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

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Chapter 01-Introduction1-1CHAPTER 1INTRODUCTIONDiscussion Questions1.Using Exhibit 1.3 as a model, describe the source-make-deliver-return relationships in thefollowing systems:a. An airlineSource: Aircraft manufacturer, in-flight food, repair parts, computer systemsMake: Aircraft and flight crew scheduling, ground services provided at airports, aircraftmaintenance and repairDeliver: Outbound and arriving passenger service, baggage handlingReturn: Resolve any post-service issues such as lost or damaged luggageb.An automobile manufacturerSource: Suppliers of components and raw materialsMake: Manufacturing of vehicles and components or subassemblies to be sold as sparepartsDeliver: Delivery to and sales from dealerships, delivery of spare parts to the wholesalesystemReturn: Warranty and recall repairs, trade-insc.A hospitalSource: 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 insurance companySource: Supplies needed 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 repair servicenetworkDeliver: 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 weakest one?The categories with examples are: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-Introduction1-2At Indiana 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 to customers?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 a good?A service is an intangible process (you can’t hold it in your hands), while a good is the physicaloutput of a process.6.Look at the job postings athttp://www.apics.organd evaluate the opportunities for an OSMmajor 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 PlannerFMC CorporationUS-PA-PhiladelphiaThis is your opportunity to join the Agricultural Products Group (APG) and work onthe teamresponsible for global active ingredient planning. You'll serve as a central Supply Plannerworking in tandem ...Sep-20-2011Purchasing Manager (Buyer)Texas Dow Employees Credit Union (TDECU)US-TX-Lake Jackson-Nearest Metro area-South Houston

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Chapter 01-Introduction1-3Education Accredited university degree in Business or Marketing with certification inPurchasing, Inventory Management, or Logistics. Accredited Purchasing Practitioner (APP) orCertified Purchasing ...Sep-20-2011Product Line ManagerCintas CorporationUS-OH-MasonHigh School diploma or GED required, 4 year degree preferred Knowledge of and experienceusing Internet and Microsoft Office (Word, Excel, PowerPoint, and Email) 3 years managementexperience preferred ...Sep-20-2011Director PurchasingLegendary BakingUS-CO-DenverCERTIFICATIONS & LICENSES • Valid Driver’s License and car insurance. • Certified PurchasingManager certification (C.P.M.) preferred. • Certified Food Purchasing Manager ...Sep-19-2011Process Improvement ManagerARAMARK CorporationUS-TX-HoustonBachelor's Degree required. Technical Engineering discipline within Industrial, Mechanical,Chemical, or Food Operations strongly preferred. • Minimum 5 years Lean manufacturingexperience coupled ...Sep-19-20117.Recent outsourcing of parts and services that had previously been produced internally isaddressed 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 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 has also brought tothe forefront how important supply chains are, as well as the negative economic impact thatdisruptions in the supply chain can cause.9.As the field of OSCM has advanced, 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. Discuss

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Chapter 01-Introduction1-4how you have seen 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 might be 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 allowing them to advertise how the newbottles are better for the environment because they result in less waste.10.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 firm couldsqueeze 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.11.Two of the efficiency ratios mentioned in the chapter are thereceivable turnover ratioand theinventory turnover ratio. While they are two completely separate measures, they are verysimilar 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 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 money for 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.

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Chapter 01-Introduction1-5Objective Questions1.What are the three elements that requireintegration to be successful in operations andsupply chain management?Strategy, Processes, and Analytics2.Operations and supply chain management is concerned with the design and management ofthe entire system that has what function?Produces a product or delivers a service3.Match the following OSCM job titles with the appropriate duties and responsibilities.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 andcoordinates the flowof material inputs to the production processBLogistics managerE:Applies the tools of lean production to reduce cycle timeand eliminate waste in a process4.What high-level position manager is responsible for working with theCEO and companypresident to determine the company’s competitive strategy?Chief Operating Officer5.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.3Supply chain management1Manufacturing strategy developed5Business analytics2Total quality management4Electronic commerce

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Chapter 01-Introduction1-66.Which major OSCM concept can be described as an integrated set of activities designed toachievehigh-volume production using minimal inventories of parts that arrive at workstationsexactly when they are needed?Just-in-time (JIT) production7.Operations and supply chain ___________________________ leverage the vast amount ofdata in enterprise resource planning systems to make decisions related to managingresources.analytics8.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?Sustainability9.Consider the following financial data from the past year for Midwest Outdoor EquipmentCorporation.Gross Income$25,240,000Total Sales24,324,000Total Credit Sales18,785,000Net Income2,975,000Cost of GoodsSold12,600,000Total Assets10,550,000Average Inventory2,875,000Average Receivables3,445,000a.Compute thereceivable turnover ratio.b.Compute theinventory turnover ratio.

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Chapter 01-Introduction1-7c.Compute theasset turnover ratio.10.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 turnover ratio?This will reduce the average amount of money the firm has invested in raw material, so theinventory turnover ratio should increase.11.What is the name of the process in which one company studies the processes of another firmin order to identify best practices?Benchmarking12.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 turnover ratio?Quicker payments will reduce the average amount of accounts receivables, so the receivablesturnover ratio will increase.

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Chapter 01-Introduction1-8Analytics Exercise: Comparing Companies Using Wall Street Efficiency MeasuresEach student is asked to pick an industry and compare threecompanies 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 EfficiencyIncome/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 toidentify 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 itcan generate more Income on lower revenue/employee, at least compared to Shell. The InventoryTurnover is highest for ExxonMobil indicating that the company is the most efficient from anoperations and supply chain processes view. ExxonMobil also appears to do a good job in collectingreceivables as well, thus supporting the idea that the company is very efficient. BP seems to do a littlebetter in Asset Turnover, which relates to the use of its facility and equipment assets. But ExxonMobilis 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 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 todo comparisons across industries; retailers versus oil companies, and computer makes versus softwarecompanies, for example.

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Chapter 02-Strategy2-1CHAPTER 2STRATEGYDiscussion Questions1.What is meant by a “triple-bottom-line” strategy? Give an example of a company that hasadopted 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 thatthe long-term health of the firm is interdependent with the health of the environment and thebetterment of society. There are many examples–one if Kraft Foods. For details see their 2010report:http://www.kraftfoodscompany.com/SiteCollectionDocuments/pdf/kraftfoods_responsibility_report.pdf2.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 andflex-fuel cars is one 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 priorities associated with operations and supply chain strategy? How hastheir relationship to each other changed over the years?The four major imperatives are cost, quality, delivery, and flexibility. In the sixties, these fourimperatives were viewed from a tradeoffs perspective. For example, this meant that improvingquality would result in higher cost, and in many cases that was true. However, advances inmanufacturing 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 greatercompetitive advantage than was possible 50 years ago.The problem now becomes one ofprioritizing and managing towards orderly improvement.4.Why does the “proper” operations and supply chain strategy keep changing for companies thatare 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 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.

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Chapter 02-Strategy2-25.What is meant by the expressionsorder winnersandorder qualifiers? What was the orderwinner(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 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.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, mark, and pound. This stimulated exports. Why would long-term reliance on a lowervalued 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. Along-term approach is to increase manufacturing and service industry 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 it occurring?The March 2011 tsunami that 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,dependable 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.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-Strategy2-3Objective Questions1.Shell Oil Company’s motto “People, Planet and Profit” is a real-world implementation of whatOSCM concept?Triple bottom line2.A firm’sstrategyshould describe how it intends to create and sustain value for________________________.its current shareholders3.What is the term used to describe individuals or organizations that are influenced by the actionsof the firm?Stakeholders4.How often should a company develop and refine the operations and supply chain strategy.At leastyearly5.What is the term used to describe product attributes that attract certain customers and can beused to form the competitive position of a firm?Competitive dimensions6.What are the two main competitive dimensions related to product delivery?Delivery speed and delivery reliability7.What are the two characteristics of a product or service that define quality?Design quality and process quality8.A diagram that shows how a company’s strategy is delivered by a set of supporting activities iscalled a _____________________________.activity-system map

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Chapter 02-Strategy2-49.In implementing supply chain strategy a firm must minimize its total cost without compromisingthe needs of its ____________________________.Customers10.What is defined as the likelihood of disruption that would impact the ability of a company tocontinuously supply products or services?Supply chain risk11.Risks caused by natural or manmade disasters, and therefore impossible to reliably predict, arecalled ______________________.Disruption risks12.Match the following common risks with the appropriate mitigation strategy.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.The assessment of the probability of a negative event against the aggregate severity of therelatedloss is called _____________________________.Risk mapping

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Chapter 02-Strategy2-514.As Operations Manager, you are concerned about being able to meet sales requirements in thecoming months. You have just been given the following production report.JANFEBMARAPRUnits Produced2300180028003000Hours per Machine325200400320Number of Machines3544Find the average of the monthly productivity figures (units per machine hour).To answer this we need to realize that the measure ofhours 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 hour15.Sailmaster makes high-performance sails for competitive windsurfers. Below is informationabout the inputs and outputs for one model, the Windy 2000.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 calculated by 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-Strategy2-616.Live Trap Corporationreceived the data below for its rodent cage production unit. Find thetotalproductivity?OutputInput50,000 cagesProduction time620labor hoursSales price: $3.50 per unitWages$7.50 per hourRaw materials (total cost)$30,000Component parts (total cost)$15,350Total productivity could be expressed two ways here based on how you express output: inunits sold, ordollars 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 * $7.50) + 30,000 + 15,350) = 3.5 dollars in sales per dollar input17.Two types of cars (Deluxe andLimited) were produced by a car manufacturer last year.Quantities sold, price per unit, and labor hours follow. What is the labor productivity for eachcar? Explain the problem(s) associated with the labor productivity.QUANTITY$/UNITDeluxe car4,000 units sold$8,000/carLimited car6,000 units sold$9,500/carLabor, Deluxe20,000 hours$12/hourLabor, Limited30,000 hours$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)=30,000($14.00)=135.71

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Chapter 02-Strategy2-7$57,000,000$420,000The labor productivity measure is a conventional measure of productivity. However, as a partialmeasure, it may notprovide all of the necessary information that is needed. For example, increases inproductivity 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) showsthe following results:U.S.LDCSales (units)100,00020,000Labor (hours)20,00015,000Raw materials (currency)$20,000FC 20,000Capital equipment (hours)60,0005,000a.Calculate partial labor and capital productivity figures for the parent and subsidiary. Do theresults seem misleading?Labor ProductivityCountryOutputin UnitsInputin HoursProductivity(Output/Input)U.S.100,00020,0005.00 units/hourLDC20,00015,0001.33 units/hourCapital EquipmentProductivityCountryOutputin UnitsInputin HoursProductivity(Output/Input)U.S.100,00060,0001.67 units/hourLDC20,0005,0004.00 units/hourYes. 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 moreproductive than the other on one measure, but much worse on the other.

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Chapter 02-Strategy2-8b.Compute the multifactor productivity figures for labor and capital together. Do theresults make more sense?Multifactor–Labor and Capital EquipmentCountryOutputin UnitsInputin HoursProductivity(Output/Input)U.S.100,00020,000 + 60,000=80,0001.25 units/hourLDC20,00015,000 + 5,000=20,0001.00 units/hourYes,labor and equipment can be substituted for each other. Therefore, this multifactormeasure is a better indicator of productivity in this instance.c.Calculate raw material productivity figures (units/$ where $1 = FC 10). Explain why thesefigures might be greater in the subsidiary.Raw Material ProductivityCountryOutputin UnitsInputin DollarsProductivity(Output/Input)U.S.100,000$20,0005.00 units/$LDC20,000FC 20,000/$10 =$2,00010.00 units/$The raw materialproductivity measures might be greater in the LDC due to a reduced costpaid for raw materials, which is typical of LDC’s, especially if there are local sources for theraw materials.19.Various financial data for the past two years follow. Calculate the total productivity measureand 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 YearThis YearOutput:Sales$200,000$220,000Input:Labor30,00040,000Raw materials35,00045,000Energy5,0006,000Capital50,00050,000Other2,0003,000

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Chapter 02-Strategy2-9Total ProductivityYearOutputin DollarsInputin DollarsProductivity(Output/Input)Last Year$200,000$30,000 + 35,000 +5,000 +50,000 + 2,000= $122,0001.64This Year$220,000$40,000 + 45,000 +6,000 + 50,000 +3,000= $144,0001.53Partial Measure–LaborYearOutputin DollarsInputin DollarsProductivity(Output/Input)Last Year$200,000$30,0006.67This Year$220,000$40,0005.50Partial Measure–Raw MaterialsYearOutputin DollarsInputin DollarsProductivity(Output/Input)Last Year$200,000$35,0005.71This Year$220,000$45,0004.89Partial Measure–CapitalYearOutputin DollarsInputin DollarsProductivity(Output/Input)Last Year$200,000$50,0004.00This Year$220,000$50,0004.40The overall productivity measure is declining, which indicates a possible problem. The partialmeasures can be used to indicate cause ofthe declining productivity. In this case, it is acombination of declines in both labor and raw material productivity, which were somewhatoffset by an increase in the capital productivity. Further investigation should be undertakento explain the drops in both labor and raw material productivity. An increase in the cost ofboth of these measures, without an accompanying increase in the selling price might explainthese measures.

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Chapter 02-Strategy2-1020.An electronics company makes communications devices for military contracts. The companyjust completed two contracts. The navy contract was for 2,300 devices and took 25 workers twoweeks (40 hours per week) to complete. The army contract was for 5,500 devices that wereproduced by 35 workers in three weeks. On which contract were the workers more productive?ContractOutputin UnitsInputin HoursProductivity(Output/Input)Navy230025(2)40 = 20001.15Army550035(3)40 = 42001.31The 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 10hours per week, and in May the store had nine part-timers at 15 hours per week (assume fourweeks in each month). Using sales dollars as the measure of output, what is the percentagechange in productivity from April to May?MonthOutputin DollarsInputin HoursProductivity(Output/Input)Percentage ChangeApril$45,000(8(40)+7(10))*4 =156028.85May$56,000182030.77(30.77-28.85)/28.85 = 6.66%22.A parcel delivery company delivered 103,000 packages last year, when its averageemployment was 84 drivers. This year the firm handled 112,000 deliveries with 96 drivers. Whatwas the percentage change in productivity over the two years?YearOutputin PackagesInputin DriversProductivity(Output/Input)Percentage ChangeLast103,000841226.2This112,000961166.7(1166.7-1226.2)/1226.2 =-4.85%

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Chapter 02-Strategy2-1123.A fast-food restaurant serves hamburgers, cheeseburgers, and chicken sandwiches. Therestaurant counts a cheeseburger as equivalent to 1.25 hamburgers and chicken sandwiches as0.8 hamburger. Current employment is five full-time employees who work a 40-hour week. If therestaurant 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 ofsandwiches (2,100), but the mix was 700 of each type?PartOutput inHamburgerEquivalentsInputin HoursProductivity(Output/Input)700 Hamburgers900 Cheeseburgers (1.25)500 Chicken Sandwiches (.80)222520011.125700 Hamburgers700 Cheeseburgers (1.25)700 Chicken Sandwiches (.80)213520010.675

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Chapter03–Design of Products and Services3-1CHAPTER 3DESIGN OF PRODUCTS AND SERVICESDiscussion Questions1.Describe the generic product development process described in this chapter. How does thisprocess change for technology push products?Products that are developed using the“technology push” would be more narrowly focused inphase 0 and phase 1 of Marketing. The focus would be narrower because you would onlylook at market segments that could benefit from the application of your technology. Therest of the generic process may be somewhat less complex as well since the technology ofthe product currently exists in your manufacturing facilities2.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 interfunctionalteams. 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 againstinterfunctional teamwork, which is needed for QFD success. If a breakthrough culture can bemaintained with a continuous improvement mentality through interfunctional teams, thiswould lead to tremendous improvements in productivity.3.Discuss the product design philosophy behind industrial design and design for manufactureand assembly. Which one do you think is more important in a customer-focused productdevelopment?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 theother hand, makes the product design less complicated and easier to manufacture. Veryoften it results in fewer parts, smaller size, increased reliability, and lower cost.Both philosophies are equally important for a customer-focused product development. Inorder 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 costand higher reliability (design for manufacturability).4.Discuss design-based incrementalism, which is frequent product redesign throughout theproduct’s life. What are the pros and cons of this idea?Pro: enhanced function, higher quality, and lower cost through continuously advancingtechnology.Con: time and money spent on frequent product and process redesigns, low priority given inservicing the existing and older products. Consumer reaction to frequent changes may benegative.

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Chapter03–Design of Products and Services3-25.Do the concepts of complexity and divergence apply to an online sales company such as DellComputer?Due to the size of Dell and the number of market segments they serve, these conceptscertainly apply. Consider as one example the technical support process for an existingcustomer. Service can vary from very simple like an individual customer needing a particulardriver for her new computer to very complex in troubleshooting a network load problem in aserver farm for an Internet service provider. In the first example there is a straightforwardsolution to the problem in emailing the customer a copy of the driver. In the latter, theservice process may be quite divergent, with the process being adapted based on thesymptoms 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 anew product?The factors that need careful attention for new products are product performance,development speed, product cost, and development program expense. Smith and Reinertsenidentify six pairs of trade-offs in their book. These include all possible pairs among the fourfactors noted above.7.Coca-Cola is a well-established consumer products company with a strong position in theglobal market. The sales of their core soda products have remained relatively stable fordecades, 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 newproducts to market is extremely important to competitiveness.” Does Coca-Cola’s successdisprove that statement? Is the company an exception to the rule or an example of itsapplication?By growing into a global company, one could argue they have been introducing newproducts into markets they never served before, even though the products are not new tothe company. They have also grown by acquisition of other drink companies andintroduction of new drink products outside of their core soda business. As the products arenot subject to great innovation or technological advances, Coca-Cola has needed to expandtheir product lines and global reach to continue to grow.

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Chapter03–Design of Products and Services3-3Objective Questions1.Which phase of thegeneric development processinvolves construction and evaluation ofmultiple preproduction versions of the product?Testing and refinement2.A process that emphasizes cross-functional integration and concurrent development of aproduct and its associated processes is known as _________________________.Concurrent engineering3.Match the following product types to the appropriate product development description.BTechnology-push productsA:Entail unusuallylarge uncertainties about the technology or market. Thedevelopment process takes steps to address those uncertainties.EPlatform productsB:A firm with a new proprietary technology seeks out a market where thattechnology can be applied.DProcess-intensive productsC:Uses a repeated prototyping cycle. Results from one cycle are used to modifypriorities in the ensuing cycle.AHigh-risk productsD:The production process has an impact on the product properties. Therefore,product design and process design cannot be separated.CQuick-build productsE:Products are designed and built around a preexisting technologicalsubsystem.4.Designing products for aesthetics and with the user in mind is generally called what?Industrialdesign5.The first step in developing ahouse of qualityis to develop a list of______________________.customer requirements for the product

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Chapter03–Design of Products and Services3-46.The purpose ofvalue analysis/value engineeringis to_________________________________.simplifyproducts and processes7.What is it about service processes that makes their design and operation so different frommanufacturing processes?Direct customer involvement in the process8.What are the three general factors that determine thefitof a new or revised serviceprocess?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 Dozera. Base caseProject ScheduleYear 1Year 2Year 3Year 4Kiddy DozerQ1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Development333333333Pilot Testing100100Ramp-up200200Marketing andSupport38383838383838383838383838ProductionVolume151515151515151515151515Unit ProductionCost100100100100100100100100100100100100Production Costs150015001500150015001500150015001500150015001500Sales Volume151515151515151515151515Unit Price170170170170170170170170170170170170Sales Revenue255025502550255025502550255025502550255025502550Period Cash Flow-333-333-633-338101310131013101310131013101310131013101310131013PV Year 1 r = 8-333-327-609-318935917899881864847831814798783767752Project NPV8503

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Chapter03–Design of Products and Services3-5b. The results are shown below for both scenarios. If sales are only 50,000 then the project isstill worthwhile since the NPV decrease to $6,759,000. If Tuff Wheels has underestimatedthe sales and it ends up being 70,000 per year then NPV will increase from $8,503,000 basecase to $10,247,000 with the higher sales rate.Sales Revised to 50,000 per YearProject ScheduleYear 1Year 2Year 3Year 4Kiddy DozerQ1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Development333333333Pilot Testing100100Ramp-up200200Marketing andSupport38383838383838383838383838Production Volume131313131313131313131313Unit ProductionCost100100100100100100100100100100100100Production Costs125012501250125012501250125012501250125012501250Sales Volume131313131313131313131313Unit Price170170170170170170170170170170170170Sales Revenue212521252125212521252125212521252125212521252125Period Cash Flow-333-333-633-338838838838838838838838838838838838838PV Year 1 r = 8-333-327-609-318774759744729715701687674660647635622Project NPV6759Sales Revised to 70,000 per YearProject ScheduleYear 1Year 2Year 3Year 4Kiddy DozerQ1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Development333333333Pilot Testing100100Ramp-up200200Marketing andSupport38383838383838383838383838ProductionVolume181818181818181818181818Unit ProductionCost100100100100100100100100100100100100Production Costs175017501750175017501750175017501750175017501750Sales Volume181818181818181818181818Unit Price170170170170170170170170170170170170Sales Revenue297529752975297529752975297529752975297529752975Period Cash Flow-333-333-633-338118811881188118811881188118811881188118811881188PV Year 1 r = 8-333-327-609-31810971076105410341014994974955936918900882Project NPV10247

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Chapter03–Design of Products and Services3-6c. The impact of changing the interest rate is shown below. There is still a positive NPV but itshrinks the interest rate increases. This would be expected since a higher the interest ratereduces the present value of future cash flows.Base Case8%$8,503,0439%$8,283,24110%$8,069,66611%$7,862,11611.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 ScheduleYear 1Year 2Year 3Year 4Patay2 Chip1st half2nd half1st half2nd half1st half2nd half1st half2nd halfDevelopment Cost5,0005,0005,0005,000Pilot Testing Cost2,5002,500Debug Cost1,5001,500Ramp-up Cost3,000Advance Marketing Cost5,000OngoingMarketing and Support500500500500Production Volume1251257575Unit Production Cost655655545545Production Costs81,87581,87540,87540,875Sales Volume1251257575Unit Price820820650650Sales Revenue102,500102,50048,75048,750Period Cash Flow-5,000-5,000-9,000-17,00020,12520,1257,3757,375PV Year 1 r = 12-5,000-4,762-8,163-14,68516,55715,7685,5035,241Project NPV10,460b.Additional 10 million for higher price is clearly worthwhile as it raises the NPV from $10.46million to $16.654 million. See results below.

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Chapter03–Design of Products and Services3-7Project ScheduleYear 1Year 2Year 3Year 4Patay2 Chip1st half2nd half1st half2nd half1st half2ndhalf1st half2nd halfDevelopment Cost7,5007,5007,5007,500Pilot Testing Cost2,5002,500Debug Cost1,5001,500Ramp-up Cost3,000Advance Marketing Cost5,000Ongoing Marketing and Support500500500500Production Volume1251257575Unit Production Cost655655545545Production Costs81,87581,87540,87540,875Sales Volume1251257575Unit Price870870700700Sales Revenue108,750108,75052,50052,500Period Cash Flow-7,500-7,500-11,500-19,50026,37526,37511,12511,125PV Year 1 r = 12-7,500-7,143-10,431-16,84521,69920,6668,3027,906Project NPV16,654c. Reduced sales estimates have asignificant impact on the NPV. It reduces the NPV all the waydown to $10,000. The success of the Patay2 Chip is very dependent on the sales estimates. Itwould be wise for Perot to make sure that there is sufficient demand for Patay2 Chips.Project ScheduleYear 1Year 2Year 3Year 4Patay2 Chip1st half2nd half1st half2nd half1st half2nd half1st half2nd halfDevelopment Cost5,0005,0005,0005,000Pilot Testing Cost2,5002,500Debug Cost1,5001,500Ramp-up Cost3,000Advance Marketing Cost5,000Ongoing Marketing and Support500500500500Production Volume1001005050Unit Production Cost655655545545Production Costs65,50065,50027,25027,250Sales Volume1001005050Unit Price820820650650Sales Revenue82,00082,00032,50032,500Period Cash Flow-5,000-5,000-9,000-17,00016,00016,0004,7504,750PV Year 1 r = 12-5,000-4,762-8,163-14,68513,16312,5363,5453,376Project NPV10

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Chapter03–Design of Products and Services3-812.Answers will vary based upon the product selected and the student. Issues that should beconsidered in the design and manufacture of a product include design process (traditionalvs.concurrent engineering), customer needs and expectations, legal considerations (EPA,OSHA, etc.), service life, reliability, appearance, standardization, any industry standards thatshould 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 formanufacturability, 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.GroundsmaintenanceTournamentActivities (pertext)Helpful serviceattendantsFair handicappingsystem

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Chapter03–Design of Products and Services3-9CASE: IKEA: Design and PricingQuestions:1.What are IKEA”s competitive priorities?Probably the key priority is maximizing value to the customer in each product offered throughtheir stores. Low cost iscertainly 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 productdevelopment process and then work with a manufacturer to ensure they can meet this pricepoint. This is a very innovative approach to product design.3.What are additional features of the IKEA concept (beyond their design process) thatcontribute to creating exceptional value for the customer?Customer can easily view the product in a setting similar to theirs (i.e. apartments) in the IKEAstore. Also, the product can be easily brought home by the customer eliminating delivery andsetup 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 wherespace is a premium. The IKEA products really appeal to young, affluent customers.CASE: Dental SpaQuestions:1. Which one of the three new service requirements would a dental spa least likely pass: serviceexperience fit, operational fit, or financial impact? Why?The dental spa is least likely to have operational fit because new personnel must be hired andthe layout of current operations must be changed in order to offer this new service. Althoughservice experience fit might seem logical, distracting the patient from possible pain wouldimprove 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 comfortbenefits to the dental business and experience.2. What are some of the main areas of complexity and divergence in this kind of operationrelative to the standard dental clinic?Complexity: By providing two services at once, the complexity is automatically increased. Forexample, if cleaning teeth requires two steps and a hand massage requires one, then together

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Chapter03–Design of Products and Services3-10the new service at the dental spa would take three steps. Besides just being a combination oftwo services normally provided separately, timing or coordination issues could add extra stepsto this new process. However some steps, such as billing, would be combined in comparison totwo services and it might be simple addition (often these services are free and do not affectbilling).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 witha painful situation. For example, some patients need empathy. Almost completely opposite, avisit to a spa can be like going to a psychiatrist as a customer tells their problems as they aregetting their manicure. This allows for divergence as a customer service provider must decidehow to react to hearing all of the issues in someone’s life. However, being at the dentist wouldlimit this verbal interaction much like a dentist who only asks questions when he hasinstruments in the patients mouth preventing a real answer.

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Chapter 04–Project Management4-1.CHAPTER4PROJECTMANAGEMENTDiscussion Questions1.What was the most complex project that you have been involved in? Give examples of the followingas they pertain to the project: the work breakdown structure, tasks, subtasks, and work package.Wereyou 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 tobe broken down and scheduled in parallel, but allmustbe 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 uncertaintiesinherent in the activities comprising the network of any project make it necessary to update the scheduleon 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 typesof projects have been subjected to critical path analysis?Project characteristics necessary for critical path scheduling to be applicable are:a.Defined project beginning and endingb.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 conductedseparately 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 thisapproach 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 projectactivity and it costs money to sustain or lengthen the completion time of the project.

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