Solution Manual for Operations and Supply Chain Management, 9th Edition

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1-Introduction to Operationsand Supply Chain ManagementAnswers to Questions1-1.Theoperationsfunctioninvolvesorganizingwork,selectingprocesses,arranginglayouts,locatingfacilities,designingjobs,measuringperformance,controllingquality,schedulingwork,managinginventory,andplanningproduction.Operationsinteractswithmarketinginproductdevelopment,forecasting,productionplanning,andcustomerservice.Operationsandfinanceinteractincapitalbudgeting,costanalysis,production andinventoryplanning,and expansionandtechnologyplans.Operations and human resources work together recruiting, training and evaluating workers, designing jobsand working with unions. IT and operations work together daily on e-commerce, enterprise resourceplanning 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 ofloan payments, approving credit cards, and more.b.Operations at a retail store involves purchasing goods, stocking goods, selling goods, keeping track ofinventory, 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 thefacility, 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 theindustrial revolutionbrought workers together under one roof in a factory setting wheredivision of labor and interchangeable parts encouraged the formation of separate worker and management jobs.Ideas from thescientific managementera made work more efficient.Human relationstheorists emphasized theimportance of the human element in operations management.The management science erasaw many advancesin quantitative techniques and their application. Thequality revolutionfocused management on meetingcustomer expectations and emphasized quality over quantity. TheInternetbrought numerous opportunities to dowork faster and better. It also opened doors to new markets worldwide. Today’s successful companies competeworldwide for both market access and production resources.1-4.Competitivenessis the degree to which a nation can produce goods and services that meet the test ofinternational markets. A country’s competitiveness is measured by its GNP, import/export ratio, and increasesin 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 thatmore firms compete for a larger, global market. The ease with which consumers can compare products andprices 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 orGlobal 500by industry. The leaders in each industry are listed and there is usually some discussion ofindustry 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.Accesswww.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 settlementprocess interprets agreements and rules on violations, thereby avoiding political or military conflict. Thegroup promotes free trade and more recently, has helped developing nations enter the trade arena on moreequitable grounds. Currently, there are 147 member nations. Membership is achieved by meeting certainenvironmental, human rights, and trade criteria, agreeing to abide by the rules of the organization, and beingapproved by two-thirds of the existing membership. Seewww.wto.org1-12.Student answers will vary. Accesswww.executiveplanet.com1-13.Student answers will vary. Accesswww.transparency.org1-14.Student answers will vary.Accesshttp://www.usdoj.gov/criminal/fraud/fcpa.htmlfor basic information.1-15.Students will find a variety of answers for this question. In general, it is easy to find mission or visionstatements, but more difficult to find evidence of the mission or vision being applied.1-16.Strategy formulation consists of four basic steps: (1)Defining a primary task—what is the purpose of thefirm? What is the firm in the business of doing? (2)Assessing core competencies—what does a firm dobetter than anyone else? (3)Determiningorder winners and order qualifiers—what wins orders in themarketplace? What qualifies a product or service to be considered for purchase? (4)Positioningthe firm—what one or two important things should the firm choose to concentrate on? How should the firm compete inthe marketplace?Student answers will vary. Most start-ups try too much too soon. It’softendifficult to stick with what you dobest.1-17.Core competenciesare the essential capabilities that create a firm’s sustainable competitive advantage. Theyhave usually been built up over time and cannot be easily imitated. For example, First National Bank, one ofour local banks, is known as a risk taker. Its core competence is its ability to size up the potential ofinvestment opportunities. Through its familiarity with local businesses and its experience in loan making, thebank 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 inknowing individual customers and even keep track of evening wear purchases so that no one else at aparticular party will be wearing the same dress.Toyota emphasizes superior quality at a price below its competitors with its Lexus line of automobiles. Toestablish a special reputation for quality over the lifetime of the car, the company set up separate sales andservice facilities. When it is time for servicing, Lexus owners can have their vehicle picked up and deliveredto their home or place of business. The car returns the same day, washed and vacuumed, often with a giftcertificate 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 oftheir 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 questionalso helps students prepare for the inevitable interview question—what are your strengths and weaknesses?1-19.Order qualifiersare characteristics of a product or service that qualify it to be considered for purchase by acustomer. Anorder winneris 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 minimizingdefect rates or conforming to design specifications. Tocompete on quality, companies must view qualityas 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 thatcompete on costrelentlessly pursue the elimination of all waste. The entire cost structureis examined for reduction potential, not just direct labor costs. High volume production and automationmay or may not provide the most cost-effective alternative. Wal-Mart competes on cost.c.Flexibilityincludes the ability to produce a wide variety of products, to introduce new products and tomodify existing products quickly, and, in general, to respond to customer needs. National BicycleIndustrial Company competes on flexibility.d.Competing on speedrequires a new type of organization characterized by fast moves, fast adaptations,and tight linkages. Citicorp competes on speed.e.Competing on dependabilityrequires a stable environment, adequate resources, high standards forperformance, and tight control. Maytag competes on dependability.F.Competing on servicerequires 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 providesupportfor the strategy of afirm (help with order qualifiers), and (2) it can serve as a firm’sdistinctive competence(win orders).1-22.Strategic decisions in operations and supply chain management involve products and services, processes andtechnology, capacity and facilities, human resources, quality, sourcing, and operating systems.1-23.Policy deploymenttries to focus everyone in an organization on common goals and priorities by translatingcorporate strategy into measurable objectives down through the various functions and levels of theorganization. As a result, everyone in the organization should understand the strategic plan, be able to deriveseveral 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 fourareas, 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.Financesmight refer tofuture income,customersto potential employers who are interested in both grades and experience,processesto how students will raise their grades and gain experience, andlearning and growingto developing skills inseveral areas.

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Solutions to Problems1-1.The Blacksburg store is the most productive.StoreAnnandaleBlacksburgCharlottesvilleDanvilleSales volume$40,000$12,000$60,000$25,000Labor hours25060500200Productivity$160$200$120$1251-2.a.Danvilleis the most productive.b.Based on productivity, the Blacksburg store should be closed. Other factors to consider include totalrevenue, potential for growth, and options for reducing costs.AnnandaleBlacksburgCharlottesvilleDanvilleSales volume$40,000$12,000$60,000$25,000Labor hours25060500200Labor cost/hr$10.00$7.25$8.00$7.50Rent$2,800$1,200$2,000$800Productivity$8$7$10$111-3.By number, Jim was more productive last year. By weight, Jim was more productive this year.Last yrThis yrHours fishing46Bass caught1215Average weight2025Bass/hr6062.51-4.Productivity could be measured by total account dollars per hour worked, new account dollars per hourworked or existing account dollars per hour worked. Bates is the most productive based on total output.Albert and Duong have thenewestaccounts, 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 tosell more if he works more hours.AgentsAlbertBatesCresseyDuongNew accounts$100,000$40,000$80,000$200,000Existing accounts$40,000$40,000$150,000$100,000Labor hours40206080Total $/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$1,250.001-5.The U.S. is the most productive.Labor HoursUnits of OutputProductivityU.S.89.51361.52Germany83.61001.20Japan72.71021.401-6.Omar should probably close the plant in Guadalajara because its multifactor productivity is the lowest, itslabor productivity is the second lowest, and its output is the least of the four plants.

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Units (in 000’s)CinncinnatiFrankfurtGuadalajaraBejiingFinished goods10,00012,0005,0008,000Work-in-process1,0002,2003,0006,000Costs (in 000’s)Labor costs$3,500$4,200$2,500$800Material costs$3,500$3,000$2,000$2,500Energy costs$1,000$1,500$1,200$800Transportation costs$250$2,500$2,000$5,000Overhead costs$1,200$3,000$2,500$500Labor productivity3.143.383.2017.50Total productivity1.161.000.781.461-7.Henryis the most productive in terms of rushing yards and touchdowns per carry. However,Fournettehasthehighest number of rushing yards and touchdowns. Using “carries” as the input variable skews the results.Productivitycan be measured in many different ways. Make sure it is expressed in a manner that is useful toyou or your customer.CandidatesHenryMcCaffreyFournetteRushing yards2,1103,6236,925# Carries1058751,186# Touchdowns152070Yards/carry20.104.145.84Touchdowns/carry0.140.020.061-8.Productivity decreases from week to week.Installation123Square Yards1,2251,4352,500# workers435# hours356Square yds/hr102.0895.6783.331-9.Center1233c.Pieces processed1,0002,0003,0005,000Workers/hr10522Hourly wage rate$5.50$10$12$12Overhead/hr$10$25$50$80Multifactor productivity15.3826.6740.5448.08a.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 inweeks 3 and 4.Week1234Units of output2,0004,0005,0007,000# workers4456Hours per week40485670Labor cost per hour$10$10$10$10Material (lbs.)2865707201,000Material cost per lb.$4$4$4$4Labor productivity1.252.081.791.67Material productivity1.751.751.741.75Multifactor productivity0.730.950.880.851-11.John is the most productive.JakeJoshJenniferJohn# ads sold1005020035# hours spent40158510Output/hr2.503.332.353.501-12.Choose Cold Case.AlaskanSealBrrFrostColdCaseDeepFreezePurchase cost$3,270$4,000$4,452$5,450Daily energy consumption (kwh)3.613.886.6829.07Cost per kwh$0.10$0.10$0.10$0.10Daily energy cost$0.36$0.39$0.67$2.91Daily purchase cost$2.99$3.65$4.07$4.98Total cost$3.35$4.04$4.73$7.88Volume (cu ft)25354979Productivity (cu ft/$)7.478.6610.3510.02Cost/cu ft$0.13$0.12$0.10$0.101-13.a.Productivity of current process = 100/10 = 10b.Productivity of proposed process = 200/15 = 13.33c.Multifactor productivity=Output/ ($ material + $ hours)= 100 / [(1000*6.80) + (10*25)] = 0.0142 lbs. per dollard.Multifactor productivity =Output/ ($ material + $ hours)= 200 / [(1800*6.80) + (15*25)] = 0.0159 lbs. per dollare. 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 hrThe reciprocal of labor productivity is the labor required to make one pair of jeans, 1/ 2.5 = 0.4 hrsb. 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 $ inputMultifactor productivity is the number of jeans that can be produced per dollar of resource used (includinglabor, materials, energy, etc.).The reciprocal of multifactor productivity is the cost to produce one pair ofjeans, 1/ 0.04 = $23.401-15.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 This1.It is difficult to follow the four steps of strategy formulation for this case. Students will be able to easilyidentify VT’s core competency but will struggle with its primary task, and without a product, it’simpossible to determine an order winner and order qualifiers. “Developing the next generation ofvisualization tools” is probably not a marketable task. Students will come up with a variety of ideas fromtheir 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 obtainthe 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 promisefuture business. (2) is the most time-consuming, least challenging, but most sustainable. (4) and (5) are themost 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 anactual situation. The company chose projects (1) and (3). The museum job consumed so much time andresources that the company had to turn down the bank training job. Without a “product” and no immediaterepeat 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 achievewith 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 sufficientinformation 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 “tryanything” to get more students is troublesome. A new program that Strutledge can’t support would damagetheir 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 ofstudents 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 collegehave? 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 forwhen 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., orderwinner)? If, as is hinted in the case, the ability to find employment upon graduation is important toprospective students, then the college should gather information from potential employers about theirneeds. It may very well be that an MBA program is needed in the area, but this needs to be determinedfrom data. Only after the determination has been made, that the area needs another MBA program, shouldStrutledge explore the possibility of providing it. If the college concludes that it has the skills and resourcesnecessary to pursue the task, then it should try to position itself properly in the market and find a specialniche for its particular MBA program.

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CASE SOLUTION 1.3–Weighing Options at the Weight ClubA Balanced Scorecard for the Weight ClubDimensionObjectivesKey Performance IndicatorGoalFinancesRevenueGenerate revenue for first-class facility% increase in revenue30%GrowthAttract new customers% increase in customers25%CustomersQualityMeet or exceed customerneeds% customers satisfied100%RetentionBuild sustainable customerbase% membership renewals75%ProcessesFitnessIncr. participation in exerciseclasses# exercise classes/week12Increase use of personaltrainers# client hours/week100Client servicesEnhance client experience% participation in customerorientation75%# massage appointments/week200Facilitate use of servicesTime required for check-in1 minHours of child care/week90%Equipment maintenanceMaintain equipment in topworking condition% fully operational95%% on regular maintenanceschedule60%Learning & GrowingProgram developmentDevelop professional staff% new classes25# innovative suggestions30Facility developmentProvide first-class facilitiesand equipment% equipment new or updated100%Months until facility expanded/renovated6Organizational developmentDevelop management andadministrative skills# persons on Board of Directors6# full-time managers3

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Supplement 1Operational Decision-Making Tools: Decision AnalysisS1-1.a.Minimin:South Korea 15.2China 17.6Taiwan 14.9Poland 13.8Mexico12.5minimumSelect Mexicob.Minimax:South Korea 21.7China19.0minimumTaiwan 19.2Poland 22.5Mexico 25.0Select Chinac.Hurwicz0.40 : South Korea:15.2 0.4021.7 0.6019.10China:17.6 0.4019.0 0.6018.44Taiwan:14.9 0.4019.2 0.6017.48minimumPoland:13.8 0.4022.5 0.6019.02Mexico:12.5 0.4025.0 0.6020.0Select Taiwand.Equal likelihood:South Korea:21.7 0.3319.1 0.3315.2 0.3318.48China:19.0 0.3318.5 0.3317.6 0.3318.18Taiwan:19.2 0.3317.1 0.3314.9 0.3316.90minimumPoland:22.5 0.3316.8 0.3313.8 0.3317.52Mexico:25.0 0.3321.2 0.3312.5 0.3319.37Select TaiwanS1-2.EV South Korea21.7 .3019.1 .4015.2 .3018.71EV China19.0 .3018.5 .4017.6 .3018.38EV Taiwan19.2 .3017.1 .4014.9 .3017.07minimumEVPoland22.5 .3016.8 .4013.8 .3017.61EVMexico25.0 .3021.2 .4012.5 .3019.73Select Taiwan

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Expected value of perfectinformation19 .3016.8 .4012.5 .3016.17EVPI16.1717.07$0.9 millionThe EVPI is the maximum amount thecostof the facility could be reduced (.9 million) if perfect informationcan be obtained.S1-3.a.Maximax criteria:Office building4.5maximumParking lot 2.4Warehouse 1.7Shopping mall 3.6Condominiums 3.2Select office buildingb.Maximin criteria:Office building 0.5Parking lot1.5maximumWarehouse 1.0Shopping mall 0.7Condominiums 0.6Select parking lotc.Equal likelihood:Office building:0.5 0.331.7 0.334.5 0.332.21maximumParking lot:1.5 0.331.9 0.332.4 0.331.91Warehouse:1.7 0.331.4 0.331.0 0.331.35Shopping mall:0.7 0.332.4 0.333.6 0.332.21maximumCondominiums:3.2 0.331.5 0.330.6 0.331.75Select office building or shopping malld.Hurwicz criteria0.3 : Office building:4.5 0.30.5 0.71.70Parking lot:2.4 0.31.5 0.71.77maximumWarehouse:1.7 0.31.0 0.71.21Shopping mall:3.6 0.30.7 0.71.57Condominiums:3.2 0.30.6 0.71.38Select parking lotS1-4.a)EV Office building.5 .501.7 .404.5 .101.38EVParking lot1.5 .501.9 .402.4 .101.75EVWarehouse1.7 .501.4 .401.0 .101.51EV Shopping mall0.7 .502.4 .403.6 .101.67EV Condominiums3.2 .501.5 .40.06 .102.26maximumSelect Condominium projectb)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, maximaxpayoff = $167,000b.Maximin: Savings bond maximinpayoff = $30,000c.Equal likelihood: Bond fund, maximumpayoff = $35,000S1-6.a.Best decision, given probabilities: Bond fund, maximum payoff = $35,000b.Expected valuegivenperfect information= (5*0.1) + (4*0.2) + (4.2*0.4) + (9.3*0.2) + (16.7*0.1) = $6.51EVPI = $6.51-$3.50 = $3.01 or $30,100S1-7. Since the payoff table includes “costs,” the decision criteria must be reversed.a.Minimin: Philippines, minimum cost = $170,000b.Minimax: Brazil, minimum cost = $570,000c.Equal likelihood: Philippines, minimum cost = $399,000d.Minimax regret: Philippines, minimum regret = $70,000S1-8a. EV (China) =5.328EV (India) = 5.375EV (Philippines) = 5.218EV (Brazil) = 5.178SelectEV (Mexico) = 5.202b. EVgivenperfect information = $(1.7)(0.09) + (3.8)(0.27) + (5.4)(0.64) = $4.635EVPI = $5.178–4.365 = $0.813or$813,000S1–9.Since this payoff table includes “losses,” the decision criteria must be reversed.a.Minimin: Thailand, minimum loss = $3 millionb.Minimax: India, minimum loss = $14 millionc.Equal likelihood: India, minimum loss = $8.91 milliond.Minimax regret: Philippines, minimum regret = $2 millionS1-10.EV (China) = $10.91EV (India) = 7.21SelectEV (Thailand) = 9.77EV (Philippines) = 7.54S1-11.a.ProductExpected ValueWidget160,000 0.290,000 0.550,000 0.3$62,000Hummer70,000 0.240,000 0.520,000 0.3$40,000Nimnot45, 000 0.235,000 0.530,000 0.3$35,500The best option is to introduce the widget.b.EV given perfect information:160,000 0.290,000 0.530,000 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 payless than $24,000.c.Maximax: Introduce widget, maximaxpayoff$160, 000

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Maximin: Introduce nimnot, maximinpayoff$30,000.Minimax regret: Introduce widget, Minimaxregret$80,000Equal likelihood: Introduce widget, maximumpayoff$66, 000S1-12.a.Maximax: Major physical revision, maximum payoff$972,000b.Maximin: Paperback, maximum payoff$68,000c.Equal likelihood: Major content revision, maximum payoff$419,430d.Hurwicz: Major content revision, maximum payoff$273,900S1-13.Publication DecisionExpected ValuePaperback$216,290Similar revision386,340Major content revision468,780Major physical revision405,970Best decisionmajor content revisionOverall “best” decision appears to be a “major content revision”EVPI(.23)(68,000)(.46)(515,000)(.31)(972,000)468,780$85,080This is the maximum amount Wiley would pay an “expert” for additional information about the futurecompetitive market.S1-14.a.Maximax: Singapore, maximum payoff$71 millionb.Maximin: Kaohsiung, maximum payoff-$15 millionc.Equal likelihood: Kaohsiung, maximum payoff$28.05 milliond.Hurwicz: Singapore, maximum payoff$37.8 millione.Minimax regret: Singapore, minimum regret$9 millionS1-15.Expected valuePortExpected ValueHong Kong$22.99Singapore34.52Shanghai24.54Busan28.30Kaohsiung33.66a.Best decisionSingaporeb.Singapore appears to be the best “overall” decision.S1-16.Expected valueLease DecisionExpected Value1–year$65,9802–year103,0103–year133,8104–year154,3005–year114,210

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S1-17.EVPI(.17)(1,228,000)(.34)(516,000)(.49)(551,000)154,300$237,740This is the maximum amount the restaurant owner would pay an energy “expert” for additionalinformation about future energy prices.S1-18.a.Maximax: Food court, maximum payoff$87,000b.Maximin: Child care center, maximum payoff$17,000c.Hurwicz: Lockers and showers, maximum payoff$32,250d.Equal likelihood: Lockers and showers, maximum payoff$34,980S1-19.Service FacilityExpected ValueChild care center$30,560Swimming pool7,610Lockers and showers44,150Food court15,440Spa20,580Best decision = Lockers and showersS1-16.a.Payoff table:Demand200.10210.20220.30230.30240.10Stock (lb)2020.0020.0020.0020.0020.002118.5021.0021.0021.0021.002217.0019.5022.0022.0022.002315.5018.0020.5023.0023.002414.0016.5019.0021.5024.00EV 20$20EV 2118.50 0.121 0.221 0.321 0.321 0.1$20.75EV 2217 0.119.50 0.222 0.322 0.322 0.1$21.00EV 2315.50 0.118 0.220.50 0.323 0.323 0.1$20.50EV 2414 0.116.50 0.219 0.321.50 0.324 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:DemandStock (lb)(boxes)250.10260.15270.30280.20290.15300.10255050505050502649525252525227485154545454284750535656562946495255585830454851545760EV 2550 0.150 0.1550 0.350 0.250 0.1550 0.1$50.00EV 2649 0.152 0.1552 0.352 0.252 0.1552 0.1$51.70EV 2748 0.151 0.1554 0.354 0.254 0.1554 0.1$52.95EV 2847 0.150 0.1553 0.356 0.256 0.1556 0.1$53.30EV 2946 0.149 0.1552 0.355 0.258 0.1558 0.1$53.05EV 3045 0.148 0.1551 0.354 0.257 0.1560 0.1$52.35Best decision: Stock 28 boxes, for a profit of $53.30.b.Expected value under uncertainty:EV500 0.1052 0.1554 0.3056 0.2058 0.1560 0.10$54.90EVPI$54.90$53.30$1.60S1-22.a)Stock 25, maximum of minimumpayoffs$50b)Stock 30, maximum of maximumpayoffs$60c)25 : 50 .450 .650;26 : 52 .449 .650.2;27 : 54 .448 .650.4;28 : 56 .447 .650.6;29 : 58 .446 .650.8;30 : 60 .445 .651;stock 30 boxes.d)Stock 28 or 29 boxes; minimumregret$4.S1-23. Since the payoff table includes “costs,” the decision criteria must be reversed.a.Minimin: Manila, minimum cost = $170,000b.Minimax: Veracruz, minimum cost = $570,000c.Equal likelihood: Manila, minimum cost = $403,000d.Minimax regret: Veracruz, minimum regret = $70,000S1-24.EV (Shanghai) = 5.328EV (Mumbai) = 5.375EV (Manila) = 5.218EV (Santos) = 5.178SelectEV (Veracruz) = 5.202S1-25.EVgivenperfect information = $(1.7)(0.09) + (3.8)(0.27) + (5.4)(0.64)= $4.635EVPI = $5.178–4.635 = $0.543 or $543,000

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S1-26.EV press40,000 .48,000 .6$11, 200;EV lathe20,000 .44,000 .6$10,400;EV grinder12,000 .410, 000 .6$10,800;Purchase press.S1-27.

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S1-28.a.MaximaxGordonb.MaximinJacksonc.Hurwicz0.25 Morris4.4 0.253.20.75$1.3M  O’Neil =6.3 0.255.10.75$2.3M  Jackson5.8 0.252.70.75$0.58M  Gordon9.6 0.256.30.75$2.33M  Select Jacksond.Equal likelihoodMorris4.4 0.331.30.333.20.33 $.83MO’Neil =6.3 0.331.80.335.10.33 $.99M Jackson5.8 0.330.70.332.70.33 $1.254M Gordon9.6 0.331.60.336.30.33  $.561MSelect Jacksone.EVMorris3.20.151.30.554.40.30$1.56MEV(O’Neil)=5.10.181.80.266.30.56$3.08MEVJackson2.70.210.70.325.80.47$2.38MEV Gordon6.30.301.60.259.60.45$2.03M Select O’Neil.S1-29.a. Maximax = Real Estateb. Maximin = Nursingc. Equal Likelihood:select Real EstateGraphic design = $170,000Nursing = $187,500Real Estate = $202,500Medical Technology = $195,000Culinary technology = $170,000Computer information technology = $186,250d. Hurwicz (alpha = 0.25):select NursingGraphic design = $141,250Nursing = $161,250Real Estate = $158,750Medical Technology = $157,500Culinary technology = $136,250Computer information technology = $158,750S1-30.EV(Graphic design) = $164,250EV(Nursing) = $183,500EV(Real Estate)= $174,400EV(Medical Technology) = $187,500EV(Culinary technology) = $149,250EV(Computer information technology) = $174,750

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S1-31..a. Maximax = Juan Ramonb. Maximin = Alan Rodriguezc.Equal likelihood:Garcia = 106.92Ramon =119.46SELECTTerry = 103.29Rodriguez = 96.03Washburn = 92.73d.Hurwicz:Garcia =91.95Ramon =95.10SELECTTerry = 94.55Rodriguez = 95.75Washburn = 84.35S1-32.a. EV(Garcia) =100.3EV(Ramon)=112.4SELECTEV(Terry)= 98.2EV(Rodriguez) = 91.6EV(Washburn) = 85.2b. Probably Terry; he seems to have the best tradeoff between low cost and wins. However, this isanobjectiveopinion depending on the degree of risk the decision maker is willing to take on.c. EV(Garcia) =109.71EV(Ramon)=109.74SELECTEV(Terry)= 106.81EV(Rodriguez) = 100.00EV(Washburn) = 93.48S1-33.a. Maximax =Hong Kongb. Maximin = Pusanc. Equal likelihood:Shanghai = $0.44 billionSingapore = $0.37 billionPusan = $0.43 billionKaoshiung = $0.41 billionHong Kong = $0.47billiond. Hurwicz (alpha = .55):Shanghai = $0.47billionSingapore = $0.41billionPusan = $0.46billionKaoshiung = $0.54billionHong Kong = $0.77billionS1-34.EV(Shanghai) = $0.608 billionEV(Singapore) = $0.606 billionEV(Pusan) = $0.502billionEV(Kaoshiung) = $0.487 billionEV(Hong Kong)= $0.724billion

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S1-35.EV snow shoveler$30 .1260 .1990 .24120 .22150 .13180 .08210 .02$101.10The cost of the snow blower ($575) is much more than the annual cost of the snow shoveler, thus on thebasis of one year the snow shoveler should not be purchased. However, the snow blower could be used for anextended period of time such that after approximately 6 years the cost of the snow blower would berecouped. Thus, the decision hinges onwhetheror not the decision maker thinks 6 years is too long to wait torecoup the cost of the snow blower.S1-36.Since cost of installation ($900,000) is greater than expected value of not installing ($552,000), do not installan emergency power generator

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S1-37.Select strategy 3; Change oil regularly; EV = $98.80

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S1-38.Select Strategy 4; Change oil and sample; EV = $716.40

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S1-39.a.b..98 9.21.5 1.021.53.810xx.98 7.71.5.0303.810x7.5461.47.0303.810x7.5462.31x.306 probability of winning in overtimex

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S1-40.S1-41.The following table includes the medical costs for all the final nodes in the decision tree.ExpensePlan 1Plan 2Plan 31004811603185008845604381,5009841,2907383,0001,1341,4401,1885,0001,3341,6401,78810,0001,8342,1403,288 E 1954E2976.5 E 3810Select plan 3

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S1-42.

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S1-43.

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CASE S1.1:Whither an MBA at Strutledge?-Continueda.Maximax: IT, maximum payoff$517,000b.Maximin: Health Administration, maximum payoff$75,000c.Equal likelihood: Nursing, maximum payoff$114,500d.Hurwicz: Nursing, maximum payoff$86,000e.They do not have sufficient insight into the probability of the future success of the programs to indicateeitheroptimismor pessimism;or for “political”reasonstheyfeel itis imprudenttoexpress a“preference.”f.Best decisionNursingGraduate ProgramExpected ValueMBA27,470Computer Science45,000Information Technology10,790Nursing126,760Health Administration124,250g.Nursing appears to be the best overall decision.h.Depends on student answer.

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CASES1.2:Transformer Replacement at Mountain State Electric ServiceThe decision tree solution for this problem is shown below. The decision should be to retain the existingtransformer; the cost of replacement ($85,000) is greater than the cost of retention ($61,000).CASE S1.3:Evaluating Projects at Nexcom SystemsProjectEV1404,3682434,9763442,8914344,4905262,252

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2QualityManagementAnswers to Questions2-1.Consumers perceive quality to be how well a product meets its intended use—that is, how well itdoes what it is supposed to do—whereas from the product’s perspective, quality is how well theproduct conforms to its design during the production process.2-2.1.Performance: operating characteristics of a product2.Features: extra items added to basic characteristics3.Reliability: probability that a product will operate properly4.Conformance: the degree to which a product meets standards5.Durability: how long the product lasts6.Serviceability: ease and speed of repair and courtesy of repair person7.Aesthetics: how a product looks, feels, sounds, smells, or tastes8.Safety: Assurance that the customer will not suffer harm; especially important for autos.9.Other: subjective perceptions based on brand name or advertising2-3.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 thespecifications required by design.2-4.The cost of quality assurance is the cost of maintaining an effective quality program and includesprevention and appraisal costs. The cost of nonconformance, or poor quality, is the result ofinternal and external failures. These two costs react oppositely to each other; as the cost of qualityassurance increases, the cost of poor quality decreases.2-5.Internal failure costs are incurred when poor quality is discovered before the product is delivered tothe customer, whereas external failure costs are incurred after a customer receives a poor-qualityproduct. Internal failure costs include scrap, rework, process failure, and downtime, whereasexternal failure costs include customer complaints, product returns, warranty claims, productliability, and lost sales.2-6.The contractor could be experiencing low productivity yields and have extensive internal failurecosts, 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 bywhether the college education provides the job opportunity expected and whether the graduateperceives he or she has acquired an anticipated level of knowledge that will enable thegraduate 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 providethe quality of life experience expected by the student.b.The education achieved by the student provides the job opportunities expected and a level ofknowledge that enables the graduate effectively to perform the job achieved.c.Quality-assurance costs include the cost of hiring the best faculty, administrators, and supportpersonnel, the cost of designing and redesigning courses and curriculum to meet changingneeds, 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 ofinformation 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 privatedonors, and fewer enrollments.d.Quality circles could be developed within administrative and operational units and academicdepartments. Circles might include both faculty or administrators and classified employees.The normal quality circle stages of training, problem identification, analysis, solution, andpresentation could be followed.2-8.Improving quality will increase product yield—that is, the number of acceptable units—thusincreasing productivity.2-9.The cost of poor quality could include external failure costs for customer complaints, returnedDVD players to be repaired under warranty, lost future sales, and liability costs if someone is hurtbecause of the problem. Costs of qualityimprovementmight include improved design costs for theDVD player, process costs, and inspection costs for the final product and at various stages of theproduction process.2-10.DVD player:Visual attractiveness, size, weight, clarity of sound and picture, and features forrewind 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.2-11.The input is customer inquiries and the final product is responses that result in customersatisfaction. Associated quality costs might include prevention costs, such as designing a telephonesystem to ensure prompt connections without waiting and a properly designed computer system toprovide accurate customer accountinformation,andtrainingcoststo make certainserviceoperators are courteous and knowledgeable. Appraisal costs might include the cost of monitoringservice calls to ascertain response rates and operator courtesy. Poor quality might result incomplaints 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 operatorsmight identify problems, would be beneficial.2-12.Prevention costs are directed at preventing poor quality products from reaching the customer, thusavoiding the various internal and external failure costs associated with poor quality.2-13.It is important to have a means for assessing the impact of quality improvement programs on theorganization’s profitability and productivity.2-14.W.E.Deming:IntroducedtheJapanesetoqualitymanagementprinciplesandphilosophy,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-wideapproach 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 promotingquality improvement. Thousands of companies request award applications each year to use simplyto 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 aregenerally easy to read.2-17.The student could provide many reasons for failure including lack of total commitment, ineffectiveplanning, goals too easy or too difficult to achieve, improper measurement techniques, ineffectiveleadership, not enough employee training, etc. See G. Salegra and Farzaneh, “Obstacles toImplementing 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 shouldidentify 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 studentswill tend to focus on will include courtesy and quickness of service.2-20.Although students in this class might suggest that grades are a quality measurement a morerealistic approach to evaluation are student evaluations of the class or surveys of students. Qualitycharacteristics might include course organization, presentation of lectures, class environment,physical appearance of the classroom, schedule (i.e., are the lectures completed on time), thequality of supplementary material, physical appearance and demeanor of the instructor, includingfriendliness and courtesy, the accuracy and completeness of assignments, etc.2-21.The answer depends on the company selected by the student. For example, there is a particularhotel that has never gotten a room reservation right for us, and, the instructions for ordering ticketsat the web site for the 1996 Olympics in Atlanta were littered with pitfalls. Airlines are a favoriteexample of a poor quality service for students who travel.2-22.A similar question to 26. Restaurants, retail stores and grocery stores are examples of localbusinesses that, in our experience, tend to vary in quality. We have never had a bad orderingexperience with L.L. Bean although that’s not true of some other mail order operations we havedealt with. In most cases, if a service has been identified by the student it will be because ofcourteous, helpful employees, while if a manufacturing product has been identified, it will bebecause of superior physical traits, such as durability.2-23.TQM tends to give some focus and structure to strategic planning. TQM provides identifiablegoals, 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 isessential in a strategic planning process.2-24.ManyU.S.supplierscannotdobusinesswithcompaniesoverseasunlesstheyhaveISOcertification. In addition, many U.S. companies also desire or request their suppliers to complywith ISO 9000 standards.2-25.Common characteristics that the students will discover include strong leadership at the top, totalcompany commitment, employee training, involvement and empowerment, challenging goals forquality achievement, focus on customer satisfaction, and extensive use of statistical quality controltechniques, among other things.2-26.Some companies believe their quality is “good enough.” However, primary reasons for notimplementing a TQM program are lack of time and the cost involved; some companies do not have

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