumstances, it is inappropriate to operate very far off the diagonal. For example, a firm that produces a varied product line with a relatively low volume for each product would not invest the capital required for the equipment to develop a continuous flow production line. Similarly, a firm producing few products with high volume would not choose a jumbled flow shop for manufacturing. 1.23 The automobile is one example of a product that has evolved through all phases of the product life cycle and has now reached a period of stabilization. Personal computers are an example of a product still in the maturation phase. 1.2 4 Although many firms should follow this pattern of evolution, it clearly does not make sense for all firms to do so. For example, the commercial printer shown in Figure 1.13 will never evolve beyond a jumbled flow shop and never beyond being a low volume one - of - a - kind producer. 1.25 a) I - I b) IV - IV c) II - II (could be III - III depending on the product volume and diversity of products produced) d) III - III e) I - I 1.26 When workers or an industry gains additional experience with a process or product, the amount of time or money required to produce the product declines. In the case of learning curves, workers become familiar with the process of production and the process itself is improved over time. With experience curves, the effect measured is the accumulated experience of an entire industry. This experience results in process improvements and new technologies that ultimately reduce unit production costs.

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    Chapter 01 - Strategy and Competition 1 - 6 1.27 A learning curve strategy is one in which the goal is to reduce costs along the lines predicted by the learning curve. By using a learning curve strategy, Ford was able to reduce unit costs to the lowest in the industry. However, this strategy stifled innovation at Ford. Because they were focusing on unit production costs instead of changing customer preferences, Ford allowed competitors to capture their dominant share of the market. 1.28 Unforeseen problems can arise in production of an item thus making extrapolation along the learning curve inaccurate. This was the experience of Douglas Aircraft. Unforeseen design changes led to unit production costs higher than those predicted by the learning curve. 1.29 Substituting u = 100,000 into the relationship Y(u) = 22.88u - .42276 gives Y(100,000) = .1761 hours 1.30 a) ln(cum # units) ln(# hrs for next unit) 3.912 1.19 4.605 0.79 5.991 0 6.397 - .22 6.908 - .69 9.210 - 1.61 b) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 - 0.5 - 0.1 - 1.5 - 2.0 ln(hours) 1 2 3 4 5 6 7 8 9 10 ln(cumulative units)

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    Chapter 01 - Strategy and Competition 1 - 7 c) The intercept is ln(a)  a = e 2.7 = 14.88 ln(L) = - b ln(2) = ( - .46)(.6931) = - .319 L = e - .319 = .727 Hence, the first unit should require 14.88 hours and a 73% learning curve accurately fits this data. d) Exact values of the slope and intercept are slope = - 0.53834 intercept = 3.2319 based on the natural logarithms. Using these exact values, the first unit should require e 3.2319 = 25.33 hrs. Since ln(L) = - b ln(2) = ( - .53834)(.693) = - .373 L = e - .373 = .689 Hence, the first unit should require 25.33 hrs. and a 69% learning curve should accurately fit this data based on the estimated least squares fit of the data. 1.31 Using the exact least squares estimates from part (d) of problem 12, the learning curve relationship is Y(u) = 25.33u - .53834 Substituting u = 100,000 gives Y(u) = (25.33)(100,000) - .53834 = .0515 hrs. 1.32 Forming the ratio of Y 2 u ( ) Y u ( ) for any value of u gives the percentage curve. Let u = 10. Then from the Figure Y(10) = 8.1 (approximately) and Y(20) = 6.1. Hence Y 20 ( ) Y 10 ( ) = 6.1 8.1 = .753 We would estimate that this curve is about a 75% experience curve.

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    Chapter 01 - Strategy and Competition 1 - 8 1.33 1. They may not accurately describe all production processes or industry experience. 2. Although they may be accurate within a given range, learning and experience curves may be inaccurate when the number of units produced grows large. 3. These curves cannot reflect price fluctuations due to shortages of raw materials or unusual market conditions. 4. Learning curves may also incorporate other effects such as economies of scale and technological improvements. 1.34 The curve is of the form Y(u) = au - b where a is the cost of producing the first unit and b = - ln(L)/ln(2). Here a = $1,000 and b = - ln(.80)/ln(2) = .3219 a) Y(100) = (1000)(100) - .3219 = $227.09 b) Y(10,000) = (1000)(10,000) - .3219 = $51.57 1.34 5 a) Let K = 30,000 c 2 = 20 c 1 = 85 Solve for x = K/(c 1 - c 2 ) = (30,000)/(65) = 461.54 ~ 462 b) c 1 x = (85)(462) = $39,270.00. c) x = (30,000)/(100 - 20) = (30,000)/(80) = 375 1.36 Cum. Year Sales Net Revenue Net Revenue 1 100 6,500 6,500 2 140 9,100 15,600 3 196 12,740 28,340 4 274 17,810 46,150 Hence, it will require slightly over 3 years to recoup the $30,000.00 initial investment. Linear interpolation gives an exact answer of 3.11 years. 1.37 a) Since there are 4 wheels per carriage, the company uses 40,000 wheels annually. They will save 8 - 3.50 = $4.50 per wheel if they produce the wheels. This is $180,000.00 per year. Hence, it will require (800,000)/(180,000) = 4.44 years.

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    Chapter 01 - Strategy and Competition 1 - 9 b) Year Sales # Wheels Cost Savings Cum. Savings 1 10,000 40,000 $180,000 $180,000 2 11,500 46,000 $207,000 $387,000 3 13,225 52,900 $238,050 $625,050 4 15,209 60,836 $273,758 $898,808 Answer: between 3 and 4 years. Using linear interpolation, we obtain 3.64 years. 1.38 a) From Figure 1.14, a value of a = .58 gives a value of u very close to 1.0. Solving x = u/r = 1/.12 = 8.33 years. The optimal size of each addition is xD = (8.33)(3,000) = 25,000 tons. b) f(y) = .0205y .58 = (.0205)(25,000) .58 - 7.29. Hence, the cost of each new addition is $7.29 million. c) At 12% interest the effective annual discount rate is 1/(1+0.12) = .8929. However replacements are made once every 8.33 years giving a discount factor per replacement of (.8929) 8.33 = .3891. Hence, the present cost of the next four replacements is 7.29[.39 + (.39) 2 + (.39) 3 + (.39) 4 ] = 7.29[.6245] = $4.55 million 1.39 a) 2 a = 1.68  a ln(2) = ln(1.68) a = 1 n 1 . 6 8 ( ) 1 n 2 ( ) = .7485. To find k substitute 6 = k(10,000) .7485 k = 6 1 0 ,0 0 0 ( ) .7 4 8 5 = .0061 b) Locating a = .7485 on Figure 1.14 gives a value of u of approximately 0.67. Solving: x = u/r = .67/.15 = 4.47 years. The optimal size of each new addition is (4.47)(2) = 8.94 million barrels (per year). c) [(15,000)/day][365 days/year] = 5,475,000. The optimal plant size = min [5.475 million, 8.94 million] = 5.475 million barrels per year. In this case, plants need to be added every 5.4 7 5 2 = 2.7375 years

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    Chapter 01 - Strategy and Competition 1 - 10 1.40 In the chapter, a production and operations strategy is defined as the sum total of all decisions related to production, storage, and distribution of goods and services. This relates to decisions concerning the sizing and location of production facilities, inventory management strategies, including JIT systems, strategies for getting to the market quickly, and learning curve strategies to mention a few. Marketing is concerned with selling goods and finance with supplying the financial resources to implement the marketing and production strategies. Individual functional area strategies must be carefully coordinated with the overall business strategy of the firm. 1.41 The product life cycle refers to the way that sales change over time. The curve is described typically in four phases: 1) start up, during which a relatively shallow sales growth is experienced while the product is getting known in the marketplace, 2) rapid growth, as the product gains acceptance in the marketplace, 3) maturation, during which sales are relatively stable, and 4) stability or decline, depending on the type of product. The process life cycle refers to the characteristics of the manufacturing process during these stages. Initially, the manufacturing process might resemble a jumbled flow. This is the early phase of the learning curve characterized by low volume orders. In the later phase as product demand increases, automation begins to play a greater role. In the final mature phase, standardized processes would be appropriate if the item experiences stable ongoing demand. 1.42 b = - ln(L)/ln(2) = - ln(.73)/ln(2) = .4540. a = 100 giving Y(u) = 100u - .4540 . It follows that Y(10,000) = (100)(10,000 ) - .4540 = $1.53. 1.43 x = K/(c 1 - c 2 ) = 5,500,000/(3.00 - 1.20) = 3,055,556 ties. 1.44 D = 8,000 tons/year r = .10 a = .51 From Figure 1.14, we obtain u  1.25. It follows that rx = 1.25, giving x = 1.25/.10 = 12.5 years.

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    Chapter 01 - Strategy and Competition 1 - 11 1.45 Q C(Q) Buy Cost Pro Cost Pro + 850 1 3.69 80000 3690 853690 2 14.19 160000 14194 864194 3 30.73 240000 30726 880726 4 52.58 320000 52579 902579 5 79.12 400000 79123 929123 6 109.79 480000 109790 959790 7 144.07 560000 144074 994074 8 181.52 640000 181520 1031520 9 221.72 720000 221723 1071723 10 264.32 800000 264322 1114322 11 308.99 880000 308995 1158995 12 355.45 960000 355454 1205454 13 403.44 1040000 403444 1253444 14 452.74 1120000 452740 1302740 15 503.14 1200000 503140 1353140 16 554.47 1280000 554467 1404467 17 606.56 1360000 606565 1456565 18 659.29 1440000 659294 1509294 19 712.53 1520000 712535 1562535 20 766.18 1600000 766179 1616179 21 820.14 1680000 820135 1670135 22 874.32 1760000 874321 1724321 23 928.67 1840000 928666 1778666 24 983.11 1920000 983109 1833109 25 1037.60 2000000 1037598 1887598 a) The function is a convex increasing function. For values of Q larger than about 10, it is essentially linear. b) Here we search the column C(Q) for the value closest to 1,000 (since we are told C(Q) is in units of $1,000). This occurs at Q = 24 to 25. Since Q is in hundreds of units we can interpolate to obtain Q = 2432 units. c) Here we compare the third and last columns to determine the break - even quantity. It occurs at Q about half - way between 20 and 21. (Q = 2050 is a reasonable guess.)

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    Chapter 01 - Strategy and Competition 1 - 12 1.46 Year Cost Pres. Val . 1 112000 101342 2 120960 99034 3 130637 96778 4 141088 94574 5 152375 92420 6 164565 90315 7 177730 88258 8 191948 86248 9 207304 84284 10 223889 82364 11 241800 80488 12 261144 78655 13 282035 76864 14 304598 75113 15 328966 73402 16 355283 71730 17 383706 70097 18 414402 68500 19 447554 66940 20 483359 65415 21 522027 63926 22 563789 62470 23 608893 61047 24 657604 59656 25 710212 58298 26 767029 56970 27 828392 55672 28 894663 54405 29 966236 53165 30 1043535 51955 total = 2220384

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    Chapter 01 - Strategy and Competition 1 - 13 1.47 Q Buy Cost Prod Cost 20000 1000000 8700000 40000 2000000 9400000 60000 3000000 10100000 80000 4000000 10800000 100000 5000000 11500000 120000 5900000 12200000 140000 6800000 12900000 160000 7700000 13600000 180000 8600000 14300000 200000 9500000 15000000 220000 10400000 15700000 240000 11300000 16400000 260000 12200000 17100000 280000 13100000 17800000 300000 14000000 18500000 320000 14900000 19200000 ` 340000 15800000 19900000 360000 16700000 20600000 380000 17600000 21300000 400000 18500000 22000000 420000 19400000 22700000 440000 20300000 23400000 460000 21200000 24100000 480000 22100000 24800000 500000 23000000 25500000 520000 23800000 26200000 540000 24600000 26900000 560000 25400000 27600000 580000 26200000 28300000 600000 27000000 29000000 620000 27800000 29700000 640000 28600000 30400000 660000 29400000 31100000 680000 30200000 31800000 700000 31000000 32500000 720000 31800000 33200000 740000 32600000 33900000 760000 33400000 34600000 780000 34200000 35300000 800000 35000000 36000000 820000 35800000 36700000 840000 36600000 37400000 860000 37400000 38100000 880000 38200000 38800000 900000 39000000 39500000 920000 39800000 40200000

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    Chapter 01 - Strategy and Competition 1 - 14 940000 40600000 40900000 960000 41400000 41600000 980000 42200000 42300000 1000000 43000000 43000000 Break - even quantity is 1,000,000

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    Chapter 02 - Forecasting 2 - 1 Forecasting Solutions To Problems From Chapter 2 2.1 Trend Seasonality Cycles Randomness 2.2 Cycles have repeating patterns that vary in length and magnitude. 2.3 a) Time Series b) Regression or Causal Model c) Delphi Method 2.4 Marketing: New sales and existing sales forecasts. Causal models relating advertising to sales Accounting Interest rate forecasts; cost components, bad debts. Finance: Changes in stock market, forecast return on investment return from specific projects. Production: Forecast product demand (aggregate and individual), availability of resources, labor. 2.5 a) Aggregate forecasts deal with item groups or families. b) Short term forecasts are generally next day or month; Long term forecasts may be for many months or years into the future. c) Causal models are based on relationship between predictor variables and other variables. Naive models are based on the past history of series only 2.6 The Delphi Method is a technique for achieving convergence of group opinion. The method has several potential advantages over the Jury of Executive Opinion method depending upon how that method is implemented. If the executives are allowed to reach a consensus as a group, strong personalities may dominate. If the executives are interviewed, the biases of the interviewer could affect the results.

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