Copy of OM 235 2023 Final Midterm Review

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University of Notre Dame *

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235

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Economics

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Feb 20, 2024

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Definitions 1. Activity - Activity is defined as how long a worker / machine spends on one flow unit 2. Process Capacity - is the maximum rate at which the process could be delivering output (in number of flow units per unit of time) - Process capacity = bottleneck 3. Bottleneck - Process with the lowest capacity and lowest flow rate !! - You cave more than one bottleneck 4. Cycle Time - average time between when two successive flow units are produced (in units of time) - Formula : Cycle time = 1/Flow rate - If they give you the cycle time and they say it's 45 seconds what's the flow rate then? Answer : xThe reciprocal of cycle time 5. Process Utilization & Utilization of a Resource - Utilization of (set of) resource(s) = Flow rate / Capacity of (set of) resource(s)(make sure its a # but minutes) - When calculating average utilization - count the resources in parallel as one resource vs when they said find labor utilization - count resources in parallel individually 6. Capacity Constrained - the case in which demand exceeds supply and the flow rate is equal to the process capacity 7. Demand Constrained - the case in which process capacity exceeds demand and thus the flow rate is equal to the demand rate 8. Operating Leverage : - Formula : (Price - variable cost) / (Price-Variable Cost) - Fixed Cost/Quantity 9. Breakeven Volume - Formula : Breakeven Volume = Fixed cost / (Price - Variable Cost) - The breakeven volume is the quantity of sales where total profit = 0 - Variable costs are dependent on volume and fixed costs are dependent on volume - If fixed cost lowers so does the breakeven volume - If fixed cost increases so does the breakeven volume - High fixed cost, low variable cost = higher break even volume - Fixed cost increases, breakeven volume increases - Low fixed cost and high variable costs = lower breakeven volume - Operating leverage and fixed cost move together (they are proportional) 10. Little's Law Formula : Average inventory = Average flow rate (through rate another word for flow rate) x Average flow time Concepts 1. Profit as a percentage of revenue : (Net Profit / Revenue) * 100 2. Process Analysis and Capacity : how much output in flow units can be produced in a specified period of time. How well the process can perform in the best scenario possible 3. Capacity Analysis : - A constant flow of units into the process A) Infinite number of customers coming to the restaurant - No flow interruptions A) No strike, no break, no machine breakdown - An unlimited number of inputs A) No running out of ingredients - The time it takes to do an activity in constant A) Adding beans, rice, and meat always takes 25 seconds 4. Flow Analysis : How well process is performing at some point in time, given demand 5. Little Law Explained : - Flow rate (or throughput time) : The rate at which flow units move through the process, Minimum between demand rate and process capacity, the process is delivering output at some point in time (in number of flow units per unit of time) - Flow Time : Time it takes for a flow unit spends in a process from start to finish - Inventory : number of units within a process 6. Activity : How long a worker/,machine spends on the flow unit 7. Capacity of a Resource : Capacity of resource : is the maximum rate at which resources can be delivering output maximum number of flow units the resource(s) can product in a given time (in number of flow units per unit of time) A) If the resource is alone in performing its tasks : capacity = 1/activity time A) Capacity of resources in parallel = number of resources in parallel / activity time 8. Flow Rate vs Process Capacity : Flow rate is the process of delivering output at some point in time. Process capacity is the maximum rate at which the process could be delivering output and flow rate is less than or equal to the process capacity 9. Demand Constrained : the case in which process capacity exceeds demand and thus the flow rate is equal to the demand rate 10. Capacity Constrained : the case in which demand exceeds supply and the flow rate is equal to the process capacity 11. Flow Time vs Rush Order : A) Flow time is the time it takes for a flow unit to get through the process (including time spent waiting in buffers) (flow time can be longer than the rush order flow time) B) Rush order flow time is the time a rush order takes to go through the process, given that a rush order is processed as fast as possible ( fastest time it goes) - Rush order is the minimum possible value for flow time - Flow time is greater than or equal to the rush order flow time (all of the wait times between process steps is 0 therefore it would be no different than the first customer coming to chipotle because in between the process there is no waiting time, this would be the rush order flow time) 12. Push vs Pull Definitions : - Push systems : System is for moving work where output is pushed to the next station as it is completed - Pull system : System for moving work where a workstation pulls output from the preceding station as needed 13. Average Labor Utilization : When calculating average utilization - count the resources in parallel as one resource vs when they said find labor utilization - count resources in parallel individually Question Examples 1. If there are 3 clients and they pay $60/ vehicle for detailing, each employee costs $20 per hour and materials cost $10/vehicle, what is the profit of WCCD in dollars per hour? Not that employees are a fixed cost Formula : Profit = Revenue - Cost - Revenue : 60*3 = 180 - Employee Cost : 20*6 (6 employees from the chart) - Car Cost : 10*3 = 30 - Answer : 30 B) What is WCCD’s operating leverage? Formula : (Price - Variable Cost) / (Price - Variable Cost) - (FC/Q) - Price : 60 - Variable Cost : 10 - Quantity : 3 - Fixed Cost : 120 (multiply 20*6 because we are trying to see the total fixed cost) - Answer : 5 2. Which of the following will increase the number of factory defects with respect to how well an active noise canceling earbuds reduces noise? A) Tightening the specification for the minimum acceptable noise reduction B) Reducing the standard deviation of earbuds noise reduction - Note : Reducing standard deviation that will change overall process - Note : Change what customers are receiving but not overall output = tightening specifications 3. If a firm has higher operating leverage then another firm, do they carry more or less risk? A) Answer : more risk higher operating leverage = more risk , if your trying to increase your capacity you can gain more but also lose a lot 4. There are approximately 16M cats sold every year in the US. There are on average, a total of 290M registered cars in the US as a whole. How long does the average car remain in service from the time it's sold to the time it goes to the junkyard? - Answer : 290 = (x)(16M) = 18.125 year 5. If there is an average of 11 cars at WCCD at any one time, what is the average amount of time a car spends at WCCD in hours? A) Formula : Average inventory = average flow rate x average flow time - 11 = 3 * (x) - Answer : 3.66 hours 6. What is the process capacity in clients / hour - (1 client / 16 minutes ) *added minutes from the chart * x (60 minutes / 1 hour) = 3.75 clients / hour 7. Across town WCCDs competitor, Lake Travis Custom Detailing offers the same product, but uses a different process? Its operating leverage is a 3.0. If it can draw enough clients away from WCCD to raise Lake Travis’s own throughput by 5% what would the percentage increase in Lake Travis’s profit be? - Reasoning : To see the percent change of profit, every 1% increase they make that times the profit so, 5 x 3.0 = 15% 8. The cost of materials used during tests for each patient are $20. The fixed costs of rent and amortization of construction costs amount to $40 per hour of operation. What is the profit per hour of the clinic? Profit = Revenue - All Costs = 65.8 A) Revenue = 2.31(process capacity)*200(per visit) B) Fixed Cost = 40( per hour of operation) C) Variable Cost = 20 * 2.31(process capacity) D) Employee cost = 4(40) nurse cost + 1(150) doctor cost 9. Which of the following might increase waiting time for dine - in customers at Paramount? A) Partnering with Doordash B) Fewer cooks C) More variability in the arrival rate of customers D) Actually, all of the following above increase waiting time at Paramount 10. Your firm’s supply chain decisions influence all of the following EXCEPT : A) Your products total carbon footprint B) The quality of life for employees in your supply chain C) Your vulnerability to trade disputes D) Your advertising strategy E) The price of your raw materials 11. Having excessive inventory in your firm increases all of the following EXCEPT : A) Warehouse costs B) Shrinkage (*ex think of theft) C) Capital tied up in inventory D) Profit margin 12. If Erin leaves for the day and Bob covers for her, what is the new process capacity in customers per hour? - Answer : Bob Original Time (2min/customer) + Erin original time (3min/customer) = 5 min/customer - Convert min / cust to hours per customer = 12 customers/hour 13. Are the statements below regarding Just - in - Time (JIT) processes true or false? Utilization of non - bottleneck resources can reach 100% = False - Reasoning : Not true because bottleneck are working at their full capacity and non bottles work at a fraction of their capacity because the bottleneck determines how fast the process can go Average WIP cannot keep growing indefinitely = True - Reasoning : If WIP continues to grow without proper management and control it is can cause problems Jobs start in the process at the same rate as they leave = True - Reasoning : In a just in time process ideal scenario is to have jobs or work items that start at the same rate as they leave each stage or process - Saying the rate is consistent and not fluctuating because going at the rate of bottleneck In real life JIT practice, there is never any WIP inventory = False - Reasoning : JIT is a form of inventory management that requires working closely with suppliers so that raw materials arrive as production is schedule but not sooner - WIP - materials that are waiting to be assembled and sold 14. Are the statements below regarding starved processes (a starved process is when you can produce more than what is actually there/ the person in front of you is moving slower than you) true or false? Jobs start in the process at the same rate as they leave it = True There is never any WIP inventory = False - Reasoning : If the person one person is faster than the other the WIP is going to go up because one can’t keep up with the other The bottleneck resource has less than a 100% utilization = True - Reasoning : Customers are arriving slower than they can produce - Look at the percent utilization for Dave & Charlies they are in a starved process The bottleneck resource always has the highest utilization = True The flow time of any job is always the rush order flow time = False - Reasoning : rush order is when an order is produced as fast as possible - In a started process you have to wait for someone behind you so you can’t produce in the fastest time possible 15. The demand rate for a process is 75 hours per customer : The process has 3 steps : Step 1 has a capacity of 90 flow units/hour. Step 2 has a capacity of 82 flow units/hour. Step 3 has a capacity of 105 flow units/hour. Is this demand or supply constrained? - Answer : Demand constrained because your demand is lower than your process capacity - 82 is the lowest but 75 is lower than that - IF demand was 85 and the numbers 90,82, and 105 remained the same then it would supply constrained 16. DMAIC - define, measure, improve, analyze, control (*This is a continuous process*) 17. UT SCOR MODEL - Plan, Source, Make, Deliver, Customer Management, Support, New product Development 18. Critical Path Management : - This is shortening (crashing the project) - Three type of costs : Direct Costs, Overhead (indirect), Incentive/Penalty 19. Economic Order Quantity Formulas : ➢ Average Inventory = (Order quantity /2) = Q/2 ➢ Holding cost per unit of time = ½ x h x Q ➢ Orders per unit of time = R/Q ➢ Ordering cost per unit of time = K x (RQ) ➢ EOQ cost per unit of time = C(Q) = (K x R/Q) + (½ x h x Q) ➢ Economic Order Quantity = Q * sqrt(2 x K x R / h) ➢ Optimal Cost of Holding and Ordering Per year = sqrt( 2 x R x H x K) ➢ Optimal cost of holding and ordering per unit = sqrt ( 2 x H x K / R) 20. BullWhip effect - How to reduce impact : few sales or discounts, communicate, the closers you are to the consumer the lower the BE - Measures the variability (could be variability of price, profitability, and inventory) 21. Offshoring vs Outsourcing : - Onshoring is in the same country, but not necessarily the same country - Offshoring is different country, not the same company - Insourcing is same company, but not same necessarily same country - Outsourcing is different company but not necessarily same country - Could have projects outsourced and offshored 22. Which is NOT the cause of the bullwhip effect? Low Pricing, Trade Promotions and forward buying, Shortage gaming, and order batching 23. A 6 sigma process has more defects than a 2 sigma process = False 24. Operations management and logistics has no bearing on the quality of value of a product = False because operations and logistics have a lot to do with quality (If we take new product development logistics and operations have a lot to do with it ) 25. When sourcing raw materials, you should focus on price only with no bearing on the quality, the sourcing speed, the environmental cost, or the reliability = False 26. Inventory holding cost decreases as order frequency increases True or False? = True It becomes lower, K = R/Q (order frequency goes down inventory goes up, higher average inventory results in ordering less) 27. Made to order cosmetics like Colourpop brands help reduce the bullwhip effect True or False? = True made to order means customer walks through the door and saw I want this (ex: bride wants dress made), *if something is made to order your getting close to the customer which means the communication between you and the manufacturer and customer is close so your bullwhip effect is minimized* *Bullwhip effect is worse when farther from customer* 28. Tom is the manager. If you are optimizing your costs, how many bags should you order? Given : ➢ Average demand = 50 bags/day ➢ Each bag costs $5.00 to buy from his distributor ➢ Tom sells the bags for $10.00 each ➢ Each time he places an order for snacks distributors charge him a $100 flat shipment rate. Tom figures out the time it takes for his workers and puts the bags on the shelves for 45 minutes per order. His junior workers earn $20/hour

➢ The holding rate is high at 30% ➢ Toms shop is open 7 days / week, 365 days/year - Formula : Q = sqrt (2 x K x R / h) ➔ R - demand = 50 x 365 = 18250 ➔ Holding cost = .30 x 5 = 1.5 ➔ K - fixed cost (convert 45 mins to an hour) = 100 + .75(20) = 115 29. Which is not a reason to hold inventory? Preparation, Buffers, Pricing, Uncertain Demand 30. The larger the order quantity the larger our average inventory & the more we pay in inventory holding costs? True 31. The more frequently you order the more you pay in set up costs (per unit of time) = True 32. Tom also sells 50 bags of wavy potato chips per day which have the same price and cost structure. He notices that his customers seem indifferent between regular and wavy potato chips. So he thinks that he could take care of both his regular potato chip customers AND his wavy potato chip customers by stocking only regular potato chips. If Tom does this what would his new order quantity be? - Formula : Q = sqrt (2 x K x R /h) ➔ R - demand = 100 x 365 = 36500 ➔ K - fixed cost (convert 45 mins to an hour) = 100 + .75(20) = 115 ➔ Holding cost = .30 x 5 = 1.5 33. EOQ Problem : Selina Meyer entered into a deal to sell her memoir. Assume Barnes and Nobles purchases the memories from Selina for 9 dollars and expects stable demand of 4,000 units/month. Additionally, every order they place will take an employee 3 hours who is paid a rate of $40/hr. Next, the storage holding costs are a dollar per unit per year. For the given problems assume Barnes and Nobles has a discount rate of 25%. A) What is the economic order quantity at these current levels? - Formula : Q *sqrt(2 x K x R / h) ❖ K = 40 * 3 = 120 ❖ R = 4000 *12 = 48,000 ❖ H = 1 + 9 * (0.25) = 3.25 (the cost of storing is the dollar per unit and the second component is the cost of capital consideration which is 25%) EOQ = 1883 * pay attention to exactly how the holding cost per unit was was phrased and why we arrive at $1 for the carrying cost* Cases Case Breakfast at Paramount 1. What is the advantage to the Paramount of signing on with Doordash? A) It would probably increase demand during off periods B) It would increase the throughput of chefs cooking for dine - in customers during busy periods C) It would improve the dine - in customer experience 2. How did the Paramount make waiting more pleasant for customers? For each question below enter true or false into the the answer box - They would offer orange juice during the summertime during busy periods = True - Customers can watch the chef cooking their food = True - Allow delivery services representatives to wait in line along with customers = False - Well - trained pleasant employees = True Case Electric Vehicle Battery Supply Chain 1. Why does fairlines want to build its own battery plant A) There is a shortage of battery manufacturing capacity severe enough that it may reduce EV production by 25 million vehicles worldwide in 2030. B) To take advantage of the subsidies provided to the consumer by the US government C) To take advantage of the subsidies provided for battery producers by the US government D) To protect itself if there are any trade disruptions E) All of the above 2. Fairlane should build their battery factory in which location below to gain the most subsidies from the US Inflation Reduction Act? A) China B) US C) Canada D) Mexico E) Production in all countries will be equally subsidized 3. Supply chain consists of all of the following except? A) Suppliers B) Customers C) Fiancers D) Manufactures E) Wholesalers F) Channel 4. In the electric vehicle raw material supply chain tier 2 suppliers are ? - Raw Material Refiners 5. In the Electric Vehicle Raw material supply chain, which stages in the supply chain are upstream from battery manufacturers? A) EV Assemblers B) Dealers C) Consumers D) Raw Material Extractors 6. Which potential source of the Lithium may have child labor concern A) Chile B) US C) Portucal D) Democratic Republic of the Congo E) All of the above 7. Which potential source of lithium may have pollution problems (even if there is no legislation covering pollution in that country? A) Chile B) US C) Portugal D) Democratic Republic of Congo E) All of the above 8. What was the last major automotive firm cut production during the pandemic? A) Opel B) GM C) Honda D) Toyota E) Volkswagen 9. When did Toyota begin to stock extra buffers of inventory? A) During the pandemic B) After the great recession C) After the Fukushima earthquake D) During the China - US trade conflicts beginning in 2016 E) After the austin snowstorm of 2021 10. The Toyota Production System (Also known as “Lean” production) focused on reducing waste created by all of the following, EXCEPT for: 1. Inventory 2. Defects 3. Extraneous (“non-value add”) process steps 4. Motion 5. Suppliers 6. Transport 7. All of the above are focused on as sources of waste by Toyota 11. Which of the following automotive suppliers use Toyota Production the most? A) Delco B) . Bosch C) Motorola D) . Nippon Denso 12. The Toyota Production System employs all of the following techniques EXCEPT? A) Leveling demand ( Heijunka ) B) Just-in-Time “pull” system C) . Vertical Integration D) Employees can stop production lines (human jidoka ) E) Many Tier 1 suppliers design the parts they supply F) Kanban G) Actually, TPS utilizes all of the above 13. The constrained capacity of chip makers during the pandemic was due in part to ? A) The high profit margins associated with automotive chips B) The high cost of new chip manufacturing facilities (also known as fabs) C) Automotive firms continued high orders of chips during the first few months of the pandemic D) All of the above. 14. (a) Which of the following did firms other than Toyota do to increase resiliency to chip disruptions during and after the pandemic A) Tesla used software to enable different types of chips to work with their B) controllers. C) Tesla and GM built cars that removed features that relied on scarce chips. D) GM shifted some chips from less popular to more popular models. E) All of the above. 15. According to the case, which firms are designing new microcontroller chips to replace more traditional semiconductors in their vehicles after the pandemic A) Stellantis B) General Motors C) Ford Case Benihana of Tokyo 1. What did Rocky learn about American diners in his early 20s after he had moved to the US? A) Americans in the early 1960s enjoyed exotic surroundings 2. What was Benihana’s basic criterion for site selection? - High traffic 3. Rocky reduced the menu to simple, standard American entrees. Steak was one. Filet mignon was added later. Of the other two menu items, chicken was one; what was the other? - Shrimp 4. Food labor as a percentage of sales for Behiana were generally lower or higher than the typical American restaurant? - Lower 5. Comparing the cost structure at a typical American restaurant vs Benihana, did Benihana have a higher or lower percentage of fixed costs in their cost structure ? - Higher 6. Again comparing the cost structure at a typical American restaurant vs Benihana, was Benihana more or less dependent on high customer traffic to make a profit? - More dependent OM HW 10 1. Which of the following statements is least accurate ? - Offshoring to multiple regions can increase supply chain resilience - Nearshoring means that a business chooses suppliers in a nearby country, rather than one that is geographically distant - Offshoring is synonymous with outsourcing - You can outsource part of your manufacturing. It does not have to be all or nothing 2. Criteria that firms often use when making outsourcing decisions include all of the following except? Supplier labor costs, Proximity to the supplier, Environmental and social responsibility of the supplier, Transportation cost and timing, Intellectual property protection, state and federal regulation and laws, tariffs New Balance Case 1. According to New Balance, they assemble some of their shoes in their own US plants for all of the following reasons EXCEPT : A) Developing lessons in manufacturing that they can share with their suppliers B) Social responsibility C) Reducing production cost per pair of shoes D) Respond more quickly to consumer trends 2. Which of the following is least accurate about New Balance A) It focuses more on speciality and independent retail outlets than do Nike or Reebok B) It strives to fulfill retail outlets orders for product within one day C) It is investing in IT systems to help retailers to manager their orders and inventory D) It spends more on marketing than does Nike or Reebok 3. Anne Davis of New Balance believes that unionized labor would cause all of the following problems EXCEPT? A) Interfering with the operations of cross - functional teams B) Restricting employees to only working in one area C) Interfering with continuous process improvement D) Actually, she believes that all 3 issues above will be problems 4. New Balance does all of the following except? A) Pair up new employees with experienced “Buddies” during their training period B) Uses a rigorous selection process for hiring C) Placing new employees in a training team D) Compensates employees with hourly ( as opposed to piece rate pay) E) Discouraging entrepreneurialism and innovation 5. Goals of New Balance process improvement include all of the following EXCEPT? A) Reducing flow time in their plants and supply chain B) Limiting the number of their product offerings C) Reducing lead - time from order to receipt for retail customers D) Expanding continuous improvement ideas to product design to shorter product development time 6. New Balance maintains the most production in the US 7. Does New Balance focus more on big box or small independent sales outlets? Small Independent outlets

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