Isye 3104: Introduction to Supply Chain Modeling

ISyE 3104: Introduction to Supply Chain Modeling: Manufacturing and Warehousing Instructor : Spyros Reveliotis Summer 2003

Solutions for Homework #1 ISYE 3104 Summer 2003 Homework 1 Solution Chapter 1 Operations and Productivity

DISCUSSION QUESTIONS

1. Define Operations Management in your own words. Operations management can be defined as the field that deals with the effective and efficient design and operation of the transformation processes that provide the various goods and services..

2. Consider the potential contribution of information sciences to OM. Why is the management of information of such great importance in the management of “production”? The management of information is of great importance to operations management because: (a) without “information” one would have no knowledge of the state of input resources, process performance, or output goods and/or services; (b) properly developed information systems can contribute to the overall integration required to allow a firm to produce on a competitive basis; (c) “good” decisions require “good” information—the right information, at the right place, at the right time.

More specifically, the production planning problem can be described as the company effort to produce the right product in the right quantities in an efficient manner. It should be obvious then, that in order to address the first issue, i.e., produce the right products in the right quantity, the companies need to have information about the market behavior, i.e., the expected demand and any further developing trends. Similarly, in order to meet this expected demand efficiently, the companies need to have a clear understanding of – i.e., detailed information about - their current operational status – i.e., existing stock, production capacity, already initiated production, expected supplier deliveries, etc. – since only then they can make the right decisions regarding how to adjust the existing status in a way that will allow them to meet the expected demand in a cost-effective and timely fashion.

3. What are the three classic functions of a firm? The three classic functions are: (a) Marketing (b) Operations (c) Finance/Accounting

4. What departments might you find in the OM function of a home appliance manufacturer? One would expect to find departments in a home appliance manufacturer for most, if not all, of the activities suggested by the 10 decisions in Table 1.2 and the organization chat in Figure 1.2.

Research and Development (R&D) Conducts product research, product development, and product engineering. A firm might also conduct product testing at the consumer level.

Industrial Engineering (IE)

2 ISYE 3104 Summer 2003 Homework 1 Solution Determines the most efficient use of productive resources; may also develop product costing.

Methods Engineering Industrial engineers working toward improving procedures in the workplace.

Facilities Planning, Construction Plans, constructs, maintains, and repairs facilities.

Quality Assurance/ Quality Control (QA & QC) Reviews designs, products, and processes to ensure quality objectives are met. Production Planning and Inventory Control (PIC) Schedules the manufacturing processes; manages inventory.

Manufacturing Systems Applies the methodology, models, and the procedures of mathematics or management information systems to manufacturing operations. This function might assume more importance in the home appliance market as manufacturers from outside the U.S. provide increased competition. Process Engineering Design, develops, and evaluates production tools, equipment, and processes.

Product Engineering Fine-tunes the product design to enhance production efficiency

Maintenance Focuses on designing systems and procedures and develops personnel who will create and maintain a reliable system.

Supply Chain Management Determines the best sources for a given set of specifications, delivery, and price. Because the “home appliance” is a basic consumer good and competition occurs on parameters other than price, one might also find that the organization’s competitive strategy dictates that the operations function include the additional department.

After Sale Service Responsible for the overall management and provision of on-site and carry- in customer service. In attempting to identify the departments of a “typical” manufacturer, one should recognize that the operations (not necessarily the department assignments) noted above are common to some degree among all manufacturers. The question is really to what degree, and the decision as to what degree is often based on competitive strategy in the marketplace rather than any “necessity” of prescribed organizational structure.

3 ISYE 3104 Summer 2003 Homework 1 Solution END-OF-CHAPTER PROBLEMS

1.6 Resource Last Year This Year Change Percent Change Labor 1000/300 = 3.33 1000/275 = 3.64 0.31 0.31/3.33 = 9.3% Resin 1000/50 = 20 1000/45 = 22.22 2.22 2.22/20 = 11.1% Capital 1000/10000 = 0.1 1000/11000 = 0.09 -0.01 -0.01/0.1 = -10.0% Energy 1000/3000 = 0.33 1000/2850 = 0.35 0.02 0.02/0.33 = 6.1%

1.7 Last Year This Year Production 1,000 1,000

Labor hr. @$10 $3,000 $2,750 Resin @$5 250 225 Capital cost/month (1%) 100 110 Energy ($0.5/Btu) 1,500 1,425 $4,850 $4,510

[(1,000 / 4,850) – (1,000 / 4,510)] 0.0206 – 0.222 = (1,000 / 4,850) 0.206

-0.016 = = 0.078 fewer resources 7.8% improvement 0.206

CASE STUDY

NATIONAL AIR EXPRESS

1. The number of stops per driver is certainly still a good productivity measure, since it gives a good idea regarding the “amount of service” provided by the company on a daily basis. Another issue that could be tracked regarding the company’s productivity might be area covered per driver per day since this measure would provide additional information regarding the company’s capability to serve a more geographically dispersed area and its effectiveness with respect to the relevant route planning problems.

2. Since most call-in pickups are around 5.00 p.m., by offering some incentive, i.e. discounted rates, to customers that call in earlier parts of the day, could help smoothen the experienced (service) demand, and reduce the congestion currently experienced by the company. An additional de-congesting measure could be to preprocess most of the involved paperwork so that the expected service time at the customer site is minimized.

3. C.f. the Supplement to Chapter 10 on how to determine labor standards.

4 ISYE 3104 Summer 2003 Homework 1 Solution Chapter 2 Operations Strategy in a Global Environment

DISCUSSION QUESTIONS

1. There are three primary ways to achieve competitive advantage. Provide an example, not included in the text, for each of them. 1. Competing on Differentiation: i. Companies developing customized manufacturing equipment for other manufacturing companies ii. An airplane manufacturer like Boeing or Airbus iii. Ritz-Carlton 2. Competing on Cost i. All “white label” items that you can find in a supermarket, i.e., items that are sold under the name of the store. ii. PC “clones”, especially in the ‘80’s and early ‘90’s. iii. Oil companies 3. Competing on Response i. Street salesmen selling umbrellas or anoraks during a storm ii. Business traveling services iii. Medical (emergency) services

2. Based on what you know about the automobile industry, how has the OM strategy of General Motors and Ford changed in the last 10-15 years? (a) Design of goods and services: new products, designed and evaluated with CAD; coordinated with STEP (b) Quality: 100% to standards; better feedback from customer benchmarking (c) Process and capacity planning: new jigs to improve quality new robots to reduce labor cost and improve quality (d) Location strategy: Location relative to suppliers is now more important, migration to low- cost labor areas (e) Layout strategy: Work cells, flexible assembly lines (f) Inventory management: MRP, JIT are now regularly employed (g) Scheduling: Scheduling to meet requirements of JIT Expert systems and finite scheduling (h) Maintenance: Improved and increased training of maintenance personnel (i) Supply chain management: Fewer suppliers who are more heavily integrated into the main organization’s information system

3. How does the OM strategy change during a product’s life cycle?

5 ISYE 3104 Summer 2003 Homework 1 Solution During the introduction stage, the emphasis is on developing a product that is well accepted by the market, hence, issues such as product design and development are critical. During the growth stage, the emphasis shifts on establishing and maintaining a production process that is reliable and responsive to the developing demand as well as any further signals obtained from the market regarding the desired product quality. At this stage also the major competitors will emerge, and therefore, the company must develop responding strategies to that will allow it to preserve, and if possible, increase its market share. During the product maturity phase, the market has stabilized in terms of product features, key competitors and market shares, in fact some overcapacity might have also been established, and therefore, the key concern for the companies is to preserve their market share by offering a reliable product at competitive prices. Hence, maintaining a stable and efficient production process is very important. Finally, in the decline stage, pruning the line to eliminate items not returning good margin becomes important. Figure 2.5 in your textbook provides a more detailed list of issues.

4. For what reasons do domestic operations typically become international operations? Domestic firms become international because the world is changing, making competitors of not only other local firms, but non U.S. firms as well.

C.f. the relevant slide in (PowerPoint) class presentation on the challenges and opportunities of globalization.

5. Explain and give an example of how product design should be considered when offering a product in a global market. Product design is important, as Coke recognizes, because tastes may differ from country to country. Other examples is the customization of the computer software to take into consideration the language differences at different countries, the design of the controls and the entire interior for cars produced for the Commonwealth countries where the steering wheel must be on the right side, etc.

6. What is the role of the World Trade Organization in modern global economy? The World Trade Organization tries to lower trade barriers and ensure that international agreements and codes of conduct (including ethical standards) are uniformly applied around the world. “Its main function is to ensure that trade flows as smoothly, predictably, and freely as possible.” (From the WTO web page, www.wto.org).

CASE STUDIES

MINIT-LUBE, INC.

1. (a) What constitutes the mission of Minit-Lube? To provide economical preventive maintenance and interior auto cleaning, primarily to vehicles owned by individuals (as opposed to business), in the U.S.

6 ISYE 3104 Summer 2003 Homework 1 Solution 2. (b) How does the Minit-Lube Strategy provide competitive advantage?

Minit-Lube’s approach to these 10 decisions includes:

Product Design: A narrow product strategy could be defined as “lubricating automobiles” that allows the subsequent development of more focused and efficient operations (more in Chapter 5).

Quality Strategy: Because of limited task variety, high repetition, good training, and good manuals, quality should be relatively easy to maintain.

Process Strategy: The process strategy allows employees and capital investment to focus on doing this mission well, rather than trying to be a “general purpose” garage or gas station.

Location Strategy: Facilities are usually located near residential areas.

Layout Strategy: The three bays are designed specifically for lubrication and vacuuming tasks to minimize wasted movement on the part of the employees and to contribute to the speedier service.

Supply Chain Strategy: Purchasing is facilitated by negotiation of large purchases and custom packaging.

Human Resources Strategy: Human resources strategy focuses on hiring a few employees with limited skills and training them in a limited number of tasks during the performance of which they can be closely supervised.

Inventory: Inventory investment should be relatively low, and they should expect a high turnover.

Scheduling: Scheduling is quite straightforward with similar times for most cars. Once volume and fluctuation in volume are determined, scheduling should be very direct—assisting both staffing and customer relations.

Maintenance: There is relative little equipment to be maintained, therefore little preventive maintenance required. With three bays and three systems, there is backup available in the case of failure.

3. Specialization of personnel and facilities should make Minit-Lube more efficient.

7 ISYE 3104 Summer 2003 Homework 1 Solution Jobs/tasks accomplished per man hour would be a good place to start.