FSCM Tutorial 9

Chapter 6
Problems

1.a) Appraisal costs result from inspections used to assess products’ quality levels. Such costs include
resources spent on incoming material inspections, product and process inspections, inspection staff
salaries, test equipment, and development of test procedures.

=323.000+372.000+450.000=1.145.000

1.b) Prevention costs result from efforts to prevent product defects (nonconforming products) and
from efforts needed to limit both failure and appraisal costs. Such costs include resources spent on
planning, new-product reviews, investments in more capable processing equipment, training,
process control, and quality improvement project

= 205.000+310.000+250.000+120.000+75.000=370.000

1.c) Internal failure costs result from defects that are found in products prior to their shipment to
customers. These costs include scrapped materials, salvage and rework, excess material inventories,
and other costs of correction.

=426.000+230.000=656.000

1.d) External failure costs result from defects that are found only after products reach customers.
These costs include complaint settlements, loss of customer goodwill and future sales, returned
materials, warranty work, and field service or repairs

=550.000+150.000+80.000=780.000

1.e) 1.145+370+656+780=3.541.000

2) the temperature has to be within a 10 degree range (345-355)

In a Six Sigma approach, the goal is to achieve a process standard deviation that is 12 times smaller
than the range of outputs allowed by the product’s design specification (because it has to be six
upwards and six downwards?)

10/12=0.83 standard deviation

3.a) 10/6=1.67 standard deviation

3.b) 66.810/1.000.000=0.06681=6.681%

Case

1. I think the hotel is a bit of a mess and doesn’t provide a lot of service. Gets wet after getting
out of her car, clerk was irritated and chatting with cashier, room wasn’t ready because there
was no reservation, car gets towed, mess with the vacuum cleaners, room service trays in the
hallway, etc
2. Dinsmore is doesn’t seem to bother a lot about the quality. He suggests to vacuum every
other day, the restaurant has ‘too’ much quality so he wants to shorten on that, every other
incident he dismisses as a growing pain. I think customers really like to have some great
service and the luxury that everything works fine around them.

3. I think his handling doesn’t really match the handling a hotel manager should have, because
now half of the hotel doesn’t get cleaned every day and it should be. Instead he could have
bought some extra vacuum cleaners or maybe found an alternative way to use the maids
more efficiently.

4. Although the restaurant manager doesn’t communicate with other managers, he still delivers
a good job. I would suggest keep on letting him do his job in this way.

5. Try to convince the owner that quality really matters and that he shouldn’t neglect it. If he
gets aware of this, I would suggest ways to measure it, so the hotel and its employees can
keep on improving.

Chapter 7
Problems

14a) first minimizing the order cost and carrying cost ->Economic order quantity formula :

EOQ= square root of (2x12000x30)/(55x0.2)= 255.84->256

30x(12000/256) +
55x0.2x256/2=2.814,25

2814,25+ordering cost= 2814,25+ (55x12000)=662814,25

14b) EOQ= square root of (2x12000x30)/(50x0.2)=268.33 ->268, but use 400 because 50$ for 400
order or more

30x(12000/400)+50x0.2x400/2+ ordering cost (50x12000)= 602900

14c)

Z for 97.5%= 1.96 1.96x60.776=119.12 ->120 units

14d) average inventory= q/2+SS=400/2+120=320

14e) Inventory turnover=unit sales/average inventory in units=12000/320=37.5 times

300 days/37.5=8 business days

14f) ROP= daily demand x supplier lead time= 40x15=600 600+SS=600+120=720

20) = (30-5)/ (30-5)+(15+5)=0.55 -> z-score =0.71??

Order quantity= Expected demand + (z-score x standard deviation)=1000+(0.71x50)=1035.5

->1036

Problem

1. High inventory leads to higher costs ( carrying costs and product costs)
“There is a limit to how much we can afford”

It is hard to keep track of such a large amount of inventory;

“Sometimes our system even shows we should have stock but we don’t “

The company is not very liquid when their inventory is a large percentage of their
assets. Especially when the demand for inventory is very low;

“20 Percent of our inventory is classified as dead”

Adding improved versions of inventory that is still in stock creates additional dead
inventory.

“Adding products every day just makes it worse”

2. Lower storage costs by getting rid of the dead inventory by for example discounts;
“20 percent of our inventory is classified as dead”

Invest some money in customer service ( give your employees training);

“I don’t believe our service is any better”

Invest in a new system or fix the errors in the system;

“Sometimes our system even shows we should have stock but we don’t “

Only add products if there is enough demand for it;

Reduce the amount of different products.