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Ricon Corporation Memo - Managerial Decision Making, Management Science

Ricon Corporation Memo - Managerial Decision Making, Management Science

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Published by Francine Carron
Ricon Corporation - Solving queing systems
Ricon Corporation - Solving queing systems

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Published by: Francine Carron on Jan 22, 2011
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01/22/2011

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MEMO
 TO: Carlos Ocampo y VilasRicon CorporationFrom:Francine Carron and Vadim NeumannSubject:Queuing systems This memorandum is a summary discussion and is limited to the facts andissues described below. The conclusions and recommendations contained inthis memorandum are based on our understanding of the facts, assumptionsand information provided to us. We assume that all facts, assumptions andinformation provided to us are accurate and correct. Any changes to thefacts, assumptions and information as noted below may potentially alter theanalysis and recommendations. If the management believes that certaininformation or facts are not presented accurately, please contact us as soonas possible for an updated analysis and report.BACKGROUND The company needs to develop its high quality service and the efficiencylevel. According to its current policy the tech rep`s are repairing themachines 75 % of the time (6 hours out of 8 working hours/day). They areable to repair also four machines a day in case they do not do anything elseexcept then repairing. Customer arrivals occur randomly. 1/3 of all tech repsassigned mashines are new products. These machine require service withthe same frequency as the other machines. The peak in sales will double thenext two years.After introducing to the market a new all-in-one printer the sales increasedrapidly. In turn repairing times also increased, because no new high thechsare hired. The customers are not satisfied with long waiting times. After themanagement meeting Ricon states that no customer should wait longer thantwo hours. The president receives four different approaches for the optimalsolution in this case:a)John Phixitt: Hiring new tech reps in order to reduce waiting times. It isimportant to increase to improve the service.
b)
Engineers: Provide new equipment which will reduce the repair time.Although expensive, it may reduce the average waiting time. One timecost is USD 50.000
c)
Financials: No hiring of additional staff by establishing teams of techreps. They can help out each other during the busy times.
d)
Marketing: Prioritize customer of the new product. It will raise theirsatisfaction and keep the satisfaction of other customers adequate.
 
To do: Evaluation of the present situation and results andrecommendations regarding the proposed approaches.Assumptions:
Nr.1 The waiting time before the tech rep begins the trip to the customershould not exceed two hours.Nr. 2 The year consists of 230 working days.Nr.3 Saturday is not a working day for the office. There are five workingdays in the week.Nr. 4 We use US American DollarsNr.5W:Average amount of time, in hour, that a customer spends in the systemWq:Average amount of time, in hour, that a customer spends queueingCost:Total annual operating cost in MioH:Operating time of the tech rep by the customer, in per centC: Number of customers served per dayAd.Cost: Additional annual cost for new staff or new equipment in Mio.Wr:The average time for repair
SolutionOption 1: increased number of tech rep`s.
W(hour)Wq(hour)WrHAd.One-timecostAd.Cost(USD)Average Cost (USD)422(+-2)50%0300 900We need to optimize the high quality service and the efficiency level of ouroperations. We also need to take a closer look to our operating cost.In this case we take into account that no customer should wait longer thantwo hours (Wq). Based on our calculation we found out that there are two
 
customers that will be served in one day. It means that one tech rep isresponsible for 100 customers in the year. Before this change the tech repwas responsible for 150 mashines. This decreased number of machinesmeans that tech representative can establish better relationship with thecustomers, because he can better memorize the customers individually andcan also deal faster with them. It could cause in turn the reduced time of reparations if tech rep already knows the machines and is aware of previous problems with the machine. According to those calculations weneed to employ 5.000 additional tech reps. It will cost us additional 300 Mioand the yearly cost equals to 900 MIO USD.Furthermore we state that according to this policy each customer spends intotal in average four hours in the system, as he in average needs two hoursto wait for the tech rep and two hours to wait till the tech rep finishes hiswork. The most repair waiting times will be between 1,2 and 6,8 hours. Thistime did not change to the original case.
Option 2: New equipmentW(hour)Wq(hour)WrHAd. Cost-one time(MIO)AverageCost (MIO)42,41,6 (+-0,8)60 %500600
 The biggest change to the option ist hat we do not hire new staff but wereduce the reparation time. Using the new equipment the tech rep will inaverage need 1,6 h to finish the machine. It means that the average timefort he repair is between 0,8h and 2,4h. There is a big change in comparisontot he option nr.1. It means that during a busy season he or she can serve 5machines a day- one machine more than in previous case. In case of thebusy season it will raise the customer satisfaction becasue it will reduce theirwaiting time. The average time did not change in comparison with the previous case. Thisis caused because on the one side the time for reparaiton was reduced, buton the other side the queuing time increased. With usage of this system thetech rep spends in average 60 % of his time repairing the machines (way tocustomers included) and still has 40 % of his time for administrative work.Additional cost as well as average cost increased by 200 Mio USD incomparison with the option Nr.1. It is caused by relativelly expensiveequipment. However, we need to keep in mind that there is one-time cost.We estimate that the tech rep can operate in average for four years with this

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