48 Chapter One Sooty el Compson
Additional
Problems for
Chapter 1
Being able to get o the market quickly with produets that people want inthe volumes that
the marketplace requi jal if one wants to be a market leader. Time-based compe-
tition means that the time from proxiuet conception to its appenrance in the marketplace
"must be reduced, To do so, one performs a8 many tasks concurrently as possible. In many in-
stanees, time to market is less important than time fo volume. Being the Fist to the market
Tay not mean much if one cannot meet product demand,
‘The dramatic successes of the Japanese during the 19705 and 1980s were to a large
extent due (0 the outstanding quality of their manufactured products, Two Americans,
Dering and Juran, visited Japan in the early 1950s and played an important role in making
the Japanese aware of the importance of prextucing quality products. The quality movement
in the United Siates has r eater awareness of the importance of quality,
recognition for outstanding achievement inthis arena via the Malcolm Baldrige Award, and
initiation of important programs such as quality circles and the six-sigma program at
Motorola. (Both the statistical and the organizational issues concerning quality are di
cussed in detail in Chapter 11.)
Irs importunt to understand both produet and process life cycles. Both go through the
four eycles of start-up, rapid growth, maturation, and stabilization or deciine. It is also im-
portant to understand which types of processes are appropriate for which types of products
and industries. To this end, Hayes ancl Wheelwright have developed the concept of the
product-process matrix
Learning and experience curves ace useful in modeling the decline in labor houts or
the decline in product costs as experience is gained in the produetion of an item ot family
of items. These curves have been shown to obey an exponential lw, and can be useful pre-
clictors of the cost of time required for production. (Moore’s Lav, due to Gordon Moore, @
founder of Intel, predicted the doubling of chip performance every 18 months. This is
tn example of an experience curve, and the prediction has continued to be accurate to the
present day.)
‘We discussed two methods for assisting with capacity expansion decisions. Break
even curves provide a means of determining the sales volume necessary t0 justify
investing in new or existing facilities, A simple model for a dynamie expansion policy is
presented that gives the optimal timing and sizing of new facilities assuming constant
demand growth and discounting of future casts, We also discussed issues that arise in
trying to decide where to locate new facilities. This problem is very complex in that there
are many factors that zelate to the decision of where to Tocate production, design, and
management facilities
What is a production and operations strategy? Discuss the elements in common with
marketing and financial strategies and the elements that ace different
What is the difference between the product life cycle and the process life eycle?
In what way are these concepts related?
2. Suppose that the Mendenhall Corporation, a producer of women's handbags, has
determined that a 73 percent experience curve accurately describes the evolution ofits
production costs for a new line, Ifthe first nic costs $100 10 produce, what should the
10,000th unit cost based on the experience curve!)
Dolon’s Department Store sells several of its own brands of clothes and sevetal
well-known designer brands as well. Delon’s is considering building 2 plant in Adina Pabens for Caper 1 48
Malaysia to prociuce silk ties. The plant will cost the firm $5.5 million. ‘The
plant will be able to produce the ties for $1.20 each, On the othar hand, Delon’
can subcontract to have the tes produced and pay $3.00 each, How many tics
will Delon’: have to sell worldwide to break even on its investment in the new
plant?
44, A Japanese steel manufacturers considering expanding operations, From experience, i
cstimates that new eapacity additions obey the la
fo) = 00345)",
where the cost /{)) is measured in millions of dollars and » is measured in tons of
steel produced. Ifthe demand for steel is assumed fo grow at the constant rate of
8,000 tons per year and future costs are discounted using a 10 percent discount rate,
‘what is dhe optimal numberof years between new plant openings?
Te following problems are designed to be solved by spreadsheet.
(Ba 45: Consider the following break-even problem: th cost of producing Q units, e(Q), is
oe described by the curve
€(Q) = 480 [1 ~ exp(—08Q)),
where Q is in hundreds of units of items produced and o(Q) is in thousands of
dollars
4, Graph the function (Q). What i its shape? What economic phenomenon gives rise
fo a cumulative cost curve ofthis shape’?
D. At what production level docs the cumulative production cost equal
$1,000,007
€. Suppose that these units ean be purchased from an outside supplier ata cost of $800
each, but the fim nus invest $850,000 to build a facility that would be abe to
produce these units at a cost o(@). At what eumulative volume of produetion does
it make sense to invest in the Fality?
(2a 16: Maimtenance costs for anew failty are expected tobe $112,000 for the frst year of
6s operation Is ancipated that these costs will increase at arate oF 8 percent per year
Assuming a rte of return of 10 peresnt, what isthe present value ofthe steam of
‘maintenance costs over the next 30 years?
47, Suppose the supplier of keyboards described in Example 1.2 is willing to offer the
following incremental quantity discount schedule:
Cost per
Keyboard Order Quanti
$50 (= 100,000
$45, 100,000 = Q = 500,000
40, 00,000
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