Student Name Student ID

OPR 611 - OPERATIONS MANAGEMENT

 Question#1
A.

Labor Productivity can be calculated by following formula:

Total output
Labor Productivity =
Total Input(Labor Cost )
Details Cincinnati Frankfurt Guadalajara Beijing

Finished goods 10,000 12,000 5,000 8,000

Work-in-process 1,000 2,200 3,000 6,000

Total output (a) 11,000 14,200 8,000 14,000

Labor costs $ (b) 3,500 4,200 2,500 800

Labor productivity (a/b) 2.86 2.86 2 10

B.

Multifactor Productivity calculated by:

Output
Multifactor Productivity=
Inputs(Labor + Material+ Energy+ Miscellaneous)

Costs Cincinnati Frankfurt Guadalajara Beijing

Finished goods 10000 12000 5000 8000
Work in process 1000 2200 3000 6000
Total output (a) 11000 14200 8000 14000
Labor costs $3500 4200 2500 800
Material costs $3500 3000 2000 2500
Energy costs $1000 1500 1200 800
Transportation costs $250 2500 2000 5000
Overhead costs $1200 3000 2500 500
Total cost (b) $9450 14200 10200 9600
Multifactor 1.16 1.00 0.78 1.46
Productivity (c=a÷b)

C.

Omar Industries should close Guadalajara, because it has the lowest

Multifactor productivity.

Question#2
A.
Cost of buying = annual requirement * price of the supplier = 300*50 = $15,000
Cost of making = fixed investment + (annual requirement *costs of production per
unit) = 25,000 + (300*40) = 37,000
As the cost of buying is less than the cost of making, Merrimac should buy.

B.
Total cost of buying from new supplier = $50*100 parts+$45*(300-100)
Parts = 5000+9000 = $14,000.
This is lower than the two costs calculated in (A) above. Hence Merrimac should
buy from the new supplier.

C.
(i) If demand = 2,000 then cost of buying from old supplier = 2,000*50 =
$100,000
Cost of making = 25,000 + (2000*40) = $105,000

Cost of buying from new supplier = 50*100 + (2000-100)*45 = $90,500.

Hence the parts should be purchased from the new supplier.

(ii)
Demand = 5000 parts
cost of buying from old supplier = 5,000*50 =250,000
cost of making = 25,000+(5000*40) = 225,000
cost of buying from new supplier = 50*100+(5000-100)*45 = 225,500

The cost of making/production is the least and hence the parts should be made by
Merrimac.

D.
Comparing the cost of the old supplier and the new supplier:
Let the quantity be "x" where both costs are equal. Thus;
50x = 50*100+45*(x-100)
50 x = 5000+45x - 4500
5x = 500, or, x = 100.

Comparing new supplier vs. making: Let the demand quantity be "x" where both
costs are equal. Thus;
50*100+45*(x-100) = 25,000+40x

or, 5000+45x - 4500 = 25000+40x

5x = 24500 or x = 4900

Thus if x (or demand) <=100 then the parts should be purchased from the old
supplier.

if x>100 but <4900 then the parts should be purchased from the new supplier.

if x>=4900 then the parts should be made by Merrimac.

Question#3
A)
Netflix supply-chain strategy - Before 2011
Key elements:
Deliverance of DVDs through distribution network
Capturing customer’s viewing habits through customized software
Based on customer's preferences, the content is maintained accordingly.

Netflix supply-chain strategy - After 2011

Key elements:
Streaming of content Online
The internet connectivity, content to be supplied etc.
Subscription based billing
No wait time for the customers

B)

Netflix's old supply chain depended on content to be delivered by physical

inventories like DVDs through a distribution network. Netflix provided the service
of one day delivery of the DVDs to customers but still the customers waited for the
DVDs to be delivered. Customers used to return the DVDs in case of damage or
irrelevant content delivery.
Whereas, the new supply chain approach provided the online streaming of content
which resulted in the 'no wait time' service for the customers. All that the customer
needs is a proper internet connection.

Hence, now the customers prefer the new supply chain policy and approach as
compared to the old one.

C)

Netflix still holds some of the old customers who prefer the DVDs than the online
streaming. So, till the number of customers ordering DVDs declines to an extent
that it becomes unprofitable; Netflix should hold on to its physical distribution
system.