Solution Manual For Operations Management: Processes and Supply Chains, 11th Edition

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1-1Chapter1Using Operations toCreate ValueDISCUSSION QUESTIONS1.Answering this question demonstrates that processes underlie all of our jobs. What mightbe surprising is how manystudents would put their job in the category of “other,”suggesting that many jobs do not fall neatly into any one functional area. Perhaps manyinthe“other”categorymightbest be called“operations”onfurther reflection.Customers, both internal and external, are part of each process, and the goal is to managethe processes to add the most value for them.2.Amazon.com offers a very broad range of services and products at competitive prices. Itscompetitive priorities would include fast delivery time, on-time delivery, customization,variety and low-cost operations. As a business, Amazon.com is actually assembling acustomized basket of goods that must be delivered in a short window of time in adependable fashion. Low-cost operations are needed to remain competitive. To remain inbusiness, Amazon.com needs to maintain high volumes of traffic. Operations strategymust focus on stock availability and quick, economical, and dependable delivery.3.The hospital’s commitmentto provide attention to patients arriving to the emergencyunit in less than 15 minutes and never to turn away patients who need to be hospitalizedimplies that the facility must be designed to have extra capacity in both beds andemergency room facilities. It must plan on having extra personnel in the emergencyroom and also plan on having additional emergency personnel on call to take care ofunprecedented heavy loads. In line with the mission statement, maximum utilization ofthe facilities (i.e., beds and emergency room personnel) would not be one of theperformance objectives for the hospital.4.FedEx traditionally has competed on the basis of fast, dependable delivery. Before theboom in Internet applications, many businesses relied on FedEx to get things to otherbusinesses overnight. Now, this need is beginning to diminish as sophisticated systemsare being installed to assist companies in planning operations better. And, the internetbased companies are adding more demands for low cost ground deliveries to specificcustomer doors. FedEx, in order to remain competitive with companies such as UPS, hasmovedintothedoor-to-doordeliverybusiness,perhapsthroughacquisition.Nonetheless, it will require changes to this company’s competitive priorities.5.Technology Management. To identify a market segment, we need to determineanswers to questions such as: Which colleges and departments currently offer thesubject? What do instructors desire in the way of textbook support? Is there a trendtoward Technology Management courses? Are there other Technology Management

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Using Operations to Create Value1-2texts? Some needs assessment can be accomplished by survey,but theresponse ratemay be low. A high-investment strategy would be to ask or hire instructors toreview and critique a list of topics, then an outline, then a draft. Explicit servicesinclude supplying information about the subject in the form of a textbook andinstructor support in the form of ancillary publications.6.It is often not a good idea for a company to try to excel in all of the competitivepriorities because it is generally impossible to do so. Mediocrity is a predictableresult. The choice and the minimum level of one or more of the competitivepriorities are set by the order qualifiers for the particular product or service. Thechoice of the competitive priorities that the company should emphasize is usuallygoverned by the company’s strategy driven by its mission statement and the corecompetencies that the company wants to harness to seek the best competitiveadvantage.7.Core processes should link to a firm’s core competencies. Core processes are thoseprocesses that provide the firm the best competitive advantage. Essential to thedefinition a firm’s core processes is the concept of “interaction costs.” These costsinclude the time and money that are expended whenever people and companiesexchange services, products, or ideas. If the transaction costs are higher to retain aprocess within the firm’s organization than to outsource the process, the processshould be outsourced.8.Wendy’s assembles hamburgers to order. When materials are held at the stage justbefore final assembly, they can be used to complete a wide variety of differentsandwiches. Because no finished-goods stock exists, when customers say, “Hold thesauce,” there is no delay or waste of materials. Service clerks specialize. One clerktakes orders and payment. Others fill portions of the order. Orders are processed insingle file. Throughput is normally restricted by transactions at the cash register. Atbusy times, throughput is increased by splitting the bottleneck operation. One clerktakes customer orders, another receives payment. The Wendy’s operation has somecharacteristics of assembly. Therefore, the impact of new menu items on theproduction operations must be carefully considered.9.Grandmother’s Chicken.a.Kathryn Shoemaker’s strategic plans include the following:Product and service plans: Should the new location offer a new mix?Competitive priorities: If the product mix and service mix are different at the newlocation, the thrust could be on low volumes and high quality.Quality management: Should the goal be reliability or top quality?Process strategy: What processes will be needed to make chicken dinners in theaddition or new facility?New technologies: Is it time to automate? Is this why there is a problem in servicetimes?Capacity: How large should the addition or new facility be?Location: Should we locate in Uniontown or expand in Middlesburg?

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Using Operations to Create ValueCHAPTER 11-3b.Attitudes toward nutrition could change the demand for chicken. Competitors suchas Boston Market may be planning to move to Uniontown or even Middlesburg.There may be a trend toward demands for ever-faster service, which cannot besupported by the processes specified in the “unique recipe.” The economy ofUniontown might not be supportive of restaurant services. Shoemaker should alsoconsider the availability of key resources, such as servers, whole chickens, spices,and cooking oil. Will Uniontown labor organize?c.The possible distinctive competencies at Grandmother’s Chicken Restaurant includethe “unique recipe,” the homey atmosphere, and friendly, prompt service.10.WildWest, is recognizable as US WEST, which was bought out by Qwest in ahostile takeover in June, 2000.But many other “Baby Bells” are in a similarposition.a.Strategic plans include reducing overhead, reengineering operations, and investing innew technologies to meet competition. The “do-nothing” option of remaining a localmonopoly telephone company is not viable because of competition from cablesystemsandwirelesssystemsthatarecapableofbusinessandpersonalcommunication. If the mission is too broad, Wild West should sell its financialservices and commercial real-estate businesses. Those businesses do not match theirdistinctive competencies.b.One environmental issue is whether communication, like health care, will be viewedas a “right” and therefore should be free. A significant portion of Wild West’sbusiness is governed by regulatory agencies. Customer service in their core businessis essential to maintaining a favorable regulatory environment. Other businessopportunities, suchasmanufacturingand providinginformation services,areprohibited by the same court order that formed the “Baby Bells” from AT&T.c.Wild West’s distinctive competency is in connecting people (or machines) for thepurpose of communication. A weakness is high overhead inherited from the era oftelecommunication monopoly.11.Although the answers may vary depending on the “niche” elements of the business, thecompetitiveprioritieswouldincludeon-timedelivery,low-costoperations,andcustomization. The latter competitive priority comes from the capability to assembleunique “baskets” of food items for each customer. There may be a need to coordinate agiven basket between two different stores. Capabilities to develop would includeinformation systems and Web page design, efficient scheduling of delivery trucks (whichmust first collect the items in the basket and then deliver them to the customer’s door),and an adequate fleet of trucks with drivers.

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Using Operations to Create Value1-4PROBLEMSAddressing theTrendsand Challengesin Operations Management1.Boehring Universitya.Value of output:studentscredit-hours$200 tuition$100 state support753$67,500 classclassstudentcredit-hoursValue of input: labor + material + overhead$25$650075 students$30, 000student$38,375 classclassMultifactor Productivity ratio:ProductivityOutput$67,5001.76Input$38,375Compared to Solved problem 1, multifactor productivity has increased from1.25 to 1.76.b.Value of output is the same as in part a:$67,500 classLabor-hours of input:2016320hoursweekweeksclasshoursclassProductivity ratio:Labor ProductivityOutput$67,500$210.94 hourInput320 hoursThe $192 season ticket price is not used in this calculation. It is a “red herring.”2.Suds and Duds Laundrya.Labor productivityWeekNumber ofWorkersInput(Labor-hours)Output(Shirts)Output/InputRatio1224682.83 shirts/hour22461302.83 shirts/hour33621522.45 shirts/hour43511252.45 shirts/hour52451312.91 shirts/hourb.Output per person does not vary much whether it is Sud, Dud, or Jud working.Productivity declines when all three are present. Perhaps there isn’t enough work tokeep three persons occupied, or perhaps there is not enough workspace orequipment to accommodate three workers.

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Using Operations to Create ValueCHAPTER 11-53.White Tiger Electronicscompact disc playersValue of Output: $300Value of Input: Labor + Materials + OverheadProductivityOuput$3002.000Input$30$70$5010% productivity improvement2 001102 200...Givenproductivity2 20., and the value of output$300,we solve for the cost ofinputs:ProductivityOuput$3002.20InputInputInput$300$136.362.2or $136The cost of inputs must decrease by$150$136$14.a.A $14 reduction in material costs is$14 $7020.00%b.A $14 reduction in labor costs is$14 $3046.67%c.A $14 reduction in overhead is $14/$50 = 28.00%4.SymtecksThe output of a process is valued at $100 per unit. The cost of labor is $50 per hourincluding benefits. The accounting department provided the following informationabout the process for the past four weeks:Week 1Week 2Week 3Week 4Units Produced112413101092981Total Value112,400131,000109,20098,100Labor ($)12,73514,84210,6039526Labor (hrs)254.7296.8212.1190.5Material ($)21,04124,52320,44218,364Overhead ($)8,99210,4808,7367,848Multifactor Productivity2.632.632.752.75Labor Productivity4.41 units/hr4.41units/hr5.15 units/hr5.15 units/hra.Usethemultifactorproductivityratiotoseewhetherrecentprocessimprovements had any effect and, if so, when the effect was noticeable.Value of output1124units$100$112, 400Value of input: labor + material + overhead$12,735 + $21,041 + $8,992 = $42,768Productivity ratio:Labor ProductivityOutputInput

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Using Operations to Create Value1-6Week 1ProductivityOutput$112, 4002.628Input$42, 768Week 2ProductivityOutput$131, 0002.628Input$49,845Week 3ProductivityOutput$109, 2002.745Input$39, 781Week 4ProductivityOutput$98,1002.745Input$35, 7382.7452.628100%4.45%2.628Improved 4.45%-noticeable in Week 3b.Has labor productivity changed? Use the labor productivity ratio to support youranswer.Labor-hours of input: Labor $50/hourLabor costsWeek 1 = $12,735/$50 = 254.7Week 2 = $14,842/$50 = 296.84Week 3 = $10,603/$50 = 212.06Week 4 = $9,526/$50 = 190.52Productivity ratio:Labor ProductivityOutputInputWeek 1 =Labor ProductivityOutput11244.4130 / hourInput254.7 hoursWeek 2 =Labor ProductivityOutput13104.413 / hourInput296.84 hoursWeek 3 =Labor ProductivityOutput10925.1495 / hourInput212.06 hoursWeek 4 =Labor ProductivityOutput9815.1491/ hourInput190.52 hours5.14914.4130100%16.68%4.4130Improved 16.68%

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Using Operations to Create ValueCHAPTER 11-75.Alyssa’s Custom Cakesa.5 Birthday cakes x $50 per cake = $2502 Wedding cakes x $150 per cake = $3003 Specialty cakes x $100 per cake = $300Total monthly revenue = $850Multifactor productivity ratio = output/input1.25 = $850/xSolve for x = $850/1.25 = $680Total costs = $680Average cost per cake = $680/10 = $68/cakeb.Labor productivityBirthday cake = $50/ 1.5 hours = $33.30/hourWedding Cake = $150/ 4 hours = $37.50/hourSpecialty Cake = $100/1 hours = $100/hourc.Based on labor productivity, Alyssa should try to sell specialty cakes the most.d.Yes, Alyssa should stop selling birthday cakes.Based on answer a, she loses$68-$50 = $18 everytime she sells a birthday cake.6.Big Black Bird CompanyThe Big Black Bird Company problem is based on a product made by RavenIndustries. None of the numbers are representative of actual costs or volume.a.Multifactor ProductivityOriginal Situation:Value of output:2500000uniforms$200 $500,Value of input:2500000uniforms$120 $300,Productivity ratio:ProductivityOuputInput$500,$300,.000000167Overtime Situation:Value of output:4000000uniforms$200 $800,Value of input:4000000uniforms$144 $576,Productivity ratio:ProductivityOuputInput$800,$576,.000000139Productivity decreases by:1.671.39100%16.77%1.67b.Labor ProductivityOriginal Situation:Value of output (from part a) is: $500,000Labor-hours of input:704030404000hourshourshours

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Using Operations to Create Value1-8Labor productivity$500,$125000 4000 hourshourOvertime Situation:Value of output (from part a) is: $800,000Labor-hours of input:707230727200hourshourshoursLabor productivity=$800,000 / 7200 hours = $111.11/hoursLabor productivity decreases by:(125/111.11)/125x 100% = 11.1%c.Gross profitsOriginal Situation:$500,$300,$200,000000000Overtime Situation:$800,$576,$224,000000000Weekly profits increased.7.Mack’s Guitar Companya.Labor productivity = output/inputOutput= 100 guitars x 80% completion rate x price/guitar=80 guitars/ month x $250/guitar = $20,000InputLabor = 10/hours per guitar x 100 guitars = 1000 hoursLabor productivity is $20,000/1000 = $20/hourMultifactor productivity ratio = output/inputOutput= 100 guitars x 80% completion rate x price/guitar=80 guitars/ month x $250/guitar = $20,000InputLabor = $10/hour x 10/hours per guitar x 100 guitars = $10, 000Material = $40/guitar x 100 guitars = $4, 000Overhead = $4,000Multifactor productivity ratio = $20, 000/$18, 000 = 1.11b.Option 1.Increase sales price by 10%Output= 100 guitars x 80% completion rate x ($250 x 1.1) = $22,000InputLabor is same as in part (a) = $10,000Material is same as in part (a)= $4,000Overhead is same as in part (a) = $4,000Multifactor productivity ratio = $22,000/$18,000 = 1.22Option 2.Improve QualityOutput= 100 guitars x 90% completion rate x $250/guitar = $22,500InputLabor is same as in part (a) = $10,000Material is same as in part (a)= $4,000Overhead is same as in part (a) = $4,000Multifactor productivity ratio = $22,500/$18,000 = 1.25Option 3.Reduce costs by 10%Output= same as in part (a) = $20,000Input

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Using Operations to Create ValueCHAPTER 11-9Reduce costs by 10% yields 90% of the input costs from part (a).= $18,000 x 0.90 = $16,200Multifactor productivity ratio = $20,000/$16,200 = 1.23Darren should choose Option 2 and improve quality because it yields thegreatest improvement in multifactor productivity.8.Mariah EnterprisesProductivity ofProcessAlpha andProcessBetaExcel used to perform all calculationsProcessAlphaBetaTotal Value of Output$17,150$16,450Total Cost of Labor$2,600$3,000Total Cost of Materials$5,500$4,900Total Cost of Overhead$6,000$5,000Labor Productivity$6.596$5.483unit $/ labor $Multifactor Productivity$1.216$1.275unit $/ total $Process alpha has 20% [(6.596-5.483)/5.483] higher labor productivity.Process beta has 5% [(1.275-1.216)/1.216] higher multifactor productivity.While process beta generates more dollars of output per dollar invested in input, itdoesn’t use labor as efficiently as process alpha.9.Morning Brew Coffee ShopExcel used to perform all calculationsa.Currentlabor and multifactor productivityCurrentlyRegularCoffeeCappuccinoViennacoffeetotalOutput in dollars$700.00$300.00$600.00$1,600.00Labor cost$320.00Material cost$175.00$75.00$187.50$437.50Equipment cost$125.00Overhead cost$225.00Profit$492.50

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Using Operations to Create Value1-10Labor Productivity5.0000Multifactor Productivity1.4447After adding new productAfter AddingNew ProductRegularCoffeeCappuccinoViennacoffeeEiskaffeetotalOutput in dollars$700.00$300.00$600.00$375.00$1,975.00Labor cost$320.00Material cost$175.00$75.00$187.50$112.50$550.00Equipment cost$200.00Overhead cost$350.00Profit$555.00Labor Productivity6.1719Multifactor Productivity1.3908Change in Labor Productivity23.438%Change in Multifactor Productivity-3.727%b.Theunits of Eiskaffeethatwould have to be sold to ensure thatthemultifactorproductivity increases from its current levelmay be calculated as follows:102945.288833.21670.2945.188851600$)5.1$5.1307($4447.15$1600$4447.15.1$5.1307$0.5$1600$4447.1350200))5.1($)25.1($150)75($.100)5($.350(320$)5($)4($150)3($100)2($3504447.1coscoscoscos$xXxxxxxxxxtOverheadtEquipmenttMaterialtLaborinsoldCoffeeinputoutput

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Using Operations to Create ValueCHAPTER 11-11Calculation confirmed in Excel:After Adding NewProductRegularCoffeeCappuccinoViennacoffeeEiskaffeetotalOutput in dollars$700.00$300.00$600.00$510.00$2,110.00Labor cost$320.00Material cost$175.00$75.00$187.50$153.00$590.50Equipment cost$200.00Overhead cost$350.00Profit$649.50Labor Productivity6.5938Multifactor Productivity1.4447Change in Labor Productivity31.875%Change in Multifactor Productivity0.001%CASE:CHAD’S CREATIVE CONCEPTS*A.SynopsisThis case describes a small furniture manufacturing company that has gained areputation for creative designs and quality by focusing on producing custom-designedfurniture. As its reputation grew it began to sell some standard furniture pieces to retailoutlets. The overall growth in sales volume and the diversification into theproductionof standard furniture pieces have caused a number of issues to arise concerning boththe internal manufacturing operations and its relationship to the other functionalareas of the company.B.PurposeThis case is designed to be used as either a “cold-call” case for class discussion oran assigned homework reading. Major points to be brought out in the discussioninclude:1.The range of decisions that are made in designing and operating processes2.The impact that these operating decisions have on the organization as a whole, suchas on marketing and finance3.The impact that decisions made in other functional areas of the organization have onthe operating function4.The need to go beyond the “functional silo” mentality and manage in an integrativemanner*This case was prepared by Dr. Brooke Saladin, Wake Forest University, as a basis for classroomdiscussion.

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Using Operations to Create Value1-12C.AnalysisQuestion 1:What types of decisions must Chad Thomas make daily for his company’soperations to run effectively? Over the long run?The students should be able to discuss a number of short-term-oriented decisionsthat are facing Chad Thomas. These should include:a.How to set priorities and schedule different orders. Chad is receiving orders for bothcustom-made, low-volume furniture pieces and higher-volume, standard pieces.Sales have increased, but the amount of equipment and the production capacity ofthe company have not. Different orders with different manufacturing requirementsare now competing for the same productive capacity.b.What orders to accept and how long of a lead time to plan for in promising a deliverydate.c.What type of work policies should be maintained for his employees? Decisions suchas the number and type of employees to employ, the number of hours to work perday, and the amount of overtime to allow are all work policy decisions that impactthe available capacity level.d.The allocation of resources, equipment, labor, and money to each product line.e.The level of inventory to maintain at various stages of the production process forboth the custom and standard furniture lines (i.e., raw material, WIP, finishedgoods). These decisions are linked to the longer-term, total inventory-investmentdecision.Examples of longer-term decisions that face Chad Thomas include:a.Amount of money to tie up in the total inventory investment.b.The type of equipment to invest in to support efficient production. At what pointshould more specialized equipment be purchased to manufacture high-volume,standard furniture pieces more efficiently?c.What should be the overall workforce level to maintain, and what should be theproper mix of skills and capabilities?d.How should the facilities be laid out to accommodate the two different productlines? This gets the students into a whole range of capacity and equipmentallocation decisionsincluding size, type, and configuration.In these decisions it is important that the students see the significance of consistency ofboth strategic and operating decisions across functional areas.

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Using Operations to Create ValueCHAPTER 11-13Question 2:How did sales and marketing affect operations when they began to sell standardpieces to retail outlets?Standard furniture pieces compete on a different set of competitive priorities thancustom-designed pieces. Timely delivery and low costs are much more important thanproduct flexibility. Quality may also be defined differently. The existing facilities are setup to provide flexibility with its job-shop orientation and general-purpose equipment.By introducing a standard line that should be manufactured on a flow line with somededicated, more specialized equipment, a conflict has developed, and schedulingproblems have resulted.Question 3:How has the move to producing standard furniture pieces affected thecompany’sfinancial structure?Inventory investment and operating costs are rising because of the frequent changeoversto accommodate the two different product lines and their scheduling conflicts.Profitmarginsforthestandardlinearesmaller,whichputspressureonmanufacturing to increase productivity and reduce costs. There may also be anissueconcerning the assignment of overhead costs to each product line.Finally, the potential need to rent warehouse space to store either WIP or finished-goodsinventory cuts into the profit margin for the standard furniture line.Question 4:What might Chad Thomas have done differently to help avoid some of theseproblemshe now faces?Chad needs to address issues relating to functional areas. Make sure the student is ableto identify decisions that relate to more than one functional area. Examples include thefollowing:Operations Function1.Monitoring capacity and utilization of facilities2.Formulating inventory policies—dollars, items, and unit levels3.Setting scheduling policies and priorities4.Maintaining product line qualityMarketing and Sales1.Accurately forecasting orders for standard pieces2.Defining market segments and customer needs3.Determining what delivery schedules can be promised to customersFinance1.Deciding level and type of investment2.Investigating the effect of capacity investment decisions on ROI

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Using Operations to Create Value1-14Distribution/Logistics1.Managing distribution and pipeline inventory2.Comparing cost and advantages of various transportation modes3.Meeting delivery lead timesThree possible avenues that students may focus on are: Thomas might havea.Established a plan for a more controlled growth. Part of this plan would be thedevelopment of the appropriate infrastructure to manage a controlled growth as towhat markets to enter, what product lines to develop, and how to develop the propermanufacturing capabilities.b.Maintained the company focus on custom-designed furniture only. This alternativepresents a whole different set of issues and decisions pertaining to future growth, butit would have avoided the issues of mixed competitive priorities and schedulingconflicts.c.Realizedthedifferentrequirementsforeachproductlineandfocusedthemanufacturing facilities into two separate sets of production facilities designed tocater to each product line’s specific needs.D.RecommendationsThis case is not designed to be a decision-making case per se but rather a vehicle toget students thinking about the types and the integrated nature of decisions thatoperations managers face. The students may, indeed, have suggestions as to what shouldbe done to help out Chad Thomas. These recommendations will more than likely followthe alternatives already discussed. As recommendations are provided by students, makesure you push them to understand the implications of their recommendations withrespect to the company as a whole and the other functional areas.E.Teaching StrategyThis case can be effectively discussed in 20 to 30 minutes by following the discussionquestionsprovidedattheend. Thequestionsareinterconnectedand somewhatredundant on purpose to reinforce the interrelatedness of decisions made in variousfunctional areas of the company. The intent is to have the students understand the rangeof decisions that face managers in the operating function and to realize that differenttypes of products competing in different markets place different demands on theoperatingfunction.Therefore,productivesystemswilltakeonavarietyofconfigurations.Exhibit TN.1 lays out a sample table to be written on the board displaying importantissues in the class discussion. Each column can be used to compare and contrast thedifferences in the requirements imposed by custom versus standard furniture for eacharea.

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Using Operations to Create ValueCHAPTER 11-15EXHIBIT TN.1Board PlanImportant IssuesCustom FurnitureStandard FurnitureMarketingQuality level and quality controlProcess equipmentProcess flowProduction scheduling systemPurchasingType of inventory and inventorycontrol systemType of engineeringType of labor and supervisionneededWage/reward systemLayout

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Using Operations to Create Value1-16CASE: BSB, INC.: Pizza Wars Come to CampusA.SynopsisBSB, Inc. presents the situation where launching a pizza service at a food serviceoperation on a college campus turns out to be very successful. As the manager of thefood service operation is contemplating an expansion of the service, an announcementby the university that a new food court will soon be opening in the new student unioncauses some concern. The new food court will contain, for the first time on campus,other food service companies, including a new Pizza Hut kiosk. This causes the managerof BSB, Inc. to reevaluate the competitive environment and her own competitivepriorities.B.PurposeBSB, Inc. provides the students an opportunity to discuss a number of strategicallyfocused issues to include the following:1.Mission statements:Mission statements describe the fundamental purpose for whichthe organization exists. The university decided that a focus on food serviceoperations was not part of its primary mission, so it contracted the service out toBSB, Inc. Students should be able to describe a mission statement for BSB, Inc. Thisstatement will help in discussing the second major focus of this case.2.Comparison of competitive priorities:When the pizza service was launched ayear ago, the competitive priorities were to expand the product line to offerpizza that could be delivered quickly at a reasonable price. Costs were kept low,and turnaround time was short due to the limited combination of toppingsavailable.With the addition of the food court and Pizza Hut on campus, competitive prioritiesmay change. Delivery may still be a differentiating competitive priority, but productflexibility (variety) and volume flexibility (large order sizes) may become moreimportant. BSB, Inc. may not be able to compete on low cost when compared toPizza Hut’s operations.3.The impact changing competitive priorities has on operating decisions:Studentsneed to discuss the potential impact that different competitive priorities have onprocess design and operating systems. If product flexibility and volume flexibilitybecome more important, then there are implications for:a.Equipment needs—conventional oven versus continuous chain driveb.Capacity requirements—order size and delivery cyclec.Inventory issues—inventory needed to support product flexibility4.Product life cycles:Demand for pizza on campus has leveled off. Why? Has itreached its mature, steady state? What will be the impact of new competition? Whatcan be done to reposition pizza into a growth stage? These are questions that shouldbe asked of students to get them to think about pizza’s product life cycle.C.Analysis

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Using Operations to Create ValueCHAPTER 11-17A good analysis of the situation can be performed by going through the five questions atthe end of the case. The following is what you can expect from a first-year MBA studentgiven the case as a take-home assignment to read and to respond to the questions at theend.Question 1:Does BSB, Inc. enjoy any competitive advantages or distinctive competencies?BSB’s competitive advantage is close proximity to the customers. Though 43 percent ofmeals are eaten off campus, 57 percent of meals are still eaten at BSB’s facilities. Forpizza delivery the close proximity is critical, as it allows for quicker delivery. Inaddition, delivery can be done at a lower cost because bikes can be used.BSB’s distinctive competencies are the location of facilities and market know-how.Being on campus, BSB can provide delivery service quicker and at a lower cost. Inaddition, by being on campus, BSB is closer to the customer base, which allowsKershaw, the manager, to be more knowledgeable of her customer’s needs. Sheemploys environmental scanning, such as the customer surveys, to keep abreast of hermarket.Question 2: Initially, how did Renee Kershaw choose to compete with her pizza operations?What were her competitive priorities?Initially, Kershaw chose to compete on delivery service and price. She used quickdelivery as a key selling point. In addition, without a reasonable price, she could notcompete with the off-campus pizza companies. In effect, her order qualifier was price,and her order winner was service.Her initial competitive priorities for pizza were delivery speed and price. Her on-campuslocation and limited standard toppings make these priorities possible. Unfortunately, thispolicy limits the variety of pizzas available. The increased requests for additionaltopping combinations and the leveling of sales suggest this policy may be hurting BSB.Question 3:What impact will the new food court have on Kershaw’s pizza operations? Whatcompetitive priorities might she choose to focus on now?The new food court introduces new competition that has the same on-campus advantageas BSB. In addition, these companies can also provide products at reasonable prices, butunlike BSB, they have brand names. Her direct competitor, Pizza Hut, can probablyprovide a similar price. Most likely Pizza Hut will also have limited varieties; however,BSB still maintains its delivery advantage.The most likely new competitive priorities for BSB will be expanded product varietyand longer service hours. The increased requests for alternate toppings show a customerinterest in variety, and the expanded hours will enable BSB to offer service when thePizza Hut is closed or when students are in their dorm rooms.

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Using Operations to Create Value1-18Question 4:If Kershaw were to change the competitive priorities for the pizza operation, whatare the gaps between the priorities and capabilities of her process?How might thisimpact her operating processes and capacity decisions?An increase in product variety will affect both service and cost. Kershaw probablycannot have as many premade pizzas ready to throw into the oven. She will also need tostock additional toppings. If she wants to maintain service, she will need to hireadditionalworkers. She will inevitably have some trade-off between service and price ifshe addsproduct variety.Kershawwill also need to add capacity. At present, she is near capacity with herpizzaovens. She may even have to consider a new location, as there seems to be limited spaceat thegrill location. Clearly she will need to determine the viability of pizza servicebeforeshe takesthis step.Question 5:Can you outline a service strategy for Kershaw’s operation on campus?If she chooses to stay in the pizza business, delivery will remain important. Food, mostlikely pizza, delivered from off campus, is a significant competitor. These competitivecompanies likely offer many pizza combinations. Therefore, BSB will need to increasevariety to remain competitive. The key to this strategy is to maintain quality and toinnovate on product offerings. Kershaw must use her proximity to the customer tomaintain her competitive advantage in determining their pizza delivery needs.The other strategy would be total price competition. This would require her to keep thelimitedmenu and to push to keep costs at a bare minimum. Unfortunately this meansmaintaining the same basic strategy she has now. However, this strategy will most likelylead to an inevitable decline in market share. This strategy seems best if she decides toexit the market, but it gives her the opportunity to milk the market before exiting.In reviewing the student responses the instructor should note the following:1.On question three, the student overlooks the continued importance of convenient,quick delivery. The other food services do not provide this service.2.Students tend to hedge on question five. They should be pressured into puttingtogether a service strategy as opposed to describing alternative choices only.There are a number of positions Kershaw may take. What is important, however, is tolook for consistency in the strategies that students provide.

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Using Operations to Create ValueCHAPTER 11-19D.Teaching StrategyThis case is best assigned as a take-home assignment. Have the students focus onresponding to the questions at the end of the case. Tell them to pay particular attention tothe last question. The first four questions all lead up to the last one where studentsshould describe a service strategy for pizza operations of BSB, Inc. Tell students youwant them to settle on a specific strategy they can support.In class, start with the first question and cycle through to the final question, whichdescribes their service strategies. It is helpful to try to get two or three different strategieson the board to compare and contrast approaches. It is important that students see thatthere are a number of good alternative strategies and not just one best one.A thorough discussion of this case will take 45 minutes to an hour, especiallyif alternative strategies are discussed.

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2-1Chapter2ProcessStrategy andAnalysisDISCUSSION QUESTIONS1.Many processes at manufacturing facilities involve customer contact.Internalcustomerswouldincludethose employees whose operation(s)aresubsequent.QualityControlcouldbeconsideredaninternalcustomerascoulddesignengineering or sales.Quality Control, design engineering, marketing, sales andotherorganizationsrepresentthecustomeratvariousstagesofanyprocess.Customer contact can be very high, especially between production and engineeringand production and quality control.2.Some students may see this as a difference in competitive priorities. Others may seea difference in management styles. Ritz-Carlton empowers their employees and thelocal restaurant does not seem to empower. Ritz-Carlton believes that by havingemployees treat customers and other employees with respect, customer service isenhanced.A restaurant that does not allow employees to resolve a customer issuemay not see enhanced customer service.The restaurant may believe that the to-gocustomer will be better satisfied with fast and accurate orders.The in-storecustomer gets the chips and salsa to utilize the time while waiting for an order to beprepared. The to-go customer has already placed that order and it is ready when thecustomer arrives at the pickup window.3.eBay has considerable arrival andrequest variability, because its customers do notwant service at the same time or at times necessarily convenient to the company.They have request variability, seeking to buy and sell an endless number of items.Their process strategy allowssignificantcustomer involvement.Their customersperform virtually all of the selling and buying processes.McDonald’s instead offersaconsiderablevarietyoffoods,butfroma standardmenu.Staffingvaries,depending on the time of day.Customization is not encouraged, and the hoursduring which a store is opencan be controlled. Its processeshave virtuallynocustomer involvement, other than placing the order, picking up condiments ornapkins,and possibly disposing ofplates andcontainers when exiting.eBayaccomodates customer-introduced variability, whereas McDonald’s reduces it.4.Student answers will vary. One idea that they may come up with is the use ofelectronic files. The printing industry is undergoing a shift to pdf files. Medicalimaging and electronic file sharing is on the immediate horizon. The trick would betoconvincephysiciansthatwanttokeeptheirpadsandpencils,thattheir"blackberries" are their pads and pencils.

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PART1ManagingProcesses2-25.Selling financial services would involve considerable customer contact, and thus bea front office. Likely activities would be to work with the customer to undertandcustomer needs, make customized presentation to the customer, and maintain acontinuing relationship with the customer to react to changing customer needs.Producing monthly client fund balance reports involves little customer contact, andthus be a back office. Likely activities would be to obtain data electronically, run thereport using a standardized process, forward the hard copies and electtonic files toanalysts, and repeat the process monthly with little variation.6.The process of call center services is rated in the table below. The combined score is5.6 if each is given a weight of 0.20. Arguments could be made to give more weightto a dimension such as contact intensity, although more would need to be knownabout the exact process. The process’s alignment on the customer-contact matrixseems to fit a front office, with more jumbled work flows and process divergence.To be properly aligned, there should be considerable resource flexibility in terms ofboth the employees and their equipment.Dimension ofCustomerContactExplanationScorePhysicalpresenceThe customer is present for such steps as working to understandcustomer needs andanswering specific questions. Other steps suchas researchingproduct informationdo not involve asdirectcontact.1What isprocessedThe customer is the focus of what is being processed in certainsteps,suchasthespecificproductexplanation.However,researchingproductinformationliesmoreinthecategoryofinformation–based service rather than people-processing services.6ContactintensityThecustomerisactivelyinvolvedandthereishighservicecustomization process7PersonalattentionThere is considerable personal attention and confiding in workingto understand customer needs and in maintaining a continuingrelationship with the customer..7Method ofdeliveryMuch of the delivery is throughphone-to-phonecontact.77.The answer can be debated. On one hand, relentless pressure to improve can createconsiderable benefits over time, and could well put a company at the top of theindustry. On the other hand, small improvements do not lead to break-throughsolutions that might be what is needed to remain competitive, particularly in anindustrymarkedbyrapidchange.However,radicalchangeandprocessreengineering is strong medicine and not always needed or successful.8.This question was inspired by a similar situation faced by Ontario Hydro-Electric.Today electricity is a commodity that competes on the basis of low-cost operationsand reliability. If the environmental protection equipment is installed, HEC musteither absorb the costs as a loss (immediate bankruptcy) or attempt to pass on thecosts to customers and see further erosion of their market (eventual bankruptcy).HECwouldprobablydecide to delayinvestment inenvironmentalprotection

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Process Strategy and AnalysisCHAPTER 22-3equipment for as long as possible. Some discussion may focus on the issue ofwhether customers, as users of both electricity and the environment, are betterserved by competition (lower cost of electricity) or by regulated monopolies (betterenvironment).9.For background reading, see: Paul O’Neill, “WhytheU.S.Healthcare System IsSoSickand WhatO.R.Can Do To Cure It.”OR/MS Today(December, 2007).a.Although many ideas are possible, a typical response is some kind of computerorder-entry system. Although we asked for blue sky ideas, these systems do costa medium-sized hospital about $10 million, They also solveonlyhalf of theproblems, but the remaining half canbecomecomplicated and less tractable thanthe ones you started with.b.Same set of ideas possible here as well.c.Fill carts on a daily basis, more computerized information system, and so forth.d.Ideas could include more nurses, or one of several ways to remind nurses whena drug is to be administered.e.Many ideas are possible, ranging frommattresseson the floor to more nursecheck-insduring the night.f.Better sterilization procedures, better training on patient care, research on thecauses of the infections, and more thorough house cleaning are just a few ideas.Students will come up with more.PROBLEMSProcess Strategy Decisions1.Dr. GulakowiczFixed cost,F$150,000Revenue per patient,p$3,000Variable cost per unit,c$1000Break-even volume,$150,00075$3, 000$1000FQpcpatients2.Two manufacturing processesa.1122Fc QFc Q$50,000 + $700Q= $400,000 + $200Q$700$200$400,000$50,000Q$350, 000700$500Qunitsb.Choose the second process, because 800 exceeds the break-even volume.3.Sebago Manufacturing

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PART1ManagingProcesses2-4The point of indifference (at which the proposals yield the same annual cost)between:Proposal One and Two:0.00 + 22x = 150,000 +14xX = 18,750 components per yearProposal Two and Three:150,000 +14x = 450,000 + 12.50xX = 200,000 components per yearProposal One and Three0.00 + 22x = 450,000 +12.50xX = 47,368.4 components per yearProposal one will provide the lowest annual cost if between 0 and 18,750components are required annually, proposal two will provide the lowest annualcost if between 18,750 and 200,000 components are required annually, andProposal three will provide the lowest annual cost ifgreater than 200,000components are required annually.Documenting and Evaluating the Process4.Custom Molds5.Process chart for Custom Molds with metrics

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Process Strategy and AnalysisCHAPTER 22-5

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PART1ManagingProcesses2-66.ABC Insurance Company7.ABC Process Chart8.DEF Flowchart

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Process Strategy and AnalysisCHAPTER 22-79.Big Bob’s Service BlueprintCustomerCounterEmployeeGrillEmployeeFryEmployeeOrderFoodPay forFoodReceiveFoodTakeOrderAsk forPaymentMakeChangeWrapFoodRetrieveDrinkCompletePackagingReceiveOrderRetrieveRaw FoodGrillFoodBuildSandwichReceiveOrderRetrieveRaw FoodFryFoodWrapFoodTransmitOrderDeliverSandwich$$Line of VisibilityService Blueprint for Big Bob’s Burger Barn10.Referendum 13Flowchart for yard sign assembly:

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PART1ManagingProcesses2-8Human resource requirements:One of many possible arrangements is to create several cells with four workers ineach cell.Worker 1 is a materials handler, bringing printed cards and stakes (say in stacksor bundles of 25) to the gluing table and taking completed signs (again inbundles of 25) to the shipping area.Worker 2 glues printed cards to the stakes. Worker 2 is also responsible forkeeping the area supplied with glue, staples, pizza,and soft drinks.Worker 3 is also a materials handler, transferring glued signs in small quantities(a transfer batch) to the stapling table.While worker 3 holds the material in place, Worker 4 staples the card to thestake to hold it while the glue dries. Worker 4 also inspects the staples, drivesloose ones home with a hammer, and stacks completed signs in bundles of 25for Worker 1 to take away.Accounting for interruptions, material shortages, and chaos, each cell will completeabout eight signs per minute, or about two signs per worker-minute. 10,000 signswould require about 5,000 worker-minutes, or 83.33 worker-hours. In order toaccomplishthisworkwithinthreehours(maximumattentionspanofcollegestudents) 83.33/3 = 27.78 or about 28 student volunteers are required to staff 7 cells.Material requirements (for 7 cells of 4 workers each):10,000printed cards10,000stakes32,000staples (16 boxes of 2,000 each)2812-ounce bottles of wood glue4cases10pizzasEquipment requirements:14tables7staple guns7hammers (to set staples)Process chart (usingProcess ChartSolverof OM Explorer):

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Process Strategy and AnalysisCHAPTER 22-9

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PART1ManagingProcesses2-1011.Mailing to the alumni of your collegea.A sample process chart for 2000 letters follows.b.Total time for 2000 letters = [(0.57 min) / 60 min per hour] x 2000 letters = 19hours.The cost to process 2000 letters = ($8/hr)(19 hr) = $152.c.Changes that would reduce the time and cost of the process:A letterhead with “Dear Alumnus” will make step 1 (process letter) notnecessary, saving 400 minutes and $53.33 [$8(400/60)].With mailing labels, step 1 involves matching the letters with labels ratherthan with addressed envelopes, but now we must stick the label to theenvelope. We do everything we did before plus the extra step. The timewould increase by 200 minutes and cost $26.66 [$8(200/60)] more.Prestamped envelopes will eliminate step 5 and save 200 minutes and $26.67[$8(200/60)].If envelopes are to be stamped by a postage meter, it will take, 10 minutes[2000/200].Thisresultsinasavingsof190minutesand$25.33[$8(190/60)].Windowenvelopeseliminatetheneedtomatchenvelopestoletters,resulting in a savings of $53.33.d.Using the letter with “Dear Alumnus” may reduce the effectiveness of theproject because it would be less personal. This concern goes also for the use ofmailing labels.

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Process Strategy and AnalysisCHAPTER 22-11e.Although including a preaddressed envelope will increase time and cost of theprocess, alumni may be more likely to contribute if they have an envelopeavailable to them.12.Gasoline Stationsa.The gas station in part (b) has a more efficient flow from the perspective of thecustomer because traffic moves in only one direction through the system.b.The gas station in part (a) creates the possibility for a random direction of flow,thereby causing occasional conflicts at the gas pumps.c.At the gas station in part (b) a customer could pay from the car. However, thispractice could be a source of congestion at peak periods.13.Just Like Home Restauranta.The summary of the process chart should appear as follows:b.Each cycle of making a single-scoop ice cream cone takes1.70 + 0.80 + 0.25 + 0.50 = 3.25 minutes. The total labor cost is($10/hr)[(3.25 min/cone)/60 min](10 cones/hr)(10 hr/day)(363 day/yr)= $19,662.50.c.To make this operation more efficient, we can eliminate delay and reducetraveling byhaving precleaned scoops available. The improved process chartfollows.

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