University of Engineering & Technology Peshawar

Department of Industrial Engineering

IE 5744: Operations Management
Midterm Exam Spring 2021 Semester
Time 3 hours
Marks: 75

Question 1:

a. Briefly describe at least five data collection techniques. (5 marks)

b. A discount store is experiencing an unacceptable number of dis-satisfied customers leaving from
the checkout process. Information from customers’ complaints from checkout process was
collected qnd is found in the following table. Construct a Pareto chart to identify the significant
problems. (5 marks)

Problem Type Total problems

Cashier slow 15
Price check 9
Line too long 22
Cashier unfriendly 4

c. The following table gives the average and range in kilograms for tensile tests on an improved
plastic cord. The subgroup size is 4. Determine the trial central line and control limits. If any
points are out of control, assume assignable causes and calculate revised limits and central line.
(15 marks)

Subgroup Number X R
1 476 32
2 466 24
3 484 32
4 466 26
5 470 24
6 494 24
7 486 28
8 496 23
9 488 24
10 482 26
11 498 25
12 464 24
13 484 24
14 482 22
15 506 23
16 496 23
17 478 25
18 484 24
19 506 23
20 476 25
21 485 29
22 490 25
23 463 22
24 469 27
25 474 22

Question 2:
a. Will organizations ever get to the point where they will no longer need inventories? Why or why
not? (5 marks)
b. Sam’s Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous review
inventory system. It purchases kitty litter for $11.70 per bag. The following information is
available about these bags. (20 marks)
Demand = 90 bags/week
Order cost = $54/order
Annual holding cost = 27% of cost
Desired cycle service level = 80%
Lead time = 3 weeks (18 working days)
Standard deviation of weekly demand = 15 bags
Current on hand inventory is 320 bags, with no open orders or backorders
i. What is EOQ? What would be the average time between orders (in weeks)?
ii. What should R be?
iii. An inventory withdrawal of 10 bags was just made. Is it time to reorder?
iv. The store currently uses a lot of 500 bags (i.e., Q = 500). What is the annual holding cost of
this policy? Annual ordering cost? Without calculating the EOQ, how can you conclude from
these two calculations that the current lot size is too large?
v. What would be the annual demand cost saved by shifting from the 500 bags lot size to EOQ?

Question 3:
a. What is the difference between a dependent and an independent demand? (5 marks)
b. What is MAD, and why is it important in selection and use of forecasting models? (5 marks)
c. The Victory Plus Mutual Fund of growth stocks has had the following average monthly price for
the past 10 months.
Month 1 2 3 4 5 6 7 8 9 10
Fund price 62.7 63.9 68.0 66.4 67.2 65.8 68.2 69.3 67.2 70.1

Compute the exponentially smoothed forecast with α = 0.40, the adjusted exponential
smoothing forecast with α = 0.40 and β = 0.30, and the linear trend forecast. Compare the
accuracy of the three forecasts using cumulative error and MAD, and indicate which forecast
appears to be most accurate? (15 marks)