Solution Manual for Operations and Supply Chain Management: The Core, 5th Edition

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Chapter 01-Operations and Supply Chain ManagementCHAPTER 1OPERATIONS AND SUPPLY CHAIN MANAGEMENTDiscussion Questions1.Using Exhibit 1.2 as a model, describe the source-make-deliver-return relationships in thefollowingsystems:a.AnairlineSource:Aircraft manufacturer, in-flight food, repair parts, computer systemsMake:Aircraft and flight crew scheduling, ground services provided at airports,aircraft maintenance and repairDeliver:Outbound and arriving passenger service,baggage handlingReturn:Resolve any post-service issues such as lost or damaged luggageb.An automobilemanufacturerSource:Suppliers of components and raw materialsMake:Manufacturing of vehicles and components or subassemblies to be sold assparepartsDeliver:Delivery to and sales from dealerships, delivery of spare parts to the wholesalesystemReturn:Warranty and recall repairs, trade-insc.AhospitalSource:Medical supplies, cleaning services, disposal services, food services, qualifiedpersonnelMake:Inpatient rooms, outpatient clinics, emergency room, operating roomsDeliver:Scheduling patients, providing treatment, ambulance service, family counselingReturn:Billing errors, follow up visitsd.An insurancecompanySource:Suppliesneeded for the office, underwriters, legal authority to operateMake:Establish policy guidelines and pricing, field agent/representative and facilitynetwork, develop Internet service capabilities, establish preferred vehicle repairservice networkDeliver:Meet with and advise clients, write policies, process and pay claimsReturn:Refund of overpayments2.Define the service package of your college or university. What is its strongest element? What isits weakestone?The categories with examplesare:Supporting facility-location, buildings, labs, parkingFacilitating goods–class schedules, computers, books, chalkExplicit services–classes with qualified instructors, placement officesImplicit services–status and reputation (e.g., Ivy League schools)

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Chapter 01-Operations and Supply Chain ManagementAtIndiana University and the University of Southern California, among their strongestelements are their business schools and their Operations Management programs (of course).Both also have very dedicated alumni networks. A weak element of Indiana University is itsweak football program; for USC, weak elements are on-campus parking and housing.3.What service industry has impressed you the most with itsinnovativeness?Our vote goes to cruise lines which have introduced such onboard innovations as wavemachines for belly boarding and rock climbing walls, as well as all sorts of other amenities tokeep cruisers involved. The industry is doing record business as well.Some of the standout companies in less innovative industries are Bank of America (has aformalized research program to try out new customer services/amenities such as video screensin next to teller lines), Intuit (e.g., putting Quicken money management software online), Ikea,JetBlue Airlines, and Progressive Insurance (discussed later in the book).4.What is product-service bundling and what are the benefits tocustomers?Product-service bundling is adding value-added services to a firm’s product offerings to createmore value for the customer. This provides benefits in two areas. First, this differentiates theorganization from the competition. Secondly, these services tie customers to the organizationin a positive way. Alternatively, bundling can also involve adding products to a service, forexample, adding the sale of convenience items and snacks at a hotel.5.What is the difference between a service and agood?A service is an intangible process (you can’t hold it in your hands), while a good is the physicaloutput of a process. Some service businesses also provide a physical good as part oftheservice, like a restaurant. Also, mots manufacturers of goods provide services for after-salessupport, like computer tech support or automobile warranty service. So while a service and agood are definitely distinguishable, customers will often encounter both in their experienceswith a company.6.Some people tend to use the terms effectiveness and efficiency interchangeably, thoughwe’ve seen they are different concepts. But is there any relationship at all between them?Can a firm be effective but inefficient? Very efficient but essentially ineffective? Both?Neither?Firms can be anywhere on these two dimensions. It is possible for a firm to be the best at whatthey do in serving their market, but be very wasteful in doing so. Alternatively, a firmcouldsqueeze every last dollar out of their processes but fail to deliver what the market expects anddesires. Of course, the best firms will provide the goods and services that the market desires,exactly as the market desires, and do so at a minimum cost. Firms that are both inefficient andineffective do not survive for long in any market.

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Chapter 01-Operations and Supply Chain Management7.Two of the efficiency ratios mentioned in the chapter are thereceivable turnover ratioand theinventory turnover ratio. While they are two completelyseparate measures, they are verysimilar in one way. What is the common thread between thesetwo?(There are a number of answers that students may come up with, from simplistic to morethoughtful. Following is one of the latter.)Both are measuring the average amount of avaluable asset that is not generating value for the company. Accounts receivable are an asset,but they do not create value for the firm until the money is received. Reducing the averageamount of accounts receivable frees up that moneyfor use by the company on a recurringbasis. Inventory is another asset, but while inventory is being held by the company it is notmaking any money for the firm. Reducing inventory allows the firm to invest the money thatwould otherwise be spent on the inventory.8.Look at the job postings athttp://jobs.apics.organd evaluate the opportunities for an OSCMmajor with several years ofexperience.There are pages and pages of these in the APICS Career Center. Hereare some examples:Purchasing and Planning ManagerSennheiser New MexicoSennheiser is seeking an innovative and enthusiastic individual to manage the purchasing andplanning areas at our Albuquerque manufacturing facility. This key role is responsible forleading the Purchasing, Planning and Warehouse departments to achieve outstanding results.You will be charged with ensuring cost effective on-time delivery, as well as building solidrelationships with other internal departments and international sisterfacilities. You will useproduction planning, procurement, inventory and materials management concepts to solveproblems and provide continuous improvement in the supply chain process.Senior Manager Supply Chain FinancerPharmaviteThis role contributesto Pharmavite's success by providing decision support to the organizationto drive business growth and improve profitability. Responsible for supporting companyinnovation with respect to total delivered cost. Also supports direct sourcing team on reporting& analyzing purchase price variance and seeking out new cost savings projects. Performs ad-hoc analysis and/or support cross-functional projects to improve operational efficiencies andoptimize profitability. Also manages the control function around headquarters-basedoperations overhead expenditures as well as capital investments.Medical Device Supply Chain ManagerCadwellThe Supply Chain Manager provides overall leadership and mentoring for the purchasing,shipping, and receiving functions forCadwell Industries, Inc., a leading medical devicemanufacturer. This position oversees the organization wide management of strategic sourcing,procurement, contract negotiations, and evaluation of services while collaborating closely withstaff in Engineering, Marketing, Regulatory, Sales, and Service.

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Chapter 01-Operations and Supply Chain ManagementProduction/Operations PlannerCG Industrial SpecialtiesUS-NationwideReporting to the Operations Manager or Branch Manager; this position is responsible forpreparing assembly schedules forshop technicians; coordinate material requirements withpurchasing as well as coordinate shipping / receiving activities with warehouse staff.9.Recent outsourcing of parts and services that had previously been produced internally isaddressed by which current issue facing operations and supply managementtoday?The coordination of relationships between mutually supportive but separate organizations.10.What factors account for the resurgence of interest in OSCMtoday?With companies facing competition ona global scale, and ever-advancing manufacturing andinformation technologies, firms realize the competitive advantage their OSCM functions canprovide if properly managed. Many have found that the same old way of doing businessleaves them unable to compete successfully. The 2011 tsunami in Japan and the 2015 LA portsclosure have also brought to the forefront how important supply chains are, as well as thenegative economic impact that disruptions in the supply chain cancause.11.As the field of OSCM hasadvanced, new concepts have been applied to help companiescompete in a number of ways, including the advertisement of the firm’s products or services.One recent concept to gain the attention of companies is promoting sustainability. Discusshow you haveseen the idea of sustainability used by companies to advertise their goods orservices.There of course will be a number of examples that students will bring up, though they mayneed some prodding to jog their memories. Some examples to start with mightbe IBM’s “I’man IBMer” campaign where they advertise how they are “building a smarter planet.” Bottledwater manufacturers have reduced the amount of plastic used in many of their products, thussaving production and distribution costs, but also allowingthem to advertise how the newbottles are better for the environment because they result in less waste.

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Chapter 01-Operations and Supply Chain ManagementObjective Questions1.What are the three elements that require integration to be successful in operations andsupply chainmanagement?Strategy, Processes, and Analytics2.Operations and supply chain management is concerned with the design and management ofthe entire system that has whatfunction?Produces a product or delivers a service3.Consider the following financial data from the pastyear for Midwest Outdoor EquipmentCorporation.Gross Income$25,240,000Total Sales24,324,000Total Credit Sales18,785,000Net Income2,975,000Cost of Goods Sold12,600,000Total Assets10,550,000Average Inventory2,875,000AverageReceivables3,445,000a.Compute thereceivable turnoverratio.$18,785,000$3,445,000= 5.453b.Compute theinventory turnoverratio.$12,600,000$2,875,000= 4.383c.Compute theasset turnoverratio.$24,324,000$10,550,000= 2.306

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Chapter 01-Operations and Supply Chain Management4.A manufacturing company has entered into a new contract with a major supplier of rawmaterials used in the manufacturing process. Under the new arrangement, calledvendormanaged inventory, the supplier manages their raw material inventory inside themanufacturer’s plant, and only bills the manufacturer when the manufacturer consumes theraw material. How is this likely to affect the manufacturer’s inventory turnoverratio?This will reduce the average amount of money the firm has invested in raw material, so theinventory turnover ratio should increase.5.What is the name of the process in which one company studies the processes of another firmin order toidentify bestpractices?Benchmarking6.A company has recently implemented an automated online billing and payment processingsystem for orders it ships to customers. As a result, it has reduced the average number ofdays between billing a customer and receiving payment by 10 days. How will this affect thereceivables turnoverratio?Quicker payments will reduce the average amount of accounts receivables, so the receivablesturnover ratio will increase.7.Match the following OSCM job titles with theappropriate duties andresponsibilities.CPlant managerA:Plans and coordinates staff activities such as new productdevelopment and new facility locationDSupply chain managerB:Oversees the movement of goods throughout the supplychainAProject managerC:Oversees the workforce and resources required to producethe firm’s productsEBusiness processimprovement analystD:Negotiates contracts with vendors and coordinates the flowof material inputs to the production processBLogistics managerE:Applies the tools of lean production to reduce cycle timeand eliminate waste in a process8.What high-level OSCM position manager is responsible for working with the CEO andcompanypresident to determine the company’scompetitive strategy?Chief Operating Officer

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Chapter 01-Operations and Supply Chain Management9.Order the following major concepts that have helped define the OSCM field on a time line.Use 1 for the earliest to be introduced, and 5 for the mostrecent.3Supply chain management1Manufacturing strategy5Business analytics2Total quality management4Electronic commerce10.Which major OSCM concept can be described as an integrated set of activities designed toachieve high-volume production using minimal inventoriesof parts that arrive at workstationsexactly when they areneeded?Just-in-time (JIT) production11.leverage the vast amount of data inenterpriseresourceplanning systems to make decisions related to managingresources.Business analytics12.Whichcurrent issue in OSCM relates to the ability of a firm to maintain balance in a system,considering the ongoing economic, employee, and environmental viability of thefirm?Sustainability

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Chapter 01-Operations and Supply Chain ManagementAnalytics Exercise: Comparing Companies Using WallStreet Efficiency MeasuresEach student is asked to pick an industry and compare three companies within that industry based onincome per employee, revenue per employee, receivable turnover, inventory turnover, and assetturnover. The following is typical of what you might obtain:BPShellExxonMobilOil IndustryManagement EfficiencyNet Income/Employee315,300343,533414,328289,320Revenue/Employee4.6 Mil5.2 mil4.7 mil3 MilReceivable Turnover9.386.2913.1713.5Inventory Turnover11.9213.5921.9115.5Asset Turnover1.921.361.411.1Students are then asked to identify which company appears to have the most productive employees.With this data we see that ExxonMobil does very well in generating $414,328 net income peremployee. Comparing Shell to ExxonMobil we can observe that ExxonMobil appears to be moreefficient since it can generate more net income on lower revenue/employee, at least compared toShell. The inventory turnover is highest for ExxonMobil indicating that the company is the mostefficient from an operations and supply chain processes view. ExxonMobil also appears to do a goodjob in collecting receivables as well, thus supporting the idea that the company is very efficient. BPseems to do a little betterin asset turnover, which relates to the use of its facility and equipmentassets. But ExxonMobil is very good especially in comparison to the oil industry average.Overall, ExxonMobil appears to be the most efficient, so the other companies might find itvaluable tobenchmark the company’s processes.Of course, the data generated by each student will be different and an interesting interchange can bedeveloped with students each presenting what they found from their research. It is very interesting todocomparisons across industries; retailers versus oil companies, and computer makes versus softwarecompanies, for example.

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Chapter 02-Strategy and Sustainability02-1CHAPTER 2STRATEGY AND SUSTAINABILITYDiscussion Questions1.What is meant by a “triple-bottom-line” strategy? Givean example of a company thathasadopted this type of strategy.A triple-bottom-line strategy places emphasis on a company’s environmental and socialresponsibilities as well as the traditional bottom line of economic prosperity. It recognizes thatthelong-term health of the firm is interdependent with the health of the environment and thebetterment of society. There are many examples–one is Patagonia. For details see their currentsustainability page:http://www.patagonia.com/home/2.Find examples where companies have used features related to environmental sustainabilityto“win” new customers.Car companies use environmental concerns in marketing ads. The development of hybrid andflex-fuel cars isone way they have operationalized those concerns. Consumer goods companiesdisplay the “made with recycled material” logo on the packaging. Bottled water manufacturersare using and advertising bottles made with less plastic.3.What are the major prioritiesassociated with operations and supply chain strategy? For eachmajor priority, describe the unique characteristics of the market niche with which it is mostcompatible.•Cost: In most every industry, there is a market segment that is very price sensitive.Firms thatcan supply goods or services at the lowest price will have an advantage there. This requiresextremely efficient operations with a continuous focus on cost minimization. As a result, largeproduction volumes are often required to successfully competehere.•Quality: Similar to the low-cost focused customers, most industries will encounter a marketsegment willing to pay more for a higher quality product. Typically these goods and serviceswill not be commodity products. Customers may focus on design quality (feature sets, materials,etc.),processquality(fitandfinish,reliability,etc.)todifferinglevelsbasedontheindustry.•Delivery speed and reliability: When a customer has a dire and need for a good or service,companies that can deliver the product the fastest have a distinct advantage. In the business-to-business (B2B) market segment, customers depend on stated delivery windows to achievereductions in inventory while still meeting strict productionwindows.•Changes in volume:Again, this is often important to be a player in many B2B markets.Customers need to know their suppliers can rapidly respond to changes in demand so they canmeet the end customer demandswings.

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Chapter 02-Strategy and Sustainability02-2•Flexibility and new product introduction speed: The high-tech industry is a good example wherethis is a key competitive advantage. Being able to rapidly respond to advances in technology andcorrectly gauge customer expectations is key to competingsuccessfully.4.Why does the “proper” operations and supply chain strategy keep changing for companiesthatare world-class competitors?The top three priorities have generally remained the same over time: make it good, make it fast,and deliverit on time. Others have changed. Part of this may be explained by realizing that worldclass organizations have achieved excellence in these three areas and are, therefore, focusingattention on some of the more minor areas to gain competitive advantage. The changes in theminor priorities may result from recognizing opportunities or from changes in customer desires orexpectations.5.What do the expressions “order winner” and “order qualifier” mean? What was the order winnerfor your last major purchase ofa product orservice?Order winners are dimensions that differentiate the product or service or services of one firm fromanother. Order qualifiers are dimensions that are used to screen a product or service as acandidate for purchase. Order qualifiers get a company’s “foot in the door.” Order winners arewhat make the sale. Obviously, answers will vary for the order winners from your last purchase.6.Pick a company that you are familiar with and describe its operations strategy and how it relatesto winning customers. Describe specific activities used by the company that support the strategy(see Exhibit 2.2 for anexample).Student answers will vary widely based on their experiences and views. It might be helpful for aclassroom exercise to assign certain companies to a number of students/teams and compare theiranswers in class.7.At times in the past, the dollar showed relative weakness with respect to foreign currencies, suchas the yen, euro, and pound. This stimulated exports. Why would long-term reliance on a lowervalued dollar be at best a short-term solution to the competitivenessproblem?This approach is dependent on economic policies of other nations. This is a fragile dependency. Along-term approach is to increase manufacturing and serviceindustry productivity in order toregain competitive advantage. At a national level, solutions appear to lie in reversing attitudes.At a firm level, competitive weapons are consistent quality, high performance, dependabledelivery, competitive pricing, and design flexibility.8.Identify an operations and supply chain-related "disruption" that recently impacted a company.What could the company have done to have minimized the impact of this type of disruption priorto itoccurring?The March 2011 tsunamithat struck Japan was geographically concentrated but had globalimpact on multiple firms, many of which had no physical presence at all in the affected area.Examples include firms that had sole source agreements with suppliers in the affected area. Thetsunami left these companies scrambling to find new suppliers to feed into their supply chains.These firms could have reduced the impact of the tsunami by having a few high-quality,

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Chapter 02-Strategy and Sustainability02-3dependable suppliers located in different geographical regions. There are many other examplesthat could be taken from this one event. A simple Internet search will provide plenty of materialfor discussion. More recently, the L.A. ports work slowdown in early 2015 was a man-madedisruption for many global firms. Both inbound and outbound shipments were affected–somedelayed and others (U.S. produce exports) were ruined. McDonald’s resorted to flying over 2million pounds of frozen French fries into Japan at significant extra cost duringthis period to keeprestaurants open.9.What do we mean when we say productivity is a “relative”measure?For productivity to be meaningful, it must be compared with something else. The comparisonscan be either intra-company as in the case of year-to-year comparisons of the same measure, orintercompany as in the case of benchmarking. Intercompany comparisons of single factorproductivity measures can be somewhat tenuous due to differences in accounting practices(especially when comparing with foreign competitors) and the balance of labor to capitalresources. Total factor productivity measures are somewhat more robust for comparisonpurposes.

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Chapter 02-Strategy and Sustainability02-4Objective Questions1.Shell Oil Company’s motto “People, Planet and Profit” is a real-worldimplementation of whatOSCMconcept?Triple bottom line2.A firm’sstrategyshould describe how it intends to create and sustain valuefor.Its current shareholders3.What is the term used to describe individuals or organizations that are influenced bythe actionsof thefirm?Stakeholders4.How often should a company develop and refine the operations and supply chainstrategy.At least yearly5.What is the term used to describe product attributes that attract certain customers and can beused to formthe competitive position of afirm?Competitive dimensions6.What are the two main competitive dimensions related to productdelivery?Delivery speed and delivery reliability7.What are the two characteristics of a product or service that definequality?Design quality and process quality8.What is the diagram that shows how a company’s strategy is delivered by a set ofsupportingactivities called?Activity-system map

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Chapter 02-Strategy and Sustainability02-59.Inimplementingsupplychainstrategy,afirmmustminimizeitstotalcostwithoutcompromisingthe needs of what group ofpeople?Customers10.What is defined as the likelihood of disruption that would impact the ability of a companytocontinuously supply products orservices?Supply chain risk11.What are risks caused by natural or manmade disasters, and therefore impossible to reliablypredictcalled?Disruption risks12.Match the following common risks with the appropriate mitigationstrategy.ECountry risksA:Detailed tracking, alternate suppliersDRegulatory riskB:Carefully select and monitor suppliersALogistics failureC:Contingency planning, insuranceCNatural disasterD:Good legal advice, complianceBMajor quality failureE:Currency hedging, local sourcing13.What is the term used to describe theassessment of the probability of a negative event againstthe aggregate severity of the relatedloss?Risk mapping

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Chapter 02-Strategy and Sustainability02-614.As Operations Manager, you are concerned about being able to meet sales requirements in thecoming months. You have just beengiven the following productionreport:JANFEBMARAPRUnits Produced2300180028003000Hours per Machine325200400320Number of Machines3544Find the average of the monthly productivity figures (units per machine hour).To answer thiswe need to realize that the measure of hours given is per machine, so we have tomultiply that by the number of machines in each period to get the total machine hours in eachperiod. Those figures are used in the calculations below.Average productivity:(2300/975 + 1800/1000 + 2800/1600 + 3000/1280)/4Average productivity (2.36+1.80+1.75+2.34)/4= 2.06 units per machine hourNote that the average above weights each month the same, although output varies. Analternative answer would be to compute a weighted average productivity figure that is slightlydifferent at 2.04 units per machine hour.15.Sailmaster makes high-performance sails for competitive windsurfers. Below is informationabout the inputs and outputs for one model, the Windy2000.Units sold1,217Sale price each$1,700Total labor hours46,672Wage rate$12/hourTotal materials$60,000Total energy$4,000Calculate the productivity insales revenue/labor expense.We have to do some interim calculations here. Sales revenue is calculatedby multiplyingunits sold by the unit sales price. Labor expense is calculated by multiplying labor hours bythe wage rate.(1217*1700) / (46672*12) = 3.69

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Chapter 02-Strategy and Sustainability02-716.Live Trap Corporationreceived the data below for its rodent cage production unit. Find thetotalproductivity?OutputInput50,000 cagesProduction time620 labor hoursSales price: $3.50 per unitWages$7.50 per hourRaw materials (total cost)$30,000Component parts (total cost)$15,350Total productivity could be expressedtwo ways here based on how you express output: inunits sold, or dollars of sales.Units sold:50,000 / ((620 * $7.50) + 30,000 + 15,350) = 1.00 units sold per dollar inputDollars of sales:(50000*3.5) / ((620 * $7.50) + 30,000 + 15,350) = 3.5 dollars insales per dollar input17.Two types of cars (Deluxe and Limited) were produced by a car manufacturer last year.Quantities sold, price per unit, and labor hours are given below. What is the labor productivity foreach car? Explain the problem(s) associatedwith the laborproductivity.QUANTITY$/UNITDeluxe car4,000 units sold$8,000/carLimited car6,000 units sold$9,500/carLabor, Deluxe20,000 hours$12/hourLabor,Limited30,000hours$14/hourLabor Productivity–units/hourModelOutputin UnitsInputin Labor HoursProductivity(Output/Input)Deluxe Car4,00020,0000.20 units/hourLimited Car6,00030,0000.20 units/hourLabor Productivity–dollarsModelOutputin DollarsInputin DollarsProductivity(Output/Input)Deluxe Car4,000($8,000)=$32,000,00020,000($12.00)=$240,000133.33Limited Car6,000($9,500)=$57,000,00030,000($14.00)=$420,000135.71

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