Solution Manual for Operations and Supply Chain Management, 14th Edition

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Chapter 01 - Introduction
1-1
CHAPTER 1
INTRODUCTION
Discussion Questions
1. Using Exhibit 1.3 as a model, describe the source-make-deliver-return relationships in the
following systems:
a. An airline
Source: Aircraft manufacturer, in-flight food, repair parts, computer systems
Make: Aircraft and flight crew scheduling, ground services provided at airports, aircraft
maintenance and repair
Deliver: Outbound and arriving passenger service, baggage handling
Return: Resolve any post-service issues such as lost or damaged luggage
b. An automobile manufacturer
Source: Suppliers of components and raw materials
Make: Manufacturing of vehicles and components or subassemblies to be sold as spare
parts
Deliver: Delivery to and sales from dealerships, delivery of spare parts to the wholesale
system
Return: Warranty and recall repairs, trade-ins
c. A hospital
Source: Medical supplies, cleaning services, disposal services, food services, qualified
personnel
Make: Inpatient rooms, outpatient clinics, emergency room, operating rooms
Deliver: Scheduling patients, providing treatment, ambulance service, family counseling
Return: Billing errors, follow up visits
d. An insurance company
Source: Supplies needed for the office, underwriters, legal authority to operate
Make: Establish policy guidelines and pricing, field agent/representative and facility
network, develop Internet service capabilities, establish preferred vehicle repair service
network
Deliver: Meet with and advise clients, write policies, process and pay claims
Return: refund of overpayments
2. Define the service package of your college or university. What is its strongest element? What is
its weakest one?
The categories with examples are:
Supporting facility - location, buildings, labs, parking
Facilitating goods – class schedules, computers, books, chalk
Explicit services – classes with qualified instructors, placement offices
Implicit services – status and reputation (e.g., Ivy League schools)

Chapter 01 - Introduction
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At Indiana University and the University of Southern California, among their strongest
elements 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 its
weak football program; for USC, weak elements are on-campus parking and housing.
3. What service industry has impressed you the most with its innovativeness?
Our vote goes to cruise lines which have introduced such onboard innovations as wave
machines for belly boarding and rock climbing walls, as well as all sorts of other amenities to
keep cruisers involved. The industry is doing record business as well.
Some of the standout companies in less innovative industries are Bank of America (has a
formalized research program to try out new customer services/amenities such as video screens
in 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 to customers?
Product-service bundling is adding Value-added services to a firm’s product offerings to create
more value for the customer. This provides benefits in two areas. First, this differentiates the
organization from the competition. Secondly, these services tie customers to the organization
in a positive way. Alternatively, bundling can also involve adding products to a service, for
example, adding the sale of convenience items and snacks at a hotel.
5. What is the difference between a service and a good?
A service is an intangible process (you can’t hold it in your hands), while a good is the physical
output of a process.
6. Look at the job postings at http://www.apics.org and evaluate the opportunities for an OSM
major with several years of experience.
There are pages and pages of these in the APICS Career Center. Here are some examples:
Global Active Ingredient Supply Planner
FMC Corporation
US - PA - Philadelphia
This is your opportunity to join the Agricultural Products Group (APG) and work on the team
responsible for global active ingredient planning. You'll serve as a central Supply Planner
working in tandem ...
Sep-20-2011
Purchasing Manager (Buyer)
Texas Dow Employees Credit Union (TDECU)
US - TX - Lake Jackson - Nearest Metro area - South Houston

Chapter 01 - Introduction
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Education Accredited university degree in Business or Marketing with certification in
Purchasing, Inventory Management, or Logistics. Accredited Purchasing Practitioner (APP) or
Certified Purchasing ...
Sep-20-2011
Product Line Manager
Cintas Corporation
US - OH - Mason
High School diploma or GED required, 4 year degree preferred Knowledge of and experience
using Internet and Microsoft Office (Word, Excel, PowerPoint, and Email) 3 years management
experience preferred ...
Sep-20-2011
Director Purchasing
Legendary Baking
US - CO - Denver
CERTIFICATIONS & LICENSES • Valid Driver’s License and car insurance. • Certified Purchasing
Manager certification (C.P.M.) preferred. • Certified Food Purchasing Manager ...
Sep-19-2011
Process Improvement Manager
ARAMARK Corporation
US - TX - Houston
Bachelor's Degree required. Technical Engineering discipline within Industrial, Mechanical,
Chemical, or Food Operations strongly preferred. • Minimum 5 years Lean manufacturing
experience coupled ...
Sep-19-2011
7. Recent outsourcing of parts and services that had previously been produced internally is
addressed by which current issue facing operations and supply management today?
The coordination of relationships between mutually supportive but separate organizations.
8. What factors account for the resurgence of interest in OSCM today?
With companies facing competition on a global scale, and ever-advancing manufacturing and
information technologies, firms realize the competitive advantage their OSCM functions can
provide if properly managed. Many have found that the same old way of doing business
leaves them unable to compete successfully. The 2011 tsunami in Japan has also brought to
the forefront how important supply chains are, as well as the negative economic impact that
disruptions in the supply chain can cause.
9. As the field of OSCM has advanced, new concepts have been applied to help companies
compete 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. Discuss

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Chapter 01 - Introduction
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how you have seen the idea of sustainability used by companies to advertise their goods or
services.
There of course will be a number of examples that students will bring up, though they may
need some prodding to jog their memories. Some examples to start with might be IBM’s “I’m
an IBMer” campaign where they advertise how they are “building a smarter planet.” Bottled
water manufacturers have reduced the amount of plastic used in many of their products, thus
saving production and distribution costs, but also allowing them to advertise how the new
bottles are better for the environment because they result in less waste.
10. Some people tend to use the terms effectiveness and efficiency interchangeably, though
we’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 what
they do in serving their market, but be very wasteful in doing so. Alternatively, a firm could
squeeze every last dollar out of their processes but fail to deliver what the market expects and
desires. 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 and
ineffective do not survive for long in any market.
11. Two of the efficiency ratios mentioned in the chapter are the receivable turnover ratio and the
inventory turnover ratio. While they are two completely separate measures, they are very
similar in one way. What is the common thread between these two?
(There are a number of answers that students may come up with, from simplistic to more
thoughtful. Following is one of the latter.) Both are measuring the average amount of a
valuable 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 average
amount of accounts receivable frees up that money for use by the company on a recurring
basis. Inventory is another asset, but while inventory is being held by the company it is not
making any money for the firm. Reducing inventory allows the firm to invest the money that
would otherwise be spent on the inventory.

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Objective Questions
1. What are the three elements that require integration to be successful in operations and
supply chain management?
Strategy, Processes, and Analytics
2. Operations and supply chain management is concerned with the design and management of
the entire system that has what function?
Produces a product or delivers a service
3. Match the following OSCM job titles with the appropriate duties and responsibilities.
C Plant manager
A: Plans and coordinates staff activities such as new product
development and new facility location
D Supply chain manager
B: Oversees the movement of goods throughout the supply
chain
A Project manager
C: Oversees the workforce and resources required to produce
the firm’s products
E
Business process
improvement analyst
D: Negotiates contracts with vendors and coordinates the flow
of material inputs to the production process
B Logistics manager
E: Applies the tools of lean production to reduce cycle time
and eliminate waste in a process
4. What high-level position manager is responsible for working with the CEO and company
president to determine the company’s competitive strategy?
Chief Operating Officer
5. 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 most recent.
3 Supply chain management
1 Manufacturing strategy developed
5 Business analytics
2 Total quality management
4 Electronic commerce

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6. Which major OSCM concept can be described as an integrated set of activities designed to
achieve high-volume production using minimal inventories of parts that arrive at workstations
exactly when they are needed?
Just-in-time (JIT) production
7. Operations and supply chain ___________________________ leverage the vast amount of
data in enterprise resource planning systems to make decisions related to managing
resources.
analytics
8. Which current 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 the firm?
Sustainability
9. Consider the following financial data from the past year for Midwest Outdoor Equipment
Corporation.
Gross Income $25,240,000
Total Sales 24,324,000
Total Credit Sales 18,785,000
Net Income 2,975,000
Cost of Goods Sold 12,600,000
Total Assets 10,550,000
Average Inventory 2,875,000
Average Receivables 3,445,000
a. Compute the receivable turnover ratio.
b. Compute the inventory turnover ratio.

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c. Compute the asset turnover ratio.
10. A manufacturing company has entered into a new contract with a major supplier of raw
materials used in the manufacturing process. Under the new arrangement, called vendor
managed inventory, the supplier manages their raw material inventory inside the
manufacturer’s plant, and only bills the manufacturer when the manufacturer consumes the
raw material. How is this likely to affect the manufacturer’s inventory turnover ratio?
This will reduce the average amount of money the firm has invested in raw material, so the
inventory turnover ratio should increase.
11. What is the name of the process in which one company studies the processes of another firm
in order to identify best practices?
Benchmarking
12. A company has recently implemented an automated online billing and payment processing
system for orders it ships to customers. As a result, it has reduced the average number of
days between billing a customer and receiving payment by 10 days. How will this affect the
receivables turnover ratio?
Quicker payments will reduce the average amount of accounts receivables, so the receivables
turnover ratio will increase.

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Analytics Exercise: Comparing Companies Using Wall Street Efficiency Measures
Each student is asked to pick an industry and compare three companies within that industry based on
income per employee, revenue per employee, receivable turnover, inventory turnover, and asset
turnover. The following is typical of what you might obtain:
BP Shell ExxonMobil Oil Industry
Management Efficiency
Income/Employee 315,300 343,533 414,328 289,320
Revenue/Employee 4.6 Mil 5.2 mil 4.7 mil 3 Mil
Receivable Turnover 9.38 6.29 13.17 13.5
Inventory Turnover 11.92 13.59 21.91 15.5
Asset Turnover 1.92 1.36 1.41 1.1
Students 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 income per employee.
Comparing Shell to ExxonMobil we can observe that ExxonMobil appears to be more efficient since it
can generate more Income on lower revenue/employee, at least compared to Shell. The Inventory
Turnover is highest for ExxonMobil indicating that the company is the most efficient from an
operations and supply chain processes view. ExxonMobil also appears to do a good job in collecting
receivables as well, thus supporting the idea that the company is very efficient. BP seems to do a little
better in Asset Turnover, which relates to the use of its facility and equipment assets. 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 it valuable to
benchmark the company’s processes.
Of course, the data generated by each student will be different and an interesting interchange can be
developed with students each presenting what they found from their research. It is very interesting to
do comparisons across industries; retailers versus oil companies, and computer makes versus software
companies, for example.

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Chapter 02 - Strategy
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CHAPTER 2
STRATEGY
Discussion Questions
1. What is meant by a “triple-bottom-line” strategy? Give an example of a company that has
adopted this type of strategy.
A triple-bottom-line strategy places emphasis on a company’s environmental and social
responsibilities as well as the traditional bottom line of economic prosperity. It recognizes that
the long-term health of the firm is interdependent with the health of the environment and the
betterment of society. There are many examples – one if Kraft Foods. For details see their 2010
report:
http://www.kraftfoodscompany.com/SiteCollectionDocuments/pdf/kraftfoods_responsibility_rep
ort.pdf
2. Find examples where companies have used features related to environmental sustainability to
“win” new customers.
Car companies use environmental concerns in marketing ads. The development of hybrid and
flex-fuel cars is one way they have operationalized those concerns. Consumer goods companies
display the “made with recycled material” logo on the packaging. Bottled water manufacturers
are using and advertising bottles made with less plastic.
3. What are the major priorities associated with operations and supply chain strategy? How has
their relationship to each other changed over the years?
The four major imperatives are cost, quality, delivery, and flexibility. In the sixties, these four
imperatives were viewed from a tradeoffs perspective. For example, this meant that improving
quality would result in higher cost, and in many cases that was true. However, advances in
manufacturing and information technologies since then have reduced the size of those tradeoffs,
allowing firms to improve on several or all of these imperatives simultaneously, gaining greater
competitive advantage than was possible 50 years ago. The problem now becomes one of
prioritizing and managing towards orderly improvement.
4. Why does the “proper” operations and supply chain strategy keep changing for companies that
are world-class competitors?
The top three priorities have generally remained the same over time: make it good, make it fast,
and deliver it on time. Others have changed. Part of this may be explained by realizing that world
class organizations have achieved excellence in these three areas and are, therefore, focusing
attention on some of the more minor areas to gain competitive advantage. The changes in the
minor priorities may result from recognizing opportunities or from changes in customer desires or
expectations.

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5. What is meant by the expressions order winners and order qualifiers? What was the order
winner(s) for your last purchase of a product or service?
Order winners are dimensions that differentiate the product or service or services of one firm from
another. Order qualifiers are dimensions that are used to screen a product or service as a
candidate for purchase. Order qualifiers get a company’s “foot in the door.” Order winners are
what 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 relates
to winning customers. Describe specific activities used by the company that support the strategy.
Student answers will vary widely based on their experiences and views. It might be helpful for a
classroom exercise to assign certain companies to a number of students/teams and compare their
answers in class.
7. At times in the past, the dollar showed relative weakness with respect to foreign currencies, such
as the yen, mark, and pound. This stimulated exports. Why would long-term reliance on a lower
valued dollar be at best a short-term solution to the competitiveness problem?
This approach is dependent on economic policies of other nations. This is a fragile dependency. A
long-term approach is to increase manufacturing and service industry productivity in order to
regain competitive advantage. At a national level, solutions appear to lie in reversing attitudes.
At a firm level, competitive weapons are consistent quality, high performance, dependable
delivery, 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 prior
to it occurring?
The March 2011 tsunami that struck Japan was geographically concentrated but had global
impact 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. The
tsunami 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,
dependable suppliers located in different geographical regions. There are many other examples
that could be taken from this one event. A simple Internet search will provide plenty of material
for discussion.
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 comparisons
can be either intra-company as in the case of year-to-year comparisons of the same measure, or
intercompany as in the case of benchmarking. Intercompany comparisons of single factor
productivity measures can be somewhat tenuous due to differences in accounting practices
(especially when comparing with foreign competitors) and the balance of labor to capital
resources. Total factor productivity measures are somewhat more robust for comparison
purposes.

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Objective Questions
1. Shell Oil Company’s motto “People, Planet and Profit” is a real-world implementation of what
OSCM concept?
Triple bottom line
2. A firm’s strategy should describe how it intends to create and sustain value for
________________________.
its current shareholders
3. What is the term used to describe individuals or organizations that are influenced by the actions
of the firm?
Stakeholders
4. How often should a company develop and refine the operations and supply chain strategy.
At least yearly
5. What is the term used to describe product attributes that attract certain customers and can be
used to form the competitive position of a firm?
Competitive dimensions
6. What are the two main competitive dimensions related to product delivery?
Delivery speed and delivery reliability
7. What are the two characteristics of a product or service that define quality?
Design quality and process quality
8. A diagram that shows how a company’s strategy is delivered by a set of supporting activities is
called a _____________________________.
activity-system map

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9. In implementing supply chain strategy a firm must minimize its total cost without compromising
the needs of its ____________________________.
Customers
10. What is defined as the likelihood of disruption that would impact the ability of a company to
continuously supply products or services?
Supply chain risk
11. Risks caused by natural or manmade disasters, and therefore impossible to reliably predict, are
called ______________________.
Disruption risks
12. Match the following common risks with the appropriate mitigation strategy.
E Country risks A: Detailed tracking, alternate suppliers
D Regulatory risk B: Carefully select and monitor suppliers
A Logistics failure C: Contingency planning, insurance
C Natural disaster D: Good legal advice, compliance
B Major quality failure E: Currency hedging, local sourcing
13. The assessment of the probability of a negative event against the aggregate severity of the
related loss is called _____________________________.
Risk mapping

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14. As Operations Manager, you are concerned about being able to meet sales requirements in the
coming months. You have just been given the following production report.
JAN FEB MAR APR
Units Produced 2300 1800 2800 3000
Hours per Machine 325 200 400 320
Number of Machines 3 5 4 4
Find the average of the monthly productivity figures (units per machine hour).
To answer this we need to realize that the measure of hours given is per machine, so we have to
multiply that by the number of machines in each period to get the total machine hours in each
period. Those figures are used in the calculations below.
Average productivity: (2300/975 + 1800/1000 + 2800/1600 + 3000/1280)/4
Average productivity (2.36+1.80+1.75+2.34)/4= 2.06 units per machine hour
15. Sailmaster makes high-performance sails for competitive windsurfers. Below is information
about the inputs and outputs for one model, the Windy 2000.
Units sold 1,217
Sale price each $1,700
Total labor hours 46,672
Wage rate $12/hour
Total materials $60,000
Total energy $4,000
Calculate the productivity in sales revenue/labor expense.
We have to do some interim calculations here. Sales revenue is calculated by multiplying
units sold by the unit sales price. Labor expense is calculated by multiplying labor hours by
the wage rate.
(1217*1700) / (46672*12) = 3.69

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16. Live Trap Corporation received the data below for its rodent cage production unit. Find the total
productivity?
Output Input
50,000 cages Production time 620 labor hours
Sales price: $3.50 per unit Wages $7.50 per hour
Raw materials (total cost) $30,000
Component parts (total cost) $15,350
Total productivity could be expressed two ways here based on how you express output: in
units sold, or dollars of sales.
Units sold:
50,000 / ((620 * $7.50) + 30,000 + 15,350) = 1.00 units sold per dollar input
Dollars of sales:
(50000*3.5) / ((620 * $7.50) + 30,000 + 15,350) = 3.5 dollars in sales per dollar input
17. Two types of cars (Deluxe and Limited) were produced by a car manufacturer last year.
Quantities sold, price per unit, and labor hours follow. What is the labor productivity for each
car? Explain the problem(s) associated with the labor productivity.
QUANTITY $/UNIT
Deluxe car 4,000 units sold $8,000/car
Limited car 6,000 units sold $9,500/car
Labor, Deluxe 20,000 hours $12/hour
Labor, Limited 30,000 hours $14/hour
Labor Productivity – units/hour
Model Output
in Units
Input
in Labor Hours
Productivity
(Output/Input)
Deluxe Car 4,000 20,000 0.20 units/hour
Limited Car 6,000 30,000 0.20 units/hour
Labor Productivity – dollars
Model Output
in Dollars
Input
in Dollars
Productivity
(Output/Input)
Deluxe Car 4,000($8,000)=
$32,000,000
20,000($12.00)=
$240,000
133.33
Limited Car 6,000($9,500)= 30,000($14.00)= 135.71

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$57,000,000 $420,000
The labor productivity measure is a conventional measure of productivity. However, as a partial
measure, it may not provide all of the necessary information that is needed. For example, increases in
productivity could result from decreases in quality, and/or increases in material cost.
18. A U.S. manufacturing company operating a subsidiary in an LDC (less-developed country) shows
the following results:
U.S. LDC
Sales (units) 100,000 20,000
Labor (hours) 20,000 15,000
Raw materials (currency) $20,000 FC 20,000
Capital equipment (hours) 60,000 5,000
a. Calculate partial labor and capital productivity figures for the parent and subsidiary. Do the
results seem misleading?
Labor Productivity
Country Output
in Units
Input
in Hours
Productivity
(Output/Input)
U.S. 100,000 20,000 5.00 units/hour
LDC 20,000 15,000 1.33 units/hour
Capital Equipment Productivity
Country Output
in Units
Input
in Hours
Productivity
(Output/Input)
U.S. 100,000 60,000 1.67 units/hour
LDC 20,000 5,000 4.00 units/hour
Yes. You might expect the capital equipment productivity measure to be higher in the U.S.
than in a LDC. Also, the measures seem contradictory. Each plant appears to be far more
productive than the other on one measure, but much worse on the other.

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b. Compute the multifactor productivity figures for labor and capital together. Do the
results make more sense?
Multifactor – Labor and Capital Equipment
Country Output
in Units
Input
in Hours
Productivity
(Output/Input)
U.S. 100,000 20,000 + 60,000=
80,000
1.25 units/hour
LDC 20,000 15,000 + 5,000=
20,000
1.00 units/hour
Yes, labor and equipment can be substituted for each other. Therefore, this multifactor
measure is a better indicator of productivity in this instance.
c. Calculate raw material productivity figures (units/$ where $1 = FC 10). Explain why these
figures might be greater in the subsidiary.
Raw Material Productivity
Country Output
in Units
Input
in Dollars
Productivity
(Output/Input)
U.S. 100,000 $20,000 5.00 units/$
LDC 20,000 FC 20,000/$10 =
$2,000
10.00 units/$
The raw material productivity measures might be greater in the LDC due to a reduced cost
paid for raw materials, which is typical of LDC’s, especially if there are local sources for the
raw materials.
19. Various financial data for the past two years follow. Calculate the total productivity measure
and the partial measures for labor, capital, and raw materials for this company for both years.
What do these measures tell you about this company?
Last Year This Year
Output: Sales $200,000 $220,000
Input: Labor 30,000 40,000
Raw materials 35,000 45,000
Energy 5,000 6,000
Capital 50,000 50,000
Other 2,000 3,000

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Total Productivity
Year Output
in Dollars
Input
in Dollars
Productivity
(Output/Input)
Last Year $200,000 $30,000 + 35,000 +
5,000 + 50,000 + 2,000
= $122,000
1.64
This Year $220,000 $40,000 + 45,000 +
6,000 + 50,000 +3,000
= $144,000
1.53
Partial Measure – Labor
Year Output
in Dollars
Input
in Dollars
Productivity
(Output/Input)
Last Year $200,000 $30,000 6.67
This Year $220,000 $40,000 5.50
Partial Measure – Raw Materials
Year Output
in Dollars
Input
in Dollars
Productivity
(Output/Input)
Last Year $200,000 $35,000 5.71
This Year $220,000 $45,000 4.89
Partial Measure – Capital
Year Output
in Dollars
Input
in Dollars
Productivity
(Output/Input)
Last Year $200,000 $50,000 4.00
This Year $220,000 $50,000 4.40
The overall productivity measure is declining, which indicates a possible problem. The partial
measures can be used to indicate cause of the declining productivity. In this case, it is a
combination of declines in both labor and raw material productivity, which were somewhat
offset by an increase in the capital productivity. Further investigation should be undertaken
to explain the drops in both labor and raw material productivity. An increase in the cost of
both of these measures, without an accompanying increase in the selling price might explain
these measures.

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20. An electronics company makes communications devices for military contracts. The company
just completed two contracts. The navy contract was for 2,300 devices and took 25 workers two
weeks (40 hours per week) to complete. The army contract was for 5,500 devices that were
produced by 35 workers in three weeks. On which contract were the workers more productive?
Contract Output
in Units
Input
in Hours
Productivity
(Output/Input)
Navy 2300 25(2)40 = 2000 1.15
Army 5500 35(3)40 = 4200 1.31
The workers were more productive on the Army contract.
21. A retail store had sales of $45,000 in April and $56,000 in May. The store employs eight full-
time workers who work a 40-hour week. In April the store also had seven part-time workers at 10
hours per week, and in May the store had nine part-timers at 15 hours per week (assume four
weeks in each month). Using sales dollars as the measure of output, what is the percentage
change in productivity from April to May?
Month Output
in Dollars
Input
in Hours
Productivity
(Output/Input) Percentage Change
April $45,000 (8(40)+7(10))*4 =
1560 28.85
May $56,000 1820 30.77 (30.77-28.85)/28.85 = 6.66%
22. A parcel delivery company delivered 103,000 packages last year, when its average
employment was 84 drivers. This year the firm handled 112,000 deliveries with 96 drivers. What
was the percentage change in productivity over the two years?
Year Output
in Packages
Input
in Drivers
Productivity
(Output/Input) Percentage Change
Last 103,000 84 1226.2
This 112,000 96 1166.7 (1166.7 -1226.2)/1226.2 = - 4.85%

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23. A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. The
restaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken sandwiches as
0.8 hamburger. Current employment is five full-time employees who work a 40-hour week. If the
restaurant sold 700 hamburgers, 900 cheeseburgers, and 500 chicken sandwiches in one week,
what is its productivity? What would its productivity have been if it had sold the same number of
sandwiches (2,100), but the mix was 700 of each type?
Part
Output in
Hamburger
Equivalents
Input
in Hours
Productivity
(Output/Input)
700 Hamburgers
900 Cheeseburgers (1.25)
500 Chicken Sandwiches (.80)
2225 200 11.125
700 Hamburgers
700 Cheeseburgers (1.25)
700 Chicken Sandwiches (.80)
2135 200 10.675

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Chapter 03 – Design of Products and Services
3-1
CHAPTER 3
DESIGN OF PRODUCTS AND SERVICES
Discussion Questions
1. Describe the generic product development process described in this chapter. How does this
process change for technology push products?
Products that are developed using the “technology push” would be more narrowly focused in
phase 0 and phase 1 of Marketing. The focus would be narrower because you would only
look at market segments that could benefit from the application of your technology. The
rest of the generic process may be somewhat less complex as well since the technology of
the product currently exists in your manufacturing facilities
2. How does the QFD approach help? What are some limitations of this approach?
QFD helps to get the voice of the customer into the design process using interfunctional
teams. The limitations of QFD relate to the culture of the organization. In the United States,
we tend to be vertically oriented and try to promote breakthrough. This can work against
interfunctional teamwork, which is needed for QFD success. If a breakthrough culture can be
maintained with a continuous improvement mentality through interfunctional teams, this
would lead to tremendous improvements in productivity.
3. Discuss the product design philosophy behind industrial design and design for manufacture
and assembly. Which one do you think is more important in a customer-focused product
development?
Industrial design is concerned with designing a product from the end-user’s point of view,
such as aesthetics and user-friendliness of the product. Design for manufacturability, on the
other hand, makes the product design less complicated and easier to manufacture. Very
often it results in fewer parts, smaller size, increased reliability, and lower cost.
Both philosophies are equally important for a customer-focused product development. In
order to attract customers, the product must be aesthetically pleasing and user-friendly
(industrial design). However, to sustain customer interests, it should also have a lower cost
and higher reliability (design for manufacturability).
4. Discuss design-based incrementalism, which is frequent product redesign throughout the
product’s life. What are the pros and cons of this idea?
Pro: enhanced function, higher quality, and lower cost through continuously advancing
technology.
Con: time and money spent on frequent product and process redesigns, low priority given in
servicing the existing and older products. Consumer reaction to frequent changes may be
negative.

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Chapter 03 – Design of Products and Services
3-2
5. Do the concepts of complexity and divergence apply to an online sales company such as Dell
Computer?
Due to the size of Dell and the number of market segments they serve, these concepts
certainly apply. Consider as one example the technical support process for an existing
customer. Service can vary from very simple like an individual customer needing a particular
driver for her new computer to very complex in troubleshooting a network load problem in a
server farm for an Internet service provider. In the first example there is a straightforward
solution to the problem in emailing the customer a copy of the driver. In the latter, the
service process may be quite divergent, with the process being adapted based on the
symptoms of the problem and the skill of the customer’s technical workforce.
For a pure sales company like Amazon, the complexity and divergence would be much less.
6. What factors must be traded off in the product development process before introducing a
new product?
The factors that need careful attention for new products are product performance,
development speed, product cost, and development program expense. Smith and Reinertsen
identify six pairs of trade-offs in their book. These include all possible pairs among the four
factors noted above.
7. Coca-Cola is a well-established consumer products company with a strong position in the
global market. The sales of their core soda products have remained relatively stable for
decades, yet the company has continued to grow and has remained extremely profitable.
Discuss Coca-Cola’s history in light of the statement that “generating a steady stream of new
products to market is extremely important to competitiveness.” Does Coca-Cola’s success
disprove that statement? Is the company an exception to the rule or an example of its
application?
By growing into a global company, one could argue they have been introducing new
products into markets they never served before, even though the products are not new to
the company. They have also grown by acquisition of other drink companies and
introduction of new drink products outside of their core soda business. As the products are
not subject to great innovation or technological advances, Coca-Cola has needed to expand
their product lines and global reach to continue to grow.

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Chapter 03 – Design of Products and Services
3-3
Objective Questions
1. Which phase of the generic development process involves construction and evaluation of
multiple preproduction versions of the product?
Testing and refinement
2. A process that emphasizes cross-functional integration and concurrent development of a
product and its associated processes is known as _________________________.
Concurrent engineering
3. Match the following product types to the appropriate product development description.
B Technology-push products A: Entail unusually large uncertainties about the technology or market. The
development process takes steps to address those uncertainties.
E Platform products B: A firm with a new proprietary technology seeks out a market where that
technology can be applied.
D Process-intensive products C: Uses a repeated prototyping cycle. Results from one cycle are used to modify
priorities in the ensuing cycle.
A High-risk products D: The production process has an impact on the product properties. Therefore,
product design and process design cannot be separated.
C Quick-build products E: Products are designed and built around a preexisting technological
subsystem.
4. Designing products for aesthetics and with the user in mind is generally called what?
Industrial design
5. The first step in developing a house of quality is to develop a list of
______________________.
customer requirements for the product

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Chapter 03 – Design of Products and Services
3-4
6. The purpose of value analysis/value engineering is to
_________________________________.
simplify products and processes
7. What is it about service processes that makes their design and operation so different from
manufacturing processes?
Direct customer involvement in the process
8. What are the three general factors that determine the fit of a new or revised service
process?
Service experience fit, operational fit, and financial impact.
9. Measures of product development success can be organized in what three categories?
Time to market, productivity, quality.
10. Tuff Wheels Kiddy Dozer
a. Base case
Project Schedule Year 1 Year 2 Year 3 Year 4
Kiddy Dozer Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development 333 333 333
Pilot Testing 100 100
Ramp-up 200 200
Marketing and
Support 38 38 38 38 38 38 38 38 38 38 38 38 38
Production
Volume 15 15 15 15 15 15 15 15 15 15 15 15
Unit Production
Cost 100 100 100 100 100 100 100 100 100 100 100 100
Production Costs 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500
Sales Volume 15 15 15 15 15 15 15 15 15 15 15 15
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
Sales Revenue 2550 2550 2550 2550 2550 2550 2550 2550 2550 2550 2550 2550
Period Cash Flow -333 -333 -633 -338 1013 1013 1013 1013 1013 1013 1013 1013 1013 1013 1013 1013
PV Year 1 r = 8 -333 -327 -609 -318 935 917 899 881 864 847 831 814 798 783 767 752
Project NPV 8503

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Chapter 03 – Design of Products and Services
3-5
b. The results are shown below for both scenarios. If sales are only 50,000 then the project is
still worthwhile since the NPV decrease to $6,759,000. If Tuff Wheels has under estimated
the sales and it ends up being 70,000 per year then NPV will increase from $8,503,000 base
case to $10,247,000 with the higher sales rate.
Sales Revised to 50,000 per Year
Project Schedule Year 1 Year 2 Year 3 Year 4
Kiddy Dozer Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development 333 333 333
Pilot Testing 100 100
Ramp-up 200 200
Marketing and
Support 38 38 38 38 38 38 38 38 38 38 38 38 38
Production Volume 13 13 13 13 13 13 13 13 13 13 13 13
Unit Production
Cost 100 100 100 100 100 100 100 100 100 100 100 100
Production Costs 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250 1250
Sales Volume 13 13 13 13 13 13 13 13 13 13 13 13
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
Sales Revenue 2125 2125 2125 2125 2125 2125 2125 2125 2125 2125 2125 2125
Period Cash Flow -333 -333 -633 -338 838 838 838 838 838 838 838 838 838 838 838 838
PV Year 1 r = 8 -333 -327 -609 -318 774 759 744 729 715 701 687 674 660 647 635 622
Project NPV 6759
Sales Revised to 70,000 per Year
Project Schedule Year 1 Year 2 Year 3 Year 4
Kiddy Dozer Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development 333 333 333
Pilot Testing 100 100
Ramp-up 200 200
Marketing and
Support 38 38 38 38 38 38 38 38 38 38 38 38 38
Production
Volume 18 18 18 18 18 18 18 18 18 18 18 18
Unit Production
Cost 100 100 100 100 100 100 100 100 100 100 100 100
Production Costs 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750
Sales Volume 18 18 18 18 18 18 18 18 18 18 18 18
Unit Price 170 170 170 170 170 170 170 170 170 170 170 170
Sales Revenue 2975 2975 2975 2975 2975 2975 2975 2975 2975 2975 2975 2975
Period Cash Flow -333 -333 -633 -338 1188 1188 1188 1188 1188 1188 1188 1188 1188 1188 1188 1188
PV Year 1 r = 8 -333 -327 -609 -318 1097 1076 1054 1034 1014 994 974 955 936 918 900 882
Project NPV 10247

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Chapter 03 – Design of Products and Services
3-6
c. The impact of changing the interest rate is shown below. There is still a positive NPV but it
shrinks the interest rate increases. This would be expected since a higher the interest rate
reduces the present value of future cash flows.
Base Case 8% $8,503,043
9% $8,283,241
10% $8,069,666
11% $7,862,116
11. Perot Corporation Patay2 Chip.
a. In the base case the Patay2 Chip Project has a very good NPV of $10,460,000, see below.
Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Development Cost 5,000 5,000 5,000 5,000
Pilot Testing Cost 2,500 2,500
Debug Cost 1,500 1,500
Ramp-up Cost 3,000
Advance Marketing Cost 5,000
Ongoing Marketing and Support 500 500 500 500
Production Volume 125 125 75 75
Unit Production Cost 655 655 545 545
Production Costs 81,875 81,875 40,875 40,875
Sales Volume 125 125 75 75
Unit Price 820 820 650 650
Sales Revenue 102,500 102,500 48,750 48,750
Period Cash Flow -5,000 -5,000 -9,000 -17,000 20,125 20,125 7,375 7,375
PV Year 1 r = 12 -5,000 -4,762 -8,163 -14,685 16,557 15,768 5,503 5,241
Project NPV 10,460
b. Additional 10 million for higher price is clearly worthwhile as it raises the NPV from $10.46
million to $16.654 million. See results below.

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Chapter 03 – Design of Products and Services
3-7
Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Development Cost 7,500 7,500 7,500 7,500
Pilot Testing Cost 2,500 2,500
Debug Cost 1,500 1,500
Ramp-up Cost 3,000
Advance Marketing Cost 5,000
Ongoing Marketing and Support 500 500 500 500
Production Volume 125 125 75 75
Unit Production Cost 655 655 545 545
Production Costs 81,875 81,875 40,875 40,875
Sales Volume 125 125 75 75
Unit Price 870 870 700 700
Sales Revenue 108,750 108,750 52,500 52,500
Period Cash Flow -7,500 -7,500 -11,500 -19,500 26,375 26,375 11,125 11,125
PV Year 1 r = 12 -7,500 -7,143 -10,431 -16,845 21,699 20,666 8,302 7,906
Project NPV 16,654
c. Reduced sales estimates have a significant impact on the NPV. It reduces the NPV all the way
down to $10,000. The success of the Patay2 Chip is very dependent on the sales estimates. It
would be wise for Perot to make sure that there is sufficient demand for Patay2 Chips.
Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Development Cost 5,000 5,000 5,000 5,000
Pilot Testing Cost 2,500 2,500
Debug Cost 1,500 1,500
Ramp-up Cost 3,000
Advance Marketing Cost 5,000
Ongoing Marketing and Support 500 500 500 500
Production Volume 100 100 50 50
Unit Production Cost 655 655 545 545
Production Costs 65,500 65,500 27,250 27,250
Sales Volume 100 100 50 50
Unit Price 820 820 650 650
Sales Revenue 82,000 82,000 32,500 32,500
Period Cash Flow -5,000 -5,000 -9,000 -17,000 16,000 16,000 4,750 4,750
PV Year 1 r = 12 -5,000 -4,762 -8,163 -14,685 13,163 12,536 3,545 3,376
Project NPV 10

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Chapter 03 – Design of Products and Services
3-8
12. Answers will vary based upon the product selected and the student. Issues that should be
considered in the design and manufacture of a product include design process (traditional
vs. concurrent engineering), customer needs and expectations, legal considerations (EPA,
OSHA, etc.), service life, reliability, appearance, standardization, any industry standards that
should be considered (e.g., television set and the type of signal received from stations),
method of shipment, material cost and availability, stage of the product life cycle, design for
manufacturability, design for assembly, packaging, environmental, unit cost, pricing,
availability of purchased material, availability of capacity, availability of subcontractors,
setup cost, manufacturing time, volume, and expected product life.
13. Answers may vary. Following is just one possible result.
Grounds
maintenance
Tournament
Activities (per
text)
Helpful service
attendants
Fair handicapping
system

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Chapter 03 – Design of Products and Services
3-9
CASE: IKEA: Design and Pricing
Questions:
1. What are IKEA”s competitive priorities?
Probably the key priority is maximizing value to the customer in each product offered through
their stores. Low cost is certainly a major priority as well.
2. Describe IKEA’s process for developing a new product.
This is described in the case: (1) Pick a price, (2) Choose a manufacturer, (3) Design the product,
(5) Ship it. The key here is to recognize that they pick a price point early in the product
development process and then work with a manufacturer to ensure they can meet this price
point. This is a very innovative approach to product design.
3. What are additional features of the IKEA concept (beyond their design process) that
contribute to creating exceptional value for the customer?
Customer can easily view the product in a setting similar to theirs (i.e. apartments) in the IKEA
store. Also, the product can be easily brought home by the customer eliminating delivery and
setup charges. This creates more value in the product by eliminating these costs.
4. What would be important criteria for selecting a site for an IKEA store?
Need to be located in a high density area where many people live in smaller apartments where
space is a premium. The IKEA products really appeal to young, affluent customers.
CASE: Dental Spa
Questions:
1. Which one of the three new service requirements would a dental spa least likely pass: service
experience fit, operational fit, or financial impact? Why?
The dental spa is least likely to have operational fit because new personnel must be hired and
the layout of current operations must be changed in order to offer this new service. Although
service experience fit might seem logical, distracting the patient from possible pain would
improve the service experience of the core service, dentistry. Often the services are given away.
Dental Associates must “buy in” to the new services and see the obvious patient comfort
benefits to the dental business and experience.
2. What are some of the main areas of complexity and divergence in this kind of operation
relative to the standard dental clinic?
Complexity: By providing two services at once, the complexity is automatically increased. For
example, if cleaning teeth requires two steps and a hand massage requires one, then together

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Chapter 03 – Design of Products and Services
3-10
the new service at the dental spa would take three steps. Besides just being a combination of
two services normally provided separately, timing or coordination issues could add extra steps
to this new process. However some steps, such as billing, would be combined in comparison to
two services and it might be simple addition (often these services are free and do not affect
billing).
Divergence: Any customer service that can possibly inflict pain, such as a visit to a dentist,
requires a large degree of judgment on the part of the service provider of how best to deal with
a painful situation. For example, some patients need empathy. Almost completely opposite, a
visit to a spa can be like going to a psychiatrist as a customer tells their problems as they are
getting their manicure. This allows for divergence as a customer service provider must decide
how to react to hearing all of the issues in someone’s life. However, being at the dentist would
limit this verbal interaction much like a dentist who only asks questions when he has
instruments in the patients mouth preventing a real answer.

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Chapter 04 – Project Management
4-1
.
CHAPTER 4
PROJECT MANAGEMENT
Discussion Questions
1. What was the most complex project that you have been involved in? Give examples of the following
as they pertain to the project: the work breakdown structure, tasks, subtasks, and work package.
Were you on the critical path? Did it have a good project manager?
Obviously, the answer will vary. Remember that the project could be in a non-profit environment as well.
School plays (especially musicals) are a good example, because there are many major tasks that need to
be broken down and scheduled in parallel, but all must be completed by the time opening night comes.
This would include selecting the play and obtaining the rights, auditions, rehearsals of the actors,
rehearsals of the musicians, construction of the sets, setting the lighting, printing tickets and programs,
staffing the theater, advertising and fund raising.
2. What are some reasons project scheduling is not done well?
Several problems with project scheduling are discussed at the end of the chapter. The uncertainties
inherent in the activities comprising the network of any project make it necessary to update the schedule
on a regular basis. Maintaining accurate time and cost estimates is often difficult and frustrating.
Managing this evolving process requires a discipline that is not always available.
3. Which characteristics must a project have for critical path scheduling to be applicable? What types
of projects have been subjected to critical path analysis?
Project characteristics necessary for critical path scheduling to be applicable are:
a. Defined project beginning and ending
b. Well-defined jobs whose completion marks the end of the project.
c. The jobs of tasks are independent in that they may be started, stopped, and conducted
separately within a given sequence.
d. The jobs or tasks are ordered in that they must follow each other in a given sequence.
e. An activity once started is allowed to continue without interruption until it is completed.
A wide variety of projects have used critical path analysis. Some industries that more commonly use this
approach include aerospace, construction, and computer software.
4. What are the underlying assumptions of minimum-cost scheduling? Are they equally realistic?
The underlying assumptions of minimum cost scheduling are that it costs money to expedite a project
activity and it costs money to sustain or lengthen the completion time of the project.

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