Solution Manual for Operations and Supply Chain Management, 9th Edition
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1 - Introduction to Operations and Supply Chain Management Answers to Questions 1 - 1. The operations function involves organizing work, selecting processes, arranging layouts, locating facilities, designing jobs, measuring performance, controlling quality, scheduling work, managing inventory, and planning production. Operations interacts with marketing in product development, forecasting, production planning, and customer service. Operations and finance interact in capital budgeting, cost analysis, production and inventory planning, and expansion and technology plans. Operations and human resources work together recruiting, training and evaluating workers, designing jobs and working with unions. IT and operations work together daily on e - commerce, enterprise resource planning and supply chain management systems. 1 - 2. a. Operations at a bank involves transferring funds, processing funds, providing checks, cashing checks, preparing monthly statements, reconciling statements, approving loans, loaning money, keeping track of loan payments, approving credit cards, and more. b. Operations at a retail store involves purchasing goods, stocking goods, selling goods, keeping track of inventory, scheduling workers, laying out the store, locating the store, forecasting demand, and more. c. Operations at a hospital involves preparing the rooms, scheduling doctors, nurses and other workers, processing paperwork, ordering supplies, caring for patients, maintaining the facility, laying out the facility, ensuring quality and more. d. Operations at a cable TV company involves taking orders, installing equipment, maintaining equipment, keeping the shows on the air, scheduling work, processing statements and payments, and more. 1 - 3. Inventions during the industrial revolution brought workers together under one roof in a factory setting where division of labor and interchangeable parts encouraged the formation of separate worker and management jobs. Ideas from the scientific management era made work more efficient. Human relations theorists emphasized the importance of the human element in operations management. The management science era saw many advances in quantitative techniques and their application. The quality revolution focused management on meeting customer expectations and emphasized quality over quantity. The Internet brought numerous opportunities to do work faster and better. It also opened doors to new markets worldwide. Today’s successful companies compete worldwide for both market access and production resources. 1 - 4. Competitiveness is the degree to which a nation can produce goods and services that meet the test of international markets. A country’s competitiveness is measured by its GNP, import/export ratio, and increases in productivity. Industry competitiveness can be measured by the number of major players in the industry, average market share, and average profit margin. Measures of a firm’s competitiveness include market share, earnings per share, revenue growth, and profit margins. The Internet has opened new avenues of trade so that more firms compete for a larger, global market. The ease with which consumers can compare products and prices online has also increased competitiveness. 1 - 5. Student answers will vary. 1 - 6. Student answers will vary.
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1 - 7. Students can begin this assignment by accessing Fortune’s homepage and referring to the Fortune 500 or Global 500 by industry. The leaders in each industry are listed and there is usually some discussion of industry concerns. Individual data on companies can be found at Hoover’s website ( www.hoovers.com ). 1 - 8. Student answers will vary. 1 - 9. Student answers will vary. 1 - 10. Student answers will vary. Access www.worldbank.com . 1 - 11. The WTO is an international organization that works to establish and enforce rules of trade between nations. WTO agreements are ratified by the governing bodies of the nations involved . WTO’s dispute settlement process interprets agreements and rules on violations, thereby avoiding political or military conflict. The group promotes free trade and more recently, has helped developing nations enter the trade arena on more equitable grounds. Currently, there are 147 member nations. Membership is achieved by meeting certain environmental, human rights, and trade criteria, agreeing to abide by the rules of the organization, and being approved by two - thirds of the existing membership. See www.wto.org 1 - 12. Student answers will vary. Access www.executiveplanet.com 1 - 13. Student answers will vary. Access www.transparency.org 1 - 14. Student answers will vary. Access http://www.usdoj.gov/criminal/fraud/fcpa.html for basic information. 1 - 15. Students will find a variety of answers for this question. In general, it is easy to find mission or vision statements, but more difficult to find evidence of the mission or vision being applied. 1 - 16. Strategy formulation consists of four basic steps: (1) D efining a primary task — what is the purpose of the firm? What is the firm in the business o f doing? (2) A ssessing core competencies — what does a firm do better than anyone else? (3) D etermining order winners and order qualifiers — what wins orders in the marketplace? What qualifies a product or service to be considered for purchase? (4) Positioning the firm — what one or two important things should the firm choose to concentrate on? How should the firm compete in the marketplace? Student answers will vary. Most start - ups try too much too soon. It’s often difficult to stick with what you do best. 1 - 17. Core competencies are the essential capabilities that create a firm’s sustainable competitive advantage. They have usually been built up over time and cannot be easily imitated. For example, First National Bank, one of our local banks, is known as a risk taker. Its core competence is its ability to size up the potential of investment opportunities. Through its familiarity with local businesses and its experience in loan making, the bank has developed the ability to predict which loans are worth taking extra risks. Bonomo’s, a successful retail store, is known for having just the right item in stock for special occasions. The store stocks a variety of stylish women’s clothing, but not too much of each style. They specialize in knowing individual customers and even keep track of evening wear purchases so that no one else at a particular party will be wearing the same dress. Toyota emphasizes superior quality at a price below its competitors with its Lexus line of automobiles. To establish a special reputation for quality over the lifetime of the car, the company set up separate sales and service facilities. When it is time for servicing, Lexus owners can have their vehicle picked up and delivered to their home or place of business. The car returns the same day, washed and vacuumed, often with a gift certificate inside for a night on the town complements of the dealer. 1 - 18. While the answers to this question vary considerably, most students feel competent in the technical areas of their major, but uncomfortable with their communication skills (both oral and written) and their ability to
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make decisions. This opens the way for more project - oriented assignments from the instructor. The question also helps students prepare for the inevitable interview question — what are your strengths and weaknesses? 1 - 19. Order qualifiers are characteristics of a product or service that qualify it to be considered for purchase by a customer. An order winner is the characteristic of a product or service that wins orders in the marketplace — the final factor in the purchasing decision. 1 - 20. a. Most companies approach quality in a defensive or reactive mode; quality is confined to minimizing defect rates or conforming to design specifications. To compete on quality , companies must view quality as an opportunity to please the customer, not just as a way to avoid problems or to reduce rework costs. The manufacturer of Rolex watches competes on quality. b. Companies that compete on cost relentlessly pursue the elimination of all waste. The entire cost structure is examined for reduction potential, not just direct labor costs. High volume production and automation may or may not provide the most cost - effective alternative. Wal - Mart competes on cost. c. Flexibility includes the ability to produce a wide variety of products, to introduce new products and to modify existing products quickly, and, in general, to respond to customer needs. National Bicycle Industrial Company competes on flexibility. d. Competing on speed requires a new type of organization characterized by fast moves, fast adaptations, and tight linkages. Citicorp competes on speed. e. Competing on dependability requires a stable environment, adequate resources, high standards for performance, and tight control. Maytag competes on dependability. F . Competing on service requires closeness to the customer, availability of resources, attention to detail, and flexible operations. Ritz - Carlton competes on service. 1 - 21. Operations can play two important roles in corporate strategy: (1) it can provide support for the strategy of a firm (help with order qualifiers), and (2) it can serve as a firm’s distinctive competence (win orders). 1 - 22. Strategic decisions in operations and supply chain management involve products and services, processes and technology, capacity and facilities, human resources, quality, sourcing, and operating systems. 1 - 23. Policy deployment tries to focus everyone in an organization on common goals and priorities by translating corporate strategy into measurable objectives down through the various functions and levels of the organization. As a result, everyone in the organization should understand the strategic plan, be able to derive several goals from the plan, and determine how each goal ties into their own daily activities. 1 - 24. The balanced scorecard examines a firm’s performance in four critical areas – its finances, customers, processes and capacity for learning and growing. Although operational excellence is important in all four areas, the tools in operations are most closely associated with process. 1 - 25. Student answers will vary. 1 - 26. Student answers will vary. The balanced scorecard worksheet in Table 2.1 is helpful. Finances might refer to future income, customers to potential employers who are interested in both grades and experience, processes to how students will raise their grades and gain experience, and learning and growing to developing skills in several areas.
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Solutions to Problems 1 - 1. The Blacksburg store is the most productive. Store Annandale Blacksburg Charlottesville Danville Sales volume $40,000 $12,000 $60,000 $25,000 Labor hours 250 60 500 200 Productivity $160 $200 $120 $125 1 - 2. a. Danville is the most productive. b. Based on productivity, the Blacksburg store should be closed. Other factors to consider include total revenue, potential for growth, and options for reducing costs. Annandale Blacksburg Charlottesville Danville Sales volume $40,000 $12,000 $60,000 $25,000 Labor hours 250 60 500 200 Labor cost/hr $ 10 . 00 $ 7 . 25 $ 8 .00 $ 7 .50 Rent $ 2 ,800 $ 1 , 2 00 $ 2 , 0 00 $800 Productivity $ 8 $ 7 $1 0 $1 1 1 - 3. By number, Jim was more productive last year. By weight, Jim was more productive this year. Last yr This yr Hours fishing 4 6 Bass caught 12 15 Average weight 20 25 Bass/hr 60 62.5 1 - 4. Productivity could be measured by total account dollars per hour worked, new account dollars per hour worked or existing account dollars per hour worked. Bates is the most productive based on total output. Albert and Duong have the newest accounts, and thus the greater potential returns in the future. However, Duong cannot work many more hours a week and Bates is only working half time. Bates has the potential to sell more if he works more hours. Agents Albert Bates Cressey Duong New accounts $100,000 $40,000 $80,000 $200,000 Existing accounts $40,000 $40,000 $150,000 $100,000 Labor hours 40 20 60 80 Total $/hr $3,500.00 $4,000.00 $3,833.33 $3,750.00 $ New accts/hr $2,500.00 $2,000.00 $1,333.33 $2,500.00 $ Existing accts/hr $1,000.00 $2,000.00 $2,500.00 $1,250.00 1 - 5. The U.S. is the most productive. Labor Hours Units of Output Productivity U.S. 89.5 136 1.52 Germany 83.6 100 1.20 Japan 72.7 102 1.40 1 - 6. Omar should probably close the plant in Guadalajara because its multifactor productivity is the lowest, its labor productivity is the second lowest, and its output is the least of the four plants.
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Units (in 000’s) Cinncinnati Frankfurt Guadalajara Bejiing Finished goods 10,000 12,000 5,000 8,000 Work - in - process 1,000 2,200 3,000 6,000 Costs (in 000’s) Labor costs $3,500 $4,200 $2,500 $800 Material costs $3,500 $3,000 $2,000 $2,500 Energy costs $1,000 $1,500 $1,200 $800 Transportation costs $250 $2,500 $2,000 $5,000 Overhead costs $1,200 $3,000 $2,500 $500 Labor productivity 3.14 3.38 3.20 17.50 Total productivity 1.16 1.00 0.78 1.46 1 - 7. H enry is the most productive in terms of rushing yards and touchdowns per carry. However, Fournette has the highest number of rushing yards and touchdowns. Using “carries” as the input variable skews the results. Productivity can be measured in many different ways. Make sure it is expressed in a manner that is useful to you or your customer. Candidates H enry McCaffrey Fournette Rushing yards 2,110 3,623 6,925 # Carries 105 875 1,186 # Touchdowns 15 20 70 Yards/carry 20.10 4.14 5.84 Touchdowns/carry 0.14 0.02 0.06 1 - 8. Productivity decreases from week to week. Installation 1 2 3 Square Yards 1,225 1,435 2,500 # workers 4 3 5 # hours 3 5 6 Square yds/hr 102.08 95.67 83.33 1 - 9. Center 1 2 3 3c. Pieces processed 1,000 2,000 3,000 5,000 Workers/hr 10 5 2 2 Hourly wage rate $5.50 $10 $12 $12 Overhead/hr $10 $25 $50 $80 Multifactor productivity 15.38 26.67 40.54 48.08 a. Work center # 3 is the most productive. b. With a 10% raise in center 1, productivity goes down to 14.18 pieces per dollar spent. c. With new equipment in center 3, productivity goes up to 48 pieces. Install the new equipment.
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1 - 10. Material productivity is stable over the 4 weeks. Labor productivity increases in week 2 and decreases in weeks 3 and 4. Week 1 2 3 4 Units of output 2,000 4,000 5,000 7,000 # workers 4 4 5 6 Hours per week 40 48 56 70 Labor cost per hour $10 $10 $10 $10 Material (lbs.) 286 570 720 1,000 Material cost per lb. $4 $4 $4 $4 Labor productivity 1.25 2.08 1.79 1.67 Material productivity 1.75 1.75 1.74 1.75 Multifactor productivity 0.73 0.95 0.88 0.85 1 - 11. John is the most productive. Jake Josh Jennifer John # ads sold 100 50 200 35 # hours spent 40 15 85 10 Output/hr 2.50 3.33 2.35 3.50 1 - 12. Choose Cold Case. Alaskan Seal Brr Frost Cold Case Deep Freeze Purchase cost $3,270 $4,000 $4,452 $5,450 Daily energy consumption (kwh) 3.61 3.88 6.68 29.07 Cost per kwh $0.10 $0.10 $0.10 $0.10 Daily energy cost $0.36 $0.39 $0.67 $2.91 Daily purchase cost $2.99 $3.65 $4.07 $4.98 Total cost $3.35 $4.04 $4.73 $7.88 Volume (cu ft) 25 35 49 79 Productivity (cu ft/$) 7.47 8.66 10.35 10.02 Cost/cu ft $0.13 $0.12 $0.10 $0.10 1 - 13. a. Productivity of current process = 100/10 = 10 b. Productivity of proposed process = 200/15 = 13.33 c. Multifactor productivity = Output / ($ material + $ hours) = 100 / [(1000*6.80) + (10*25)] = 0.0142 lbs. per dollar d. Multifactor productivity = Output / ($ material + $ hours) = 200 / [(1800*6.80) + (15*25)] = 0.0159 lbs. per dollar e. Choose the new process.
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1 - 14. a. Labor productivity = Output/labor hrs = 60/(3*8) = 2.5 pairs of jeans per labor hr The reciprocal of labor productivity is the labor required to make one pair of jeans, 1/ 2.5 = 0.4 hrs b. Multifactor productivity = Output / (Labor cost + Material cost + Energy cost) = 60/ [(3 workers *8 hrs*$7.50) + (2 yds * $10) + ($1* 3 machines * 8 hrs)] = 0.04 pairs of jeans per $ input Multifactor productivity is the number of jeans that can be produced per dollar of resource used (including labor, materials, energy, etc.) . The reciprocal of multifactor productivity is the cost to produce one pair of jeans, 1/ 0.04 = $23.40 1 - 15. The most productive countries are Taiwan, China, Poland, Czech Republic and Singapore. The least productive countries are Norway, Germany, Belgium, Sweden and Switzerland.
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CASE SOLUTION 1. 1 : Visualize This 1. It is difficult to follow the four steps of strategy formulation for this case. Students will be able to easily identify VT’s core competency but will struggle with its primary task, and without a product, it’s impossible to determine an order winner and order qualifiers. “Developing the next generation of visualization tools” is probably not a marketable task. Students will come up with a variety of ideas from their Internet search. 2. Student answers will vary depending on how the primary task is derived in question 1. 3. That’s the crux of the problem for this case. Isaac needs to find a way to keep his business going to obtain the capital to pursue his dream. Great for class discussion. 4. (1) and (3) are more in keeping with VT’s earlier projects but require more hardware and do not promise future business. (2) is the most time - consuming, least challenging, but most sustainable. (4) and (5) are the most lucrative but do not advance VT’s knowledge of the field. 5. The selection of projects should reinforce the strategy determined by the student. This case is based on an actual situation. The company chose projects (1) and (3). The museum job consumed so much time and resources that the company had to turn down the bank training job. Without a “product” and no immediate repeat business, the company folded and the owner went back to academe. A student took on project (5), became quite successful and now has operations in three states. CASE SOLUTION 1. 2 : Whither an MBA at Strutledge? 1. The board of Regents should look at the proposal carefully and identify first what they are trying to achieve with this new program. If the program fits within their mission, and if they have the resources to pursue it, they need to assess the likelihood of their success or failure. It doesn’t appear that the board has sufficient information or insight to make the decision. A lot of questions remain. The focus of the program (i.e., interdisciplinary, problem solving, etc.) doesn’t seem like much of a focus at all. The desire to “try anything” to get more students is troublesome. A new program that Strutledge can’t support would damage their reputation. Strutledge needs to gather more information before a decision can be made. 2. Strutledge should go through the process of identifying its primary task. This would include the type of students it wishes to serve and their future role in society (i.e., community, state, regional, national, global). A clear assessment of Strutledge’s core competence is also needed. What special resources does the college have? What is it best known for? How does it compare to other institutions of similar size and mission? After those issues have been settled, the college needs to find out what its customers (i.e., students) look for when deciding where to go to school. What are some basic requirements that Strutledge should meet (i.e., order qualifiers)? What factor prompts the final determination of which school to attend (i.e., order winner)? If, as is hinted in the case, the ability to find employment upon graduation is important to prospective students, then the college should gather information from potential employers about their needs. It may very well be that an MBA program is needed in the area, but this needs to be determined from data. Only after the determination has been made, that the area needs another MBA program, should Strutledge explore the possibility of providing it. If the college concludes that it has the skills and resources necessary to pursue the task, then it should try to position itself properly in the market and find a special niche for its particular MBA program.
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CASE SOLUTION 1.3 – Weighing Options at the Weight Club A Balanced Scorecard for the Weight Club Dimension Objectives Key Performance Indicator Goal Finances Revenue Generate revenue for first - class facility % increase in revenue 30% Growth Attract new customers % increase in customers 25% Customers Quality Meet or exceed customer needs % customers satisfied 100% Retention Build sustainable customer base % membership renewals 75% Processes Fitness Incr. participation in exercise classes # exercise classes/week 12 Increase use of personal trainers # client hours/week 100 Client services Enhance client experience % participation in customer orientation 75% # massage appointments/week 200 Facilitate use of services Time required for check - in 1 min Hours of child care/week 90% Equipment maintenance Maintain equipment in top working condition % fully operational 95% % on regular maintenance schedule 60% Learning & Growing Program development Develop professional staff % new classes 25 # innovative suggestions 30 Facility development Provide first - class facilities and equipment % equipment new or updated 100% Months until facility expanded/ renovated 6 Organizational development Develop management and administrative skills # persons on Board of Directors 6 # full - time managers 3
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Supplement 1 Operational Decision - Making Tools: Decision Analysis S1 - 1. a. Minimin: South Korea 15.2 China 17.6 Taiwan 14.9 Poland 13.8 Mexico 12.5 minimum Select Mexico b. Minimax: South Korea 21.7 China 19.0 minimum Taiwan 19.2 Poland 22.5 Mexico 25.0 Select China c. Hurwicz 0.40 : South Korea: 15.2 0.40 21.7 0.60 19.10 China: 17.6 0.40 19.0 0.60 18.44 Taiwan: 14.9 0.40 19.2 0.60 17.48 minimum Poland: 13.8 0.40 22.5 0.60 19.02 Mexico: 12.5 0.40 25.0 0.60 20.0 Select Taiwan d. Equal likelihood: South Korea: 21.7 0.33 19.1 0.33 15.2 0.33 18.48 China: 19.0 0.33 18.5 0.33 17.6 0.33 18.18 Taiwan: 19.2 0.33 17.1 0.33 14.9 0.33 16.90 minimum Poland: 22.5 0.33 16.8 0.33 13.8 0.33 17.52 Mexico: 25.0 0.33 21.2 0.33 12.5 0.33 19.37 Select Taiwan S1 - 2. EV South Korea 21.7 .30 19.1 .40 15.2 .30 18.71 EV China 19.0 .30 18.5 .40 17.6 .30 18.38 EV Taiwan 19.2 .30 17.1 .40 14.9 .30 17.07 minimum EV Poland 22.5 .30 16.8 .40 13.8 .30 17.61 EV Mexico 25.0 .30 21.2 .40 12.5 .30 19.73 Select Taiwan
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Expected value of perfect information 19 .30 16.8 .40 12.5 .30 16.17 EVPI 16.17 17.07 $ 0.9 million The EVPI is the maximum amount the cost of the facility could be reduced (.9 million) if perfect information can be obtained. S1 - 3. a. Maximax criteria: Office building 4.5 maximum Parking lot 2.4 Warehouse 1.7 Shopping mall 3.6 Condominiums 3.2 Select office building b. Maximin criteria: Office building 0.5 Parking lot 1.5 maximum Warehouse 1.0 Shopping mall 0.7 Condominiums 0.6 Select parking lot c. Equal likelihood: Office building: 0.5 0.33 1.7 0.33 4.5 0.33 2.21 maximum Parking lot: 1.5 0.33 1.9 0.33 2.4 0.33 1.91 Warehouse: 1.7 0.33 1.4 0.33 1.0 0.33 1.35 Shopping mall: 0.7 0.33 2.4 0.33 3.6 0.33 2.21 maximum Condominiums: 3.2 0.33 1.5 0.33 0.6 0.33 1.75 Select office building or shopping mall d. Hurwicz criteria 0.3 : Office building: 4.5 0.3 0.5 0.7 1.70 Parking lot: 2.4 0.3 1.5 0.7 1.77 maximum Warehouse: 1.7 0.3 1.0 0.7 1.21 Shopping mall: 3.6 0.3 0.7 0.7 1.57 Condominiums: 3.2 0.3 0.6 0.7 1.38 Select parking lot S1 - 4. a) EV Office building .5 .50 1.7 .40 4.5 .10 1.38 EV Parking lot 1.5 .50 1.9 .40 2.4 .10 1.75 EV Warehouse 1.7 .50 1.4 .40 1.0 .10 1.51 EV Shopping mall 0.7 .50 2.4 .40 3.6 .10 1.67 EV Condominiums 3.2 .50 1.5 .40 .06 .10 2.26 maximum Select Condominium project b) EVPI = Expected value of perfect information – expected value without perfect information = 3.01 – 2.26 = $0.75 million
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S1 - 5. a. Maximax: Risk fund, maximax payoff = $167,000 b. Maximin: Savings bond maximin payoff = $30,000 c. Equal likelihood: Bond fund, maximum payoff = $35,000 S1 - 6. a. Best decision, given probabilities: Bond fund, maximum payoff = $35,000 b. Expected value given perfect information = (5*0.1) + (4*0.2) + (4.2*0.4) + (9.3*0.2) + (16.7*0.1) = $6.51 EVPI = $6.51 - $3.50 = $3.01 or $30,10 0 S1 - 7. Since the payoff table includes “costs,” the decision criteria must be reversed. a. Minimin: Philippines, minimum cost = $170,000 b. Minimax: Brazil, minimum cost = $570,000 c. Equal likelihood: Philippines, minimum cost = $399,000 d. Minimax regret: Philippines, minimum regret = $70,000 S1 - 8 a. EV (China) = 5.328 EV (India) = 5.375 EV (Philippines) = 5.218 EV (Brazil) = 5.178 Select EV (Mexico) = 5.202 b. EV given perfect information = $(1.7) (0.09) + (3.8) (0.27) + (5.4)(0.64) = $4.635 EVPI = $5.178 – 4.365 = $0.813 or $813,000 S1 – 9. Since this payoff table includes “losses,” the decision criteria must be reversed. a. Minimin: Thailand, minimum loss = $3 million b. Minimax: India, minimum loss = $14 million c. Equal likelihood: India, minimum loss = $8.91 million d. Minimax regret: Philippines, minimum regret = $2 million S1 - 10. EV (China) = $10.91 EV (India) = 7.21 Select EV (Thailand) = 9.77 EV (Philippines) = 7.54 S1 - 11 . a. Product Expected Value Widget 160,000 0.2 90,000 0.5 50,000 0.3 $62,000 Hummer 70,000 0.2 40,000 0.5 20,000 0.3 $40,000 Nimnot 45, 000 0.2 35,000 0.5 30,000 0.3 $35,500 The best option is to introduce the widget. b. EV given perfect information: 160,000 0.2 90,000 0.5 30,000 0.3 $86,000. EV without perfect information: Widget at $62,000. Value of perfect information: $86,000 $62,000 $24,000 The company would consider this a maximum; since perfect information is rare, it would probably pay less than $24,000. c. Maximax: Introduce widget, maximax payoff $160, 000
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Maximin: Introduce nimnot, maximin payoff $30,000. Minimax regret: Introduce widget, Minimax regret $80,000 Equal likelihood: Introduce widget, maximum payoff $66, 000 S1 - 12 . a. Maxi max: Major physical revision, maximum payoff $972,000 b. Maximin: Paperback, maximum payoff $68,000 c. Equal likelihood: Major content revision, maximum payoff $419,430 d. Hurwicz: Major content revision, maximum payoff $273,900 S1 - 13 . Public ation Decision Expected Value Paperback $216,290 Similar revision 386,340 Major content revision 468,780 Major physical revision 405,970 Best decision major content revision Overall “best” decision appears to be a “major content revision” EVPI (. 23) (68,000) (.46)(515,000) (.31)(972,000) 468,780 $85,080 This is the maximum amount Wiley would pay an “expert” for additional information about the future competitive market. S1 - 14 . a. Maximax: Singapore, maximum payoff $71 million b. Maximi n: Kaohsiung, maximum payoff - $15 million c. Equal likelihood: Kaohsiung, maximum payoff $28.05 million d. Hurwicz: Singapore, maximum payoff $37.8 million e. Minimax regret: Singapore, minimum regret $9 million S1 - 15 . Expected value Port Expe cted Value Hong Kong $22.99 Singapore 34.52 Shanghai 24.54 Busan 28.30 Kaohsiung 33.66 a. Best decision Singapore b. Singapore appears to be the best “overall” decision. S1 - 16 . Expected value Lease Decision Expected Value 1 – year $65,980 2 – year 103,010 3 – year 133,810 4 – year 154,300 5 – year 114,210
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S1 - 17 . EVPI (.17) (1,228,000) (.34)(516,000) (.49)( 551,000) 154,300 $237,740 This is the maximum amount the restaurant owner would pay an energy “expert” for additional inform ation about future energy prices. S1 - 18 . a. Maximax: Food court, maximum payoff $87,000 b. Maximin: Child care center, maximum payoff $17,000 c. Hurwicz: Lockers and showers, maximum payoff $32,250 d. Equal likelihood: Lockers and showers, maximu m payoff $34,980 S1 - 19. Service Facility Expected Value Child care center $30,560 Swimming pool 7,610 Lockers and showers 44,150 Food court 15,440 Spa 20,580 Best decision = Lockers and showers S1 - 16. a. Payoff table: Demand 20 0.10 21 0.20 22 0.30 23 0.30 24 0.10 Stock (lb) 20 20.00 20.00 20.00 20.00 20.00 21 18.50 21.00 21.00 21.00 21.00 22 17.00 19.50 22.00 22.00 22.00 23 15.50 18.00 20.50 23.00 23.00 24 14.00 16.50 19.00 21.50 24.00 EV 20 $20 EV 21 18.50 0.1 21 0.2 21 0.3 21 0.3 21 0.1 $20.75 EV 22 17 0.1 19.50 0.2 22 0.3 22 0.3 22 0.1 $21.00 EV 23 15.50 0.1 18 0.2 20.50 0.3 23 0.3 23 0.1 $20.50 EV 24 14 0.1 16.50 0.2 19 0.3 21.50 0.3 24 0.1 $19.25 Order 22 lb of apples for a profit of $21.00. b. Maximax: Stock 24 lb for a maximax profit of $24.00. Maximin: Stock 20 lb for a maximin profit of $20.00.
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S1 - 21 . a. Payoff table: Demand Stock (lb) (boxes) 25 0.10 26 0.15 27 0.30 28 0.20 29 0.15 30 0.10 25 50 50 50 50 50 50 26 49 52 52 52 52 52 27 48 51 54 54 54 54 28 47 50 53 56 56 56 29 46 49 52 55 58 58 30 45 48 51 54 57 60 EV 25 50 0.1 50 0.15 50 0.3 50 0.2 50 0.15 50 0.1 $50.00 EV 26 49 0.1 52 0.15 52 0.3 52 0.2 52 0.15 52 0.1 $51.70 EV 27 48 0.1 51 0.15 54 0.3 54 0.2 54 0.15 54 0.1 $52.95 EV 28 47 0.1 50 0.15 53 0.3 56 0.2 56 0.15 56 0.1 $53.30 EV 29 46 0.1 49 0.15 52 0.3 55 0.2 58 0.15 58 0.1 $53.05 EV 30 45 0.1 48 0.15 51 0.3 54 0.2 57 0.15 60 0.1 $52.35 Best decision: Stock 28 boxes, for a profit of $53.30. b. Expected value under uncertainty: EV 500 0.10 52 0.15 54 0.30 56 0.20 58 0.15 60 0.10 $54.90 EVPI $54.90 $53.30 $1.60 S1 - 22 . a) Stock 25, maximum of minimum payoffs $50 b) Stock 30, maximum of maximum payoffs $60 c) 25 : 50 .4 50 .6 50; 26 : 52 .4 49 .6 50.2; 27 : 54 .4 48 .6 50.4; 28 : 56 .4 47 .6 50.6; 29 : 58 .4 46 .6 50.8; 30 : 60 .4 45 .6 51; stock 30 boxes. d) Stock 28 or 29 boxes; minimum regret $4. S1 - 23. Since the payoff table includes “costs,” the decision criteria must be reversed. a. Minimin: Manila, minimum cost = $170,000 b. Minimax: Veracruz, minimum cost = $570,000 c. Equal likelihood: Manila, minimum cost = $403,000 d. Minimax regret: Veracruz, minimum regret = $70,000 S1 - 24. EV (Shanghai) = 5.328 EV (Mumbai) = 5.375 EV (Manila) = 5.218 EV (Santos) = 5.178 Select EV (Veracruz) = 5.202 S1 - 25. EV given perfect information = $(1.7) (0.09) + (3.8) (0.27) + (5.4) (0.64) = $4.635 EVPI = $5.178 – 4.635 = $0.543 or $543,000
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S1 - 2 6 . EV press 40,000 .4 8,000 .6 $11, 200; EV lathe 20,000 .4 4,000 .6 $10,400; EV grinder 12,000 .4 10, 000 .6 $10,800; P urchase press. S1 - 2 7 .
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S1 - 2 8 . a. Maximax Gordon b. Maximin Jackson c. Hurwicz 0.25 Morris 4.4 0.25 3.2 0.75 $1.3M O’Neil = 6.3 0.25 5.1 0.75 $2.3M Jackson 5.8 0.25 2.7 0.75 $0.58M Gordon 9.6 0.25 6.3 0.75 $2.33M Select Jackson d. Equal likelihood Morris 4.4 0.33 1.3 0.33 3.2 0.33 $.83M O’Neil = 6.3 0.33 1.8 0.33 5.1 0.33 $.99M Jackson 5.8 0.33 0.7 0.33 2.7 0.33 $1.254M Gordon 9.6 0.33 1.6 0.33 6.3 0.33 $.561M Select Jackson e. EV Morris 3.2 0.15 1.3 0.55 4.4 0.30 $1.56M EV( O’Neil ) = 5.1 0.18 1.8 0.26 6.3 0.56 $3.08M EV Jackson 2.7 0.21 0.7 0.32 5.8 0.47 $2.38M EV Gordon 6.3 0.30 1.6 0.25 9.6 0.45 $2.03M Select O’Neil. S1 - 2 9 . a. Maximax = Real Estate b. Maximin = Nursing c. Equal Likelihood: select Real Estate Graphic design = $170,000 Nursing = $187,500 Real Estate = $202,500 Medical Technology = $195,000 Culinary technology = $170,000 Computer information technology = $186,250 d. Hurwicz (alpha = 0.25): select Nursing Graphic design = $141,250 Nursing = $161,250 Real Estate = $ 158,750 Medical Technology = $157,500 Culinary technology = $136,250 Computer information technology = $158,750 S1 - 30 . EV (Graphic design) = $164,250 EV (Nursing) = $183,500 EV ( Real Estate ) = $ 174,400 EV (Medical Technology) = $187,500 EV (Culinary technology) = $149,250 EV (Computer information technology) = $174,750
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S1 - 31. . a. Maximax = Juan Ramon b. Maximin = Alan Rodriguez c. Equal likelihood: Garcia = 106.92 Ramon = 119.46 SELECT Terry = 103.29 Rodriguez = 96.03 Washburn = 92.73 d. Hurwicz: Garcia = 91.95 Ramon = 95.10 SELECT Terry = 94.55 Rodriguez = 95.75 Washburn = 84.35 S1 - 32. a. EV(Garcia) = 100.3 EV( Ramon ) = 112.4 SELECT EV(Terry)= 98.2 EV(Rodriguez) = 91.6 EV(Washburn) = 85.2 b. Probably Terry; he seems to have the best tradeoff between low cost and wins. However, this is an objective opinion depending on the degree of risk the decision maker is willing to take on. c. EV(Garcia) = 109.71 EV(Ramon ) = 109.74 SELECT EV(Terry)= 106.81 EV(Rodriguez) = 100.00 EV(Washburn) = 93.48 S1 - 3 3 . a. Maximax = Hong Kong b. Maximin = Pusan c. Equal likelihood: Shanghai = $0.44 billion Singapore = $0.37 billion Pusan = $0.43 billion Kaoshiung = $0.41 billion Hong Kong = $0.4 7 billion d. Hurwicz (alpha = .55): Shanghai = $0. 47 billion Singapore = $0. 41 billion Pusan = $0. 46 billion Kaoshiung = $0. 54 billion Hong Kong = $0. 77 billion S1 - 3 4 . EV(Shanghai) = $0.608 billion EV(Singapore) = $0.606 billion EV(Pusan) = $0. 502 billion EV(Kaoshiung) = $0.487 billion EV ( Hong Kong ) = $0. 724 billion
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S1 - 3 5 . EV snow shoveler $30 .12 60 .19 90 .24 120 .22 150 .13 180 .08 210 .02 $101.10 The cost of the snow blower ($575) is much more than the annual cost of the snow shoveler, thus on the basis of one year the snow shoveler should not be purchased. However, the snow blower could be used for an extended period of time such that after approximately 6 years the cost of the snow blower would be recouped. Thus, the decision hinges on whether or not the decision maker thinks 6 years is too long to wait to recoup the cost of the snow blower. S1 - 3 6 . Since cost of installation ($900,000) is greater than expected value of not installing ($552,000), do not install an emergency power generator
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S1 - 3 7 . Select strategy 3; Change oil regularly; EV = $98.80
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S1 - 3 8 . Select Strategy 4; Change oil and sample; EV = $716.40
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S1 - 3 9 . a. b. .98 9.2 1.5 1 .02 1.5 3.810 x x .98 7.7 1.5 .030 3.810 x 7.546 1.47 .030 3.810 x 7.546 2.31 x .306 probability of winning in overtime x
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S1 - 40 . S1 - 41 . The following table includes the medical costs for all the final nodes in the decision tree. Expense Plan 1 Plan 2 Plan 3 100 481 160 318 500 884 560 438 1,500 984 1,290 738 3,000 1,134 1,440 1,188 5,000 1,334 1,640 1,788 10,000 1,834 2,140 3,288 E 1 954 E 2 976.5 E 3 810 Select plan 3
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S1 - 42 .
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S1 - 4 3 .
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CASE S1.1: Whither an MBA at Strutledge ? - Continued a. Maximax: IT, maximum payoff $517,000 b. Maximin: Health Administration, maximum payoff $75,000 c. Equal likelihood: Nursing, maximum payoff $114,500 d. Hurwicz: Nursing, maximum payoff $86,000 e. They do not have sufficient insight into the probability of the future success of the programs to indicate either optimism or pessimism; or for “political” reasons they feel it is imprudent to express a “preference.” f. Best decision Nursing Graduate Program Expected Value MBA 27,470 Computer Science 45,000 Information Technology 10,790 Nursing 126,760 Health Administration 124,250 g. Nursing appears to be the best overall decision. h. Depends on student answer.
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CASE S1.2 : Transformer Replacement at Mountain State Electric Service The decision tree solution for this problem is shown below. The decision should be to retain the existing transformer; the cost of replacement ($85,000) is greater than the cost of retention ($61,000). CASE S1.3 : Evaluating Projects at Nexcom Systems Project EV 1 404,368 2 434,976 3 442,891 4 344,490 5 262,252
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2 Quality Management Answers to Questions 2 - 1. Consumers perceive quality to be how well a product meets its intended use — that is, how well it does what it is supposed to do — whereas from the product’s perspective, quality is how well the product conforms to its design during the production process. 2 - 2. 1. Performance: operating characteristics of a product 2. Features: extra items added to basic characteristics 3. Reliability: probability that a product will operate properly 4. Conformance: the degree to which a product meets standards 5. Durability: how long the product lasts 6. Serviceability: ease and speed of repair and courtesy of repair person 7. Aesthetics: how a product looks, feels, sounds, smells, or tastes 8. Safety: Assurance that the customer will not suffer harm; especially important for autos. 9. Other: subjective perceptions based on brand name or advertising 2 - 3. Quality of design is the degree to which quality characteristics are designed into a product, whereas quality of conformance is how effectively the production process is able to conform to the specifications required by design. 2 - 4 . The cost of quality assurance is the cost of maintaining an effective quality program and includes prevention and appraisal costs. The cost of nonconformance, or poor quality, is the result of internal and external failures. These two costs react oppositely to each other; as the cost of quality assurance increases, the cost of poor quality decreases. 2 - 5 . Internal failure costs are incurred when poor quality is discovered before the product is delivered to the customer, whereas external failure costs are incurred after a customer receives a poor - quality product. Internal failure costs include scrap, rework, process failure, and downtime, whereas external failure costs include customer complaints, product returns, warranty claims, product liability, and lost sales. 2 - 6 . The contractor could be experiencing low productivity yields and have extensive internal failure costs, including scrap, rework, process failure, and downtime costs. 2 - 7 . a. From the consumer’s (e.g., student or parent) perspective, quality is probably determined by whether the college education provides the job opportunity expected and whether the graduate perceives he or she has acquired an anticipated level of knowledge that will enable the graduate to perform the job effectively. From the producer’s (e.g., university) perspective, quality is how effectively it is able to deliver knowledge (i.e., required courses) and provide the quality of life experience expected by the student. b. The education achieved by the student provides the job opportunities expected and a level of knowledge that enables the graduate effectively to perform the job achieved. c. Quality - assurance costs include the cost of hiring the best faculty, administrators, and support personnel, the cost of designing and redesigning courses and curriculum to meet changing needs, the cost of providing a good physical and mental environment (i.e., housing, food, entertainment, security, etc.), the cost of modern technical teaching equipment, the cost of information systems, and the cost of assessing alumni satisfaction with their education. Costs
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of poor quality include students who fail or drop out, reduced funding from the state or private donors, and fewer enrollments. d. Quality circles could be developed within administrative and operational units and academic departments. Circles might include both faculty or administrators and classified employees. The normal quality circle stages of training, problem identification, analysis, solution, and presentation could be followed. 2 - 8 . Improving quality will increase product yield — that is, the number of acceptable units — thus increasing productivity. 2 - 9 . The cost of poor quality could include external failure costs for customer complaints, returned DVD player s to be repaired under warranty, lost future sales, and liability costs if someone is hurt because of the problem. Costs of quality improvement might include improved design costs for the DVD player , process costs, and inspection costs for the final product and at various stages of the production process. 2 - 1 0 . DVD player : Visual attractiveness, size, weight, clarity of sound and picture, and features for rewind and fast - forward, program search, programming, playback, etc. Pizza: Size, ingredients, taste, smell, service in delivery, temperature. Running shoes: Size, weight, comfort, visual attractiveness, durability. 2 - 1 1 . The input is customer inquiries and the final product is responses that result in customer satisfaction. Associated quality costs might include prevention costs, such as designing a telephone system to ensure prompt connections without waiting and a properly designed computer system to provide accurate customer account information, and training costs to make certain service operators are courteous and knowledgeable. Appraisal costs might include the cost of monitoring service calls to ascertain response rates and operator courtesy. Poor quality might result in complaints from customers and lost accounts. A quality management program could incorporate a system to monitor calls to ensure prompt, courteous, and knowledgeable service. An employee - involvement program, wherein operators might identify problems, would be beneficial. 2 - 1 2 . Prevention costs are directed at preventing poor quality products from reaching the customer, thus avoiding the various internal and external failure costs associated with poor quality. 2 - 1 3 . It is important to have a means for assessing the impact of quality improvement programs on the organization’s profitability and productivity. 2 - 1 4 . W.E. Deming: Introduced the Japanese to quality management principles and philosophy, embodied in his 14 points. Joseph Juran: A major contributor to the Japanese quality movement. Phillip Crosby: Changed general perceptions of cost of quality and promoted zero defects. Armand Feigenbaum: Introduced the concept of total quality control, a total company - wide approach to quality management. Kaoru Ishikawa: Introduced quality circles and cause and effect diagrams. Genichi Taguchi: Developed the Taguchi method for product and process design. 2 - 15 . The Baldrige Award has had a pervasive impact on American companies, in general promoting quality improvement. Thousands of companies request award applications each year to use simply to establish quality management programs based on Baldrige Award criteria.
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2 - 16 . This should be a student project. The journal can be found in most libraries, and the articles are generally easy to read. 2 - 17 . The student could provide many reasons for failure including lack of total commitment, ineffective planning, goals too easy or too difficult to achieve, improper measurement techniques, ineffective leadership, not enough employee training, etc. See G. Salegra and Farzaneh, “Obstacles to Implementing Quality,” Quality Progress , 33, no. 7 (July 2000): 53 – 57. 2 - 18 . The dimensions of quality for a service company are located in the text. The student should identify these or similar ones for the company they select. 2 - 19 . The two service companies should be in the community and the quality characteristics the students will tend to focus on will include courtesy and quickness of service. 2 - 2 0 . Although students in this class might suggest that grades are a quality measurement a more realistic approach to evaluation are student evaluations of the class or surveys of students. Quality characteristics might include course organization, presentation of lectures, class environment, physical appearance of the classroom, schedule (i.e., are the lectures completed on time), the quality of supplementary material, physical appearance and demeanor of the instructor, including friendliness and courtesy, the accuracy and completeness of assignments, etc. 2 - 2 1 . The answer depends on the company selected by the student. For example, there is a particular hotel that has never gotten a room reservation right for us, and, the instructions for ordering tickets at the web site for the 1996 Olympics in Atlanta were littered with pitfalls. Airlines are a favorite example of a poor quality service for students who travel. 2 - 2 2 . A similar question to 26. Restaurants, retail stores and grocery stores are examples of local businesses that, in our experience, tend to vary in quality. We have never had a bad ordering experience with L.L. Bean although that’s not true of some other mail order operations we have dealt with. In most cases, if a service has been identified by the student it will be because of courteous, helpful employees, while if a manufacturing product has been identified, it will be because of superior physical traits, such as durability. 2 - 2 3 . TQM tends to give some focus and structure to strategic planning. TQM provides identifiable goals, and many well - documented initiatives for quality improvement such as quality circles, employee training, empowerment, etc. TQM also provides a means for measuring success which is essential in a strategic planning process. 2 - 2 4 . Many U.S. suppliers cannot do business with companies overseas unless they have ISO certification. In addition, many U.S. companies also desire or request their suppliers to comply with ISO 9000 standards. 2 - 25 . Common characteristics that the students will discover include strong leadership at the top, total company commitment, employee training, involvement and empowerment, challenging goals for quality achievement, focus on customer satisfaction, and extensive use of statistical quality control techniques, among other things. 2 - 26 . Some companies believe their quality is “good enough.” However, primary reasons for not implementing a TQM program are lack of time and the cost involved; some companies do not have
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