Operations Management: Creating Value Along The Supply Chain, 1st Canadian Edition Solution Manual

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CHAPTER 1–INTRODUCTION TO OPERATIONS AND SUPPLY CHAINMANAGEMENTANSWERS TO QUESTIONS, PROBLEMS, AND CASE PROBLEMSAnswers to Questions1-1.The operations function involves organizing work, selecting processes, arranginglayouts,locating facilities, designing jobs, measuring performance, controlling quality, schedulingwork, managing inventory, and planning production. Operations interacts with marketingin product development, forecasting, production planning, and customer service.Operations and finance interact in capital budgeting, cost analysis, production andinventory planning, and expansion and technology plans. Operations and human resourceswork together recruiting, training and evaluating workers, designing jobs and working withunions. IT and operations work together daily on e-commerce, enterprise resource planningand supply chain management systems.1-2.a.Operations at a bank involves transferring funds, processing funds, providingcheques,cashingcheques, preparing monthly statements, reconciling statements, approvingloans, loaning money, keeping track of loan payments, approving credit cards, andmore.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 andother workers, processing paperwork, ordering supplies, caring for patients, maintainingthe 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, processingstatements and payments, and more.1-3.Inventions during theindustrial revolutionbrought workers together under one roof in afactory setting where division oflabourand interchangeable parts encouraged theformation of separate worker and management jobs. Ideas from thescientific managementera made work more efficient.Human relationstheorists emphasized the importance of thehuman element in operations management.The management science erasaw manyadvances in quantitative techniques and their application. Thequality revolutionfocusedmanagement on meeting customer expectations and emphasized quality over quantity. TheInternetbrought numerous opportunities to do work faster and better. It also opened doorsto new markets worldwide. Today’s successful companies compete worldwide for bothmarket access and production resources.1-4.Competitivenessis the degree to which a nation can produce goods and services that meetthe test of international markets. A country’s competitiveness is measured by its GNP,import/export ratio, and increases in productivity. Industry competitiveness can bemeasured by the number of major players in the industry, average market share, and

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average profit margin. Measures of a firm’s competitiveness include market share, earningsper share, revenue growth, and profit margins. The Internet has opened new avenues oftrade so that more firms compete for a larger, global market. The ease with whichconsumers can compare products and prices online has also increased competitiveness.1-5.Student answers will vary. The information can be accessed directly from the Internet orthrough the hyperlinks provided in Chapter 1 of the text’s homepage located atwww.wiley.com/go/russellcanada1-6.Student answers will vary.1-7.Students can begin this assignment by accessing Fortune’s homepage and referring to theFortune 500 orGlobal 500by industry. The leaders in each industry are listed and there isusually some discussion of industry concerns. Individual data on companies can be foundat Hoover’s website (www.hoovers.com).1-8.Student answers will vary.1-9.Student answers will vary.1-10.Student answers will vary. The information can beaccessed directly from the Internet orthrough the hyperlinks provided in Chapter 1 of the text’s homepage located at.www.wiley.com/go/russellcanada1-11.The WTO is an international organization that works to establish and enforce rules of tradebetween nations. WTO agreements are ratified by the governing bodies of the nationsinvolved. WTO’s dispute settlement process interprets agreements and rules on violations,thereby avoiding political or military conflict. The group promotes free trade and morerecently, has helped developing nations enter the trade arena on more equitable 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 theorganization, and being approved by two-thirds of the existing membership. Seewww.wto.org1-12.Student answers will vary. Accesswww.worldbusinessculture.com1-13.Student answers will vary. Accesswww.transparency.org1-14.Student answers will vary.Accesshttp://laws-lois.justice.gc.ca/eng/acts/C-45.2/for basicinformation.1-15.Students will find a variety of answers for this question. In general, it is easy to findmission or vision statements, but more difficult to find evidence of the mission or visionbeing applied.

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1-16.Strategy formulation consists of four basic steps: (1)defining a primary task—what is thepurpose of the firm? What the firmisin the business of doing? (2)assessing corecompetencies—what does a firm do better than anyone else? (3) determiningorder winnersand order qualifiers—what wins orders in the marketplace? What qualifies a product orservice to be considered for purchase? (4)positioning the firm—what one or two importantthings should the firm choose to concentrate on? How should the firm compete in themarketplace?Student answers will vary. Most start-ups try too much toosoon. It’s difficult to stick withwhat you do best.1-17.Core competenciesare the essential capabilities that create a firm’s sustainable competitiveadvantage. They have usually been built up over time and cannot be easily imitated. Forexample, First National Bank, one of our local banks, is known as a risk taker. Its corecompetence is its ability to size up the potential of investment opportunities. Through itsfamiliarity with local businesses and its experience in loan making, the bank has developedthe 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 forspecial occasions. The store stocks a variety of stylish women’s clothing, but not too muchof each style. They specialize in knowing individual customers and even keep track ofevening wear purchases so that no one else at a particular party will be wearing the samedress.Toyota emphasizes superior quality at a price below its competitors with its Lexus line ofautomobiles. To establish a special reputation for quality over the lifetime of the car, thecompany set up separate sales and service facilities. When it is time for servicing, Lexusowners 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 fora night on the town complements of the dealer.1-18.While the answers to this question vary considerably, most students feel competent in thetechnical areas of their major, but uncomfortable with their communication skills (both oraland written) and their ability to make decisions. This opens the way for more project-oriented assignments from the instructor. The question also helps students prepare for theinevitable interview question—what are your strengths and weaknesses?1-19.Order qualifiersare characteristics of a product or service that qualify it to be consideredfor purchase by a customer. Anorder winneris the characteristic of a product or servicethat 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 tominimizing defect rates or conforming to design specifications. Tocompete on quality,companies must view quality as an opportunity to please the customer, not just as a wayto avoid problems or to reduce rework costs. The manufacturer of Rolex watchescompetes on quality.b.Companies thatcompete on costrelentlessly pursue the elimination of all waste. Theentire cost structure is examined for reduction potential, not just directlabourcosts.High volume production and automation may or may not provide the most cost-

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effective alternative. Wal-Mart competes on cost.c.Flexibilityincludes the ability to produce a wide variety of products, to introduce newproducts and to modify existing products quickly, and, in general, to respond tocustomer needs. National Bicycle Industrial 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, highstandards for performance, 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 a firm (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 andservices, processes and technology, capacity and facilities, human resources, quality,sourcing, and operating systems.1-23.Policy deploymenttries to focus everyone in an organization on common goals andpriorities by translating corporate strategy into measurable objectives down through thevarious functions and levels of the organization. As a result, everyone in the organizationshould understand the strategic plan, be able to derive several goals from the plan, anddetermine 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 operationalexcellence is important in all four areas, the tools in operations are most closely associatedwith process.1-25.Student answers will vary.1-26.Student answers will vary. The balanced scorecard worksheet in Table1.3is helpful.Financesmight refer to future income,customersto potential employers who are interestedin both grades and experience,processesto how students will raise their grades and gainexperience, andlearning and growingto developing skills in several areas.

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Answers toProblems(Answers may vary due to rounding)1-1.TheKingstonstore is the most productive.StoreHamiltonKingstonLondonWaterlooSales volume$40,000$12,000$60,000$25,000Labourhours25060500200Productivity$160$200$120$1251-2.a.Londonis the most productive.b.Based on productivity, theKingstonstore should be closed. Other factors to considerinclude total revenue, potential for growth, and options for reducing costs.HamiltonKingstonLondonWaterlooSales volume$40,000$12,000$60,000$25,000Labourhours25060500200Labourcost/hr$6.75$6.50$6.00$5.50Rent$1,800$2,000$1,200$800Productivity$11$5$14$131-3.By number, Jim was more productive last year. By weight, Jim was moreproductive thisyear.Last yrThis yrHours fishing46Bass caught1215Average weight2025Bass/hr6062.51-4.Productivity could be measured by total account dollars per hour worked, new accountdollars per hour worked,or existing account dollars per hour worked. Bates is the mostproductive based on total output. Albert and Duong have the most new accounts, and thusthe greater potential returns in the future. However, Duong cannot work many more hoursa week and Bates is only working half time. Bates has the potential to sell more if he worksmore hours.AgentsAlbertBatesCresseyDuongNew accounts$100,000$40,000$80,000$200,000Existing accounts$40,000$40,000$150,000$100,000Labourhours40206080Total $/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

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1-5.Japanis the most productive.LabourHoursUnits of OutputProductivityCanada79.287.11.10Germany89.6103.61.16Japan86.3117.61.361-6.Omar should probably close the plant in Guadalajara because its multifactor productivity isthe lowest, itslabourproductivity is the second lowest, and its output is the least of the fourplants.Units (in 000’s)MontrealFrankfurtGuadalajaraBejiingFinished goods10,00012,0005,0008,000Work-in-process1,0002,2003,0006,000Costs (in 000’s)Labour 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$500Labourproductivity3.143.383.2017.50Total productivity1.161.000.781.461-7.Hillis the most productive in terms of rushing yards and touchdowns per carry. However,Peressinihas highest number of rushing yards and touchdowns. Using “carries” as theinput variable skews the results. Productivity is not always the best measure ofperformance.CandidatesHillLévesquePeressiniRushing 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/hr102.0895.6783.33

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1-9.Centre1233c.Pieces processed1,0002,0003,0005,000Workers/hr10522Hourly wage rate$20.50$25$27$27Overhead/hr$10$25$50$80Multifactor productivity4.6513.3328.8537.31a.Work center # 3 is the most productive.b.With a 10% raise in center 1, productivity goes down to4.25pieces per dollar spent.c.With new equipment in center 3, productivity goes up to37pieces.Install the newequipment.1-10.Material productivity is stable over the 4 weeks.Labourproductivity increases in week 2and decreases in weeks 3 and 4.Week1234Units of output2,0004,0005,0007,000# workers4456Hours per week40485670Labourcost per hour$10$10$10$10Material (kgs.)128256324450Material cost per lb.$8$8$8$8Labour productivity0.631.040.890.83Material productivity3.913.913.863.89Multifactor productivity0.470.680.610.581-11.Johan is the most productive.JakeJasbirJenniferJohan# ads sold1005020035# hours spent40158510Output/hr2.503.332.353.501-12.Choose Cold Case.Alaskan SealBrr FrostCold CaseDeep FreezePurchase 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$2.91

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Daily 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$0.10

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Answers toCaseProblem1.1: Visualize This1.It is difficult to follow the four steps of strategy formulation for this case. Students will beable to easily identify VT’s core competency but will struggle with its primary task, andwithout 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 businessgoing 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 anddo not promise future business. (2) is the most time-consuming, least challenging, but mostsustainable. (4) and (5) are the most lucrative but do not advance VT’s knowledge of thefield.5.The selection of projects should reinforce the strategy determined by the student. This caseis based on an actual situation. The company chose projects (1) and (3). The museum jobconsumed so much time and resources that the company had to turn down the bank trainingjob. Without a “product” and no immediate repeat business, the company folded and theowner went back to academe. A student took on project (5)andbecame quite successful.

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Answers to Case Problem1.2: Whither an MBA atBrandon?1.The board of Regents should look at the proposal carefully and identify first what they aretrying to achieve with this new program. If the program fits within their mission, and ifthey have the resources to pursue it, they need to assess the likelihood of their success orfailure. It doesn’t appear that the board has sufficient information or insight to make thedecision. 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 thatBrandoncan’t support woulddamage their reputation.Brandonneeds to gather more information before a decision canbe made.2.Brandonshould go through the process of identifying its primary task. This would includethe type of students it wishes to serve and their future role in society (i.e., community,regional,provincial,national, global). A clear assessment ofBrandon’s core competence isalso needed. What special resources does theuniversityhave? What is it best known for?How does it compare to other institutions of similar size and mission?After those issues have been settled, theuniversityneeds to find out what its customers(i.e., students) look for when deciding where to go to school. What are some basicrequirements thatBrandonshould meet (i.e., order qualifiers)? What factor prompts thefinal determination of which school to attend (i.e., order winner)? If, as is hinted in thecase, the ability to find employment upon graduation is important to prospective students,then theuniversityshould gather information from potential employers about their needs. Itmay very well be that an MBA program is needed in the area, but this needs to bedetermined from data. Only after the determination has been made, that the area needsanother MBA program, shouldBrandonexplore the possibility of providing it. If theuniversityconcludes that it has the skills and resources necessary to pursue the task, then itshould try to position itself properly in the market and find a special niche for its particularMBA program.

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Answers to Case Problem1.3:Weighing Options at the Weight ClubA Balanced Scorecard for the Weight Club:DimensionObjectivesKey PerformanceIndicatorGoalFinancesRevenueGenerate revenue forfirst-class facility% increase in revenue30%GrowthAttract newcustomers% increase in customers25%CustomersQualityMeet or exceedcustomer needs% customers satisfied100%RetentionBuild sustainablecustomer base% membership renewals75%ProcessesFitnessIncreaseparticipation inexercise classes# exercise classes/week12Increase use of personaltrainers# client hours/week100Client servicesEnhance clientexperience% participation in customerorientation75%# massageappointments/week200Facilitate use ofservicesTime required for check-in1 minHours of child care/week90%Equipment maintenanceMaintain equipment intop working condition% fully operational95%% on regular maintenanceschedule60%Learning & GrowingProgram developmentDevelop professionalstaff% new classes25# innovative suggestions30Facility developmentProvide first-classfacilities and equipment% equipment new orupdated100%Months until facilityexpanded/ renovated6OrganizationaldevelopmentDevelop managementand administrativeskills# persons on Board ofDirectors6# full-time managers3

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CHAPTER 1 SUPPLEMENTOPERATIONAL DECISION-MAKING TOOLS: DECISION ANALYSISANSWERS TO PROBLEMS AND CASE PROBLEMSAnswers to Problems(Answers may vary due to rounding)S1-1.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

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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 TaiwanExpected 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) ifperfect information can 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 orshopping 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

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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(Condominiums)=3.2(.50)+1.5(.40)+.6(.10) = 2.26← maximumSelect Condominium projectb.EVPI = Expected value of perfect information–expected value without perfectinformation= 3.01–2.26 = $0.75 millionS1-5.a.Maximax: Risk fund, maximaxpayoff$167, 000b.Maximin: Savings bond maximinpayoff$30, 000c.Equal likelihood: Bond fund, maximumpayoff$35, 000d.Best decision, given probabilities: Bond fund, maximumpayoff$35, 000S1-6.a.Maximax: Pass for a gain of 20 ydb.Maximin: Option for a loss of1ydc.Equal likelihood: Option for a gain of 7 yds.d.Plays ranked best to worst:PlayEVPass6.4Option5.3Toss sweep4.8Off tackle3.2Screen2.3Draw1.6With a 60% chance of a blitz they should run the option, with an expected value of 11.5yd.S1-7.a.ProductExpected ValueWidget160,000 0.290,000 0.550,000 0.3$62,000

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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, itwould probably pay less than $24,000.c.Maximax: Introduce widget, maximaxpayoff$160, 000Maximin: Introduce nimnot, maximinpayoff$30,000.Minimax regret: Introduce widget, Minimaxregret$80,000Equal likelihood: Introduce widget, maximumpayoff$66, 000S1-8.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$273,900S1-9.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 informationabout the future competitive market.S1-10.a.Maximax: Singapore, maximum payoff$71 millionb.Maximin: Kaohsiung, maximum payoff-$15 million

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