Operations Management

HOMEWORK # 1
Operations Strategy, Process Strategy, Process Analysis, Capacity Planning

Instructions:
1. Each individual should submit one word file of the homework with Pareto charts
or other related calculations copied in the word file. It is not necessary to submit
Excel files or other supporting files.
2. Homework should be submitted in a neat, professional manner. You are strongly
encouraged to prepare your submission using a typeset software (such as Microsoft
Word), but carefully prepared hand-written submissions are also acceptable.
3. Some parts of the questions would be a bonus for the grade of your assignments
increasing the grade of your all assignments up to 15% if you solve those parts
correctly but only helps you get a full mark in assignment not more than that.

Questions

1. Select a Fortune 500 company:

a. Argue about which processes are core to a firm’s competitive position.
b. Discuss its competitive priorities along the four dimensions. Please do not
select companies that were discussed in class. Does the company possess
the operational capabilities for these competitive priorities? What are the
order winners and the order qualifiers? Please explain.
*Bonus
c. Bring your idea about in which stage is the operations contribution in
strategy of the firm. Please explain.
Note: A list of Fortune 500 companies is available at
http://money.cnn.com/magazines/fortune/fortune500. Please limit your answer
to one page typed in 12 point fonts. Double spacing is not necessary.
[Alternatively, you can also choose to discuss a local business, instead of a
Fortune 500 company. In that case you need to pick a company from IMI 100
top companies of Iran https://imi100.imi.ir/Ranking ]

2. The Morning Brew Coffee Shop sells Regular, Cappuccino, and Vienna blends of
coffee. The shop’s current daily labor cost is $320, the equipment cost is $125,
and the overhead cost is $225. Daily demands, along with selling price and
material costs per beverage, are given below.

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 Regular Coffee Cappuccino Vienna Coffee
Beverage Sold 350 100 150
Price per Beverage $ 2.00 $ 3.00 $ 4.00
Material $ 0.50 $ 0.75 $ 1.25
Harald Luckerbauer, the manager at Morning Brew Coffee Shop, would like to
understand how adding Eiskaffee (a German coffee beverage of chilled coffee,
milk, sweetener, and vanilla ice cream) will alter the shop’s productivity. His
market research shows that Eiskaffee will bring in new customers and not
cannibalize current demand. Assuming that the new equipment is purchased
before Eiskaffee is added to the menu, Harald has developed new average daily
demand and cost projections. The new equipment cost is $200, and the overhead
cost is $350. Modified daily demands, as well as selling price and material costs
per beverage for the new product line, are given below.

Regular Cappuccino Vienna Coffee Eiskaffee

Coffee
Beverage Sold 350 100 150 75
Price per Beverage $ 2.00 $ 3.00 $ 4.00 $ 5.00
Material $ 0.50 $ 0.75 $ 1.25 $ 1.50

a. Calculate the change in labor and multifactor productivity if Eiskaffee is

added to the menu.
b. If everything else remains unchanged, how many units of Eiskaffee would
have to be sold to ensure that the multifactor productivity increases from
its current level?

3. Two different manufacturing processes are being considered for making a new
product. The first process is less capital-intensive, with fixed costs of only
$50,000 per year and variable costs of $700 per unit. The second process has
fixed costs of $400,000 but has variable costs of only $200 per unit.

a) What is the break-even quantity beyond which the second process becomes
more attractive than the first?
b) If the expected annual sales for the product is 800 units, which process would
you choose?

4. The management of the Just Like Home Restaurant has asked you to analyze
some of its processes. One of these processes is making a single-scoop ice cream
cone. Cones can be ordered by a server (for table service) or by a customer (for
takeout).

The figure ‌below illustrates the process chart for this operation.

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Process: Making one ice cream cone
Subject: Server at counter Summary
Beginning: Walk to cone storage area
Ending: Give server or customer the cone Activity Number Time Distance
of Steps (min) (ft)
Operation
Insert Step
Transport
Append Step Inspect
Step Time Distance Delay Step Description
No. (min) (ft) Remove Step
1 0.20 5.0 X Store
Walk to cone storage area
2 0.05 X Remove empty cone
3 0.10 5.0 X Walk to counter
4 0.05 X Place cone in holder
5 0.20 8.0 X Walk to sink area
6 0.50 X Ask dishwasher to wash scoop
7 0.15 8.0 X Walk to counter with clean scoop
8 0.05 X Pick up empty cone
9 0.10 2.5 X Walk to flavor ordered
10 0.75 X Scoop ice cream from container
11 0.75 X Place ice cream in cone
12 0.25 X Check for stability
13 0.05 2.5 X Walk to order placement area
14 0.05 X Give server or customer the cone

 The ice cream counter server earns $10 per hour (including variable fringe
benefits).
 The process is performed 10 times per hour (on average).
 The restaurant is open 363 days a year, 10 hours a day.

a) Complete the Summary (top-right) portion of the chart.

b) What is the total labor cost associated with the process?
*Bonus

c) How can this operation be made more efficient (make some significant
guesses)? Make a process chart for the new improved process. What are
the annual labor savings if this new process is implemented?

5. Smith, Schroeder, and Torn (SST) is a short-haul household furniture moving

company. SST’s labor force, selected from the local community college football
team, is temporary and part-time. SST is concerned with recent complaints, as
tabulated on the following tally sheet:

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 Complaint Tally
Broken glass
Delivered wrong address
Furniture rubbed together
while on truck
Late delivery
Late arrival for pickup
Missing items
Nicks and scratches from
rough handling
Soiled upholstery

a) Draw a bar chart and a Pareto chart using Excel or any other Office tools to
identify the most serious moving problems.
b) The manager of Smith, Schroeder, and Torn is attempting to understand the
root causes of complaints. He has compiled the following list of issues that
occurred during problem deliveries:
truck broke down, ran out of packing boxes, multiple deliveries in one day
caused truck to be late, no furniture pads, employee dropped several items,
drive got lost on route to address, ramp into truck was bent, no packing tape,
new employee doesn’t know how to pack, moving dolly has broken wheel,
employee late to work. Organize these causes into a cause-and-effect diagram.

*Bonus
c) You can also add some of your significant guesses to the causes of complaints
in order to make a rich fish bone diagram.

6. What are the economies of scale in a software developing company (here is a

example of a small size software developing company located in the US
https://lovata.com/)? As its number of customers (orders of developing software)
increases, what symptoms of appear? How are these symptoms related to
customer contact?

7. Food Goblin Supermarkets use both cashiers and baggers to serve customers at
check out. During the first 6 hours of each workday (Monday–Friday), 4 cashiers
and 2 baggers serve approximately 20 customers per hour. A cashier and a bagger
who require approximately 5 minutes at checkout and 5 minutes at bagging serve
each customer.

a) Calculate the utilization of both cashiers and baggers.

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 b) Assume that both baggers and cashiers are cross-trained to perform both
activities so that they can serve customers independently. Customers are
now both checked and their groceries bagged by one individual. Further,
assume that it takes 12 minutes for one individual to both cash out and bag
each customer’s groceries. Calculate the utilization of this new group of 6
cross-trained employees.

8. Tuff-Rider, Inc., manufactures touring bikes and mountain bikes in a variety of

frame sizes, colors, and component combinations. Identical bicycles are produced
in lots of 100. The projected demand, lot size, and time standards are shown in the
following table:

Item Touring Mountain

Demand forecast 5,000 units/year 10,000 units/year

Lot size 100 units 100 units

Standard processing time 0.25 hour/unit 0.50 hour/unit

Standard setup tome 2 hours/lot 3 hours/lot

The shop currently works 8 hours a day, 5 days a week, 50 weeks a year. It
operates five workstations, each producing one bicycle in the time shown in the
table. The shop maintains a 15 percent capacity cushion. How many workstations
will be required next year to meet expected demand without using overtime and
without decreasing the firm’s current capacity cushion?

9. The Astro World amusement park has the opportunity to expand its size now (the
end of year 0) by purchasing adjacent property for $250,000 and adding
attractions at a cost of $550,000. This expansion is expected to increase
attendance by 30 percent over projected attendance without expansion. The price
of admission is $30, with a $5 increase planned for the beginning of year 3.
Additional operating costs are expected to be $100,000 per year. Estimated
attendance for the next five years, without expansion, is as follows:

Year 1 2 3 4 5

Attendance 30,000 34,000 36,250 38,500 41,000

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 a) What are the pretax combined cash flows for years 0 through 5 that are
attributable to the park’s expansion?
b) Ignoring tax, depreciation, and the time value of money, determine how
long it will take to recover (pay back) the investment
*Bonus
c) Considering 5% interest rate what is the NPV of this decision choice?

Good Luck