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# PRODUCTION AND OPERATIONS MANAGEMENT

Midterm Examination

## Name:__________________________________________Date:________________Professor: Dr. Leonardo C. Medina, Jr.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.

1) The following table contains a list of activities, with precedence requirements and crash costs. All start and
finish times and crash costs are on a per-week basis.
a. Determine the project cost and duration without crashing.
b. Determine the least expensive project cost if the duration is to be 10% shorter than normal project duration.
c. Determine the least expensive project cost if the duration is to be 20% shorter than normal project duration.
d. Create a graph that shows project expediting cost plotted as a function of the reduction in project duration.

## Normal Crash Normal

Activity Time Time Cost Crash Cost Predecessor
A 10 7 2000 2600
B 12 8 1500 2000 A
C 16 12 2200 3000 A
D 8 7 2500 3000 B
E 13 10 1950 2275 C
F 9 8 800 1000 D
G 24 29 3650 4000 E, F
H 17 14 1200 1800 G

2) Consider a project that consists of three consecutive activities of equal length as shown in the network diagram.
The project manager would like to complete the project as quickly as possible and realizes that the diagram's
logic is misleading. Instead of waiting until activity A is completed before activity B can begin, he can actually
begin activity B once activity A has begun. The same reasoning holds for the relationship between activity B and
activity C. The project manager decides to divide each activity in half, a technique known as "laddering". The
second diagram shows the new network logic. In this diagram, activity A is divided into activity A1 and A2
where A1 must be finished before A2 can begin and before B1 can begin. The manager still isn't satisfied with
the completion time of the project. Derive an expression or draw a diagram that demonstrates the fastest
possible completion time of the project.

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3) The ________ is a statement of all work that has to be completed.

## 4) Why do managers want to know the slack of activities?

5) The demand for an item over the last year is plotted below. Develop a forecast and explain why your approach
is reasonable.

6) A local moving company has collected data on the number of moves they have been asked to perform over the
past three years. Moving is highly seasonal, so the owner/operator, who is both burly and highly educated,
decides to apply the multiplicative seasonal method (based on a linear regression for total demand) to forecast
the number of customers for the coming year. What is his forecast for each quarter?

7) Why are forecasts for product families typically more accurate than forecasts for the individual items within a
product family?

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8) A store has collected the following information on one of its products:

## Demand = 4,500 units/year

Standard deviation of weekly demand = 12 units
Ordering costs = \$40/order
Holding costs = \$3/unit/year
Cycle-service level = 90% (z for 90% = 1.28)
Number of weeks per year = 52 weeks

a. If a firm uses the continuous review system to control the inventory, what would be the order quantity and
reorder point?

b. The firm decided to change to the periodic review system to control the item's inventory. For the most recent
review, an inventory clerk checked the inventory of this item and found 300 units. There were no scheduled
receipts or backorders at the time. How many units should be ordered? (HINT: Use the EOQ model to derive P,
the time between reviews.)

9) A company governed by an EOQ system decides to move in a more lean direction and hopes to reduce their Q
as much as possible. What specific steps might be taken to help them in their journey towards a Q = 1?

10) A(n) ________ is a system that allows employees to place orders when inventory visibly reaches a certain
marker.

11) A production manager uses the economic lot size approach to determine the batch size for a product with an
annual demand of 20,000 units per year. The setup cost for each batch is \$50 and once the setup is complete, the
product may be produced at the rate of 800 units per day. There is a holding cost of \$2 per unit per year and the
plant operates on a 250-day production year. If the machine used to produce this product is needed for another
item and it takes one day to set up regardless of product, how many production days are available for
production of the new item?

12) Pick any three products that occupy both extremes and the midpoint of the one-period model continuum.
Explain why the products occupy these positions and identify the ideal inventory model for determining the
best order quantity or each.

13) Explain why in any given season, the one-period decision model may result in a poor choice for a stocking
level?

14) Choose any service and provide examples of how they can use a chase strategy for sales and operations
planning.

## 15) What is a mixed-strategy approach to sales and operations planning?

16) You observe a linear programming problem that has been solved using the graphical method of linear
programming. The feasible region and optimal solution are clearly labeled. How could you identify the slack or
surplus amounts in the scenario?

17) What are the limitations of the graphical method of linear programming?

18) What is the basic idea behind an enterprise resource planning system?

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19) The lot-for-lot (L4L) rule minimizes inventory investment but it also maximizes the number of ________.

20) What are some financial measures of supply chain performance? Which one is the most important and why?

21) In ________, the product is built to customer specifications from a stock of existing components.

22) A project tracking system should collect information on three topics for the project manager. What are these
topics, why are they important, and what actions can the manager take to address any concerns that surface?

23) The Bahouth Company wants to develop a sales forecast for a fast-selling new product line it has introduced, in
order to help plan future production. The following information has been gathered by the Marketing
Department. The past weekly average is 4,200 and the trend has been 250 additional units per week. This week's
demand was 4,600 units. Using trend adjusted exponential smoothing, calculate the forecasted sales for next
week? (Suppose = 0.20 and = 0.40.)

24) A store has collected the following information on one of its products:

## Demand = 10,000 units/year

Standard deviation of weekly demand = 25 units
Ordering costs = \$30/order
Holding costs = \$4/unit/year
Cycle-service level = 95% (z for 95% = 1.65)
Number of weeks per year = 50 weeks

a. If a firm uses the continuous review system to control the inventory, what would be the order quantity and
reorder point?

b. The firm decided to change to the periodic review system to control the item's inventory. For the most recent
review, an inventory clerk checked the inventory of this item and found 200 units. There were no scheduled
receipts or backorders at the time. How many units should be ordered? (HINT: Use the EOQ model to derive P,
the time between reviews.)

25) Why are there discontinuities (areas where the curve jumps up or down and is not smooth) in the total cost
curve in the quantity discount model?

26) What is the impact of the sales and operations plan on the human resources and finance functions of a firm?

27) A very confused manager is reading a two-page report given to him by his student intern. "She told me that she
had my problem solved, gave me this, and then said she was off to her production management course," he
whined. "I gave her my best estimates of my on-hand inventories and requirements to produce, but what if my
numbers are slightly off? I recognize the names of our four models W, X, Y, and Z, but that's about it. Can you
figure out what I'm supposed to do and why?" You take the report from his hands and note that it is the answer
report and the sensitivity report from Excel's solver routine.

Explain each of the highlighted cells in layman's terms and tell the manager what they mean in relation to his
problem.

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28) Use the bill of materials and inventory records to determine the quantity of purchased items necessary to
assemble 20 end items if the manufacturer uses lot-for-lot ordering. There are no end items currently on hand,
and none of the components have any scheduled receipts.

## Component On-hand Component On-hand

A 5 D 15
B 75 E 3
C 10 F 20

29) The VP of Finance studied the printing costs at the university and knew it was time for bold, decisive action.
The annual fixed cost of printing at the school was \$850,000 and the per-page cost was two cents. Fortunately,
his brother-in-law happened to own a company that would lease the printers to the university for only
\$600,000 and charge ten cents per page. At what point would the university be indifferent between owning their
printers and leasing their printers?

30) What options do project managers have to alleviate resource problems? Briefly describe each method.

31) What is the difference between mean absolute deviation (MAD) and mean squared error (MSE)?

32) The Hastings Company is a nation-wide wholesaler for small electronic devices. One of its most popular items
is a new GPS unit called the WAMI-1000. Hastings has gathered the following information, and has asked you
to develop a continuous review inventory control system for this item:
Order quantity for each order placed with manufacturer = 50,000 units
Average demand = 5,000 units/week
Standard deviation of weekly demand = 1,000 units
Average lead time = 4 weeks
Standard deviation of lead time: 1 week
Cycle-service level = 90% (z for 90% = 1.28)

## a. What is the standard deviation of demand during lead time?

b. What is the safety stock level that should be carried for the WAMI-1000?
c. What is the reorder point for the WAMI-1000?
d. Summarize the actions Hastings should take using your new inventory system.
e. If Hastings decides to increase its cycle-service level to from 90% to 99% (z for 99% = 2.33), how does this
change the actions that should be taken?

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33) A newsstand is trying to determine how many bundles of newspapers to stock. For each bundle, the newsstand
makes \$20. However, they lose \$5 per bundle if they do not sell. The following discrete probability distribution
has been estimated for their daily demand. How many bundles should they stock?

Demand
(bundles) Probability
4 .10
5 .20
6 .30
7 .30
8 .10

34) What does an advanced planning system do and what are the functions of the major components?

35) Provide three examples of operations management decision problems for which linear programming can be
useful, and why.