MSIS 511 Operations Management Problem Set 1

1. Two types of cars, X and Y were produced by a car manufacturer in 1997. Quantities sold, price per unit and labor hours follow. What is the labor productivity for each car? Explain the problem(s) associated with the labor productivity. Car X 4000 8000 12 20,000 Car Y 6000 9500 14 30,000

Units Sold Unit Revenue ($) Labor Wages/hr. ($) Labor (Hours)

2. Calculate human and capital partial and multi-factor productivity measures for the following data if output is measured as work in process plus finished goods. Output($) Finished Goods Work In Process Dividends Input($) Human Material Capital Energy Other Expenses 3,000 153 10,000 540 1,500 10,000 2,500 1,000

3. A proposal for process improvement is being considered by a company, which reduces the processing time for each, unit so that the output is increased by 25% with less material but one additional worker is required. Under the current process, five workers could produce 60 units per hour. Labor costs are $12 per hour and material input is $16 per unit. For the new process, material will be $14 per unit. Finished units sell for $31 each. The output of the process contains 10% defectives. Defectives are returned and exchanged with a new unit. Furthermore, there is an additional cost of processing/handling charge of $15 for every defective unit sold incurred by the company.

a) Define the components for calculating the total productivity and find the percentage increase/decrease in total productivity associated with the proposed process improvement. b) Suppose that, in addition to improving the current process, the company is also considering the addition of a final inspection station. The inspection station requires one worker and requires a one time $20,000 investment in machinery. The cost of repairing a defective unit at the final assembly is $10 and the inspector can inspect a maximum of 100 units per hour. Should an inspection station be opened? (In your analysis, assume that investments continue in perpetuity, the nominal cost of capital is 20% per year with daily compounding and that the company uses 360 calendar days for one year and an eight hour shift per day) c) One of the managers insists that instead of inspection as a way of correcting the quality problems, the company should explore improving the rate of defects through training programs. She points out that a typical training program would cost the company a total of $30,000 (a one time cost). What should be the minimum improvement in the rate of defects to make this alternative economically viable?

d) Suppose that the inspector can process at most 50 units per hour in b). How would this impact the decisions in (a) and (b)? (Assume that units will not be sold to customers unless inspected) 4. A hospital emergency room (ER) is currently organized so that all patients register through an initial check-in process. At his or her turn, each patient is seen by a doctor and then exits the process either with a prescription or with admission to the hospital. Currently, 50 people per hour arrive to the ER, 10% of whom are admitted to the hospital. On average 30 people are waiting to be registered and 40 are registered waiting to see a doctor. The registration process takes an average of 2 minutes per patient. Among patients who receive prescriptions, average time spent with the doctor is 5 minutes. Among those admitted to the hospital, average time is 30 minutes. On average, how long does a patient stay in the ER? On average, how many patients are in the ER? (Assume that we have a Stable process throughout).

MSIS 511 Operations Management Problem Set 2

1. Burrito Master is a new fast-food franchise that is opening up nationwide. Burrito Master has been successful in automating burrito production for its drive-up fast food establishments. The Burrito-Maker 9000 requires a constant 45 seconds to produce a burrito. It has been estimated that customers will arrive at the drive-up window according to a Poisson distribution at an average of 1 every 50 seconds. Find: a) The average time a customer spends in the system, b) The average number of cars waiting in the drive-up queue and the average number of cars in the system. 2. Big Jacks drive-through hamburger is planning to build another stand at a new location and must decide how much land to lease to optimize returns. Leased space for cars will cost $1000 per year per space. Big Jack is aware of the competitive nature of the business and knows that if his drive-in is full, customers go elsewhere. The location under construction has a potential arrival rate of 30 per hour (Poisson). Customer orders are filled at an average rate of 40 per hour and are exponentially distributed. The average profit on each transaction is $0.6, and the stand is open from noon to midnight every day. How many spaces should be leased? 3. The law firm of LD and Associates specializes in the practice of waste disposal law. Data regarding the cases received in a year and the times to complete a case was recently compiled. Suppose that the firm works on one case at a time. Cases are received according to a Poisson distribution with a mean of one case every 30 days. The data on the time on the completion times of the last 10 cases are 27,26,26,25,27,24,27,23,22 and 23. Assuming that cases are handled one at a time on a first come first served basis, determine the number of clients waiting for their case to be processed and the average time a client has to wait until his/her case is completed (wait in queue plus service). 4. A beverage store has determined that it is economically feasible to add a drive-in window, with space for two cars: one at the window and one waiting. The owner wants to know whether more waiting space should be leased. Cars arrive according to a Poisson distribution at a rate of eight per hour. Transactions average 10 per hour, and the times are exponentially distributed. Each transaction makes $1 profit. The owner plans to be open 12 hours per day, 6 days a week, 52 weeks a year. Additional spaces cost $2000 per year to lease. How many spaces is it worthwhile to lease.

5. At the U.S./Canadian border inspection station, vehicles arrive at a rate of 10 per minute according to a Poisson distribution. For simplicity, assume that there is only one lane and one inspector who can inspect vehicles at an average rate of 12 per minute. Inspection times are exponentially distributed. a) What is the average length of the waiting times? b) What is the average time a vehicle must wait to get through the system? c) What is the utilization rate of the inspector? d) What is the probability that when you arrive, there will be three or more vehicles ahead of you? 6. During the campus spring fling, the bumper car amusement attraction has a problem of cars becoming disabled and in need of repair. Repair personnel can be hired at a rate of $5 per hour, but only work as one team. Thus, if one person is hired, s/he works alone; two or three people work together on the same car. One repairperson can repair cars in an average time of 30 minutes. Two repair people take 20 minutes and three take 15 minutes. Assume that repair times are exponentially distributed. While these cars are down, lost income is $20 per hour. Cars breakdown according to a Poisson distribution at an average rate of two per hour. How many repair people should be hired.

7. During slow hours, a certain branch of a bank uses three tellers, each of whom can process customers at a rate of 1.26 per minute. The average time between arrivals of customers is 25 seconds. Assuming that arrivals follow a Poisson distribution and the service times follow an exponential distribution: a) Find the system utilization b) Find the average number of customers in line c) Suppose the hourly wage for a teller is $6 and the bank claims to pay $2 for each minute of waiting in the line to every customer. Find the optimal number of clerks which minimizes the expected total cost per time period. 8. Arrivals to the express line of a grocery store follow a Poisson distribution with a mean rate of 20 per hour. Suppose that each transaction follows an exponential distribution with a mean of 2 minutes. In order to promote quality service, the grocery store claims to pay $5 to every customer who waits more than 5 minutes in the line. If the cost of opening each extra express line, which will split the arrival rates proportionally, is $7 an hour, how many express lines should be opened.

MSIS 511 Operations Management Problem Set 3

1. A local machine shop buys hex nuts and molly screws from the same supplier. The hex nuts cost 15 cents each and the molly screws cost 38 cents each. A setup cost of $100 is assumed for all orders. Holding costs are based on a 25% annual interest rate. The shop uses an average of 20,000 hex nuts and 14,000 molly screws annually. a) Determine the optimal order quantity of the hex nuts, the molly screws, and the total aggregated annual cost incurred if both items are ordered separately.

If both items are ordered and received simultaneously, a single setup cost of $100 is incurred. Find the optimal order quantities of each product and the total aggregated annual cost incurred if: b) Both items are ordered when the hex nuts would normally be ordered. c) Both items are ordered when the molly screws would normally be ordered.

2. Rex manufacturing purchases a printed circuit board for use in its automatic, computerized, robot bartender. The manufacturing facility has placed the following monthly demands on purchased goods inventory during the past year.

Month Demand

1 205

2 193

3 197

4 220

5 202

6 226

7 179

8 197

9 186

10 202

11 179

12 214

This demand schedule can be assumed to be random, to follow a normal distribution, and to be representative of what will occur in the future. Rex estimates that a fixed cost of $300 is incurred each time an order is placed for the boards, and that the inventory holding cost is about 20% per year of the value of inventory. Each board has an estimated value of $192 at the point of storage. The leadtime on purchase orders is (1/5) month. (a) What is the EOQ? (b) What is the safety stock required to assure the management that the chance of a stockout in a cycle is no more than 1%? (c) What is the reorder level?

3. The KAB Corporation's daily demand for item XYZ is normally distributed with a mean of 50 and a standard deviation of 4. The replenishment leadtime is a constant 10 days. The cost of placing an order is $40 and the unit holding cost per year is $3. KAB operates 365 days per year. a) Compute the optimal order quantity. b) What is the reorder point if a 90% against stockouts per cycle is desired? c) If the reorder point is set at 530, what is the chance of not having stockouts in an order cycle? d) Suppose the management uses an order quantity of 1,000 units. What is the reorder point if an average of one stockout every 300 days is desired? 4. The home appliance department of a large department store is using inventory models to control the replenishment of a particular model of Microwave ovens. The store sells an average of 25 ovens each week. Weekly demand follows a normal distribution with standard deviation of 7. The store pays $100 for each oven. Fixed costs of replenishment are $28. The accounting department recommends a 20% annual interest rate for the cost of capital. Assume that the leadtime is one week (4 weeks each month and 48 weeks each year). a) What is the EOQ? b) What is the reorder point if the maximum chance of 9% of having stockouts in a cycle is allowed? c) What is the reorder point if an average of 2 stockouts every five years is desired? d) What is the reorder point if the average time between stockouts is targeted at 75 weeks? e) What is the reorder point if a fill rate of 99% is desired? 5. DAT, Inc. produces digital audio-tapes to be used in the consumer audio division. The following shows a sample from the inventory records:

Product Average demand/Month Unit Price ($)

1 700 6

2 200 4

3 4 2000 1100 12 20

5 4000 21

6 100 10

7 3000 2

8 2500 1

9 500 10

10 1000 2

Develop an ABC Classification for these items.

MSIS 511 Operations Management Problem Set 4 1. Irwins sells a particular model of fan, with most sales being made in the summer months. Irwins makes a one-time purchase of the fans prior to each summer season at $40 each. It sells each fan for $70. Any unsold fan at the end of the summer season are marked down to $29 and sold in the special fall sale. Virtually all marked down fans are sold. The following is number of sales of fans during the past 10 summers: 30,50,30,60,10,40,30,30,20,40. a) Estimate the mean and the standard deviation of demand for the fans each summer. b) Assuming that demand each summer follows a normal distribution, determine the optimal number of fans to buy prior to each summer season. c) What will be the number of fans to purchase if Irwins desires to have a 90% chance of not running out of stock during a summer season? 2. James Long, the owner of Longs Inc., is a distributor of one size fit all T-shirts. Tshirts are purchased from the manufacturer in Asia before the beginning of the season and are stocked and sold to resellers. At the end of the season, unsold T-shirts are sold to the local discount stores at a deep discount. Consider the following situation regarding a Tshirt, which comes in two popular colors, red and green. T-shirt (color) Red Green Average demand 10,000 15,000 Std. dev. of demand 3000 4000 Unit Selling Price ($) 15 15 Unit Purchasing Cost ($) 10 10 Unit Holding Cost (for the entire season) 0.5 0.5 Unit Salvage Price ($) 8 8

Assuming that demand for T-shirts are Normal, a) Find the optimal quantities to be ordered for each T-shirt color and the overall average total cost for the season associated with this operation.

Instead of ordering the T-shirts with colors to the Asian Manufacturer and then stocking them at the warehouse, James is considering ordering white T-shirts to the manufacturer and complete dying the T-shirts locally as needed. This way, only white T-shirts will be stocked as dying can be completed expeditiously in no time. Each white T-shirt will cost $6. Unsold white T-shirts will be salvaged at the end of the season at $4.5. In addition,

the unit holding cost of stocking white a T-shirt for the season is $0.3. Finally, the dying cost will be $5 per T-shirt. b) Which supply chain concept(s) discussed in class is (are) being considered here? c) Assuming that the demand for Red and Green T-shirts are independent, calculate the optimal order quantity for the white T-shirts, the average total cost for the season associated with this operation. Based on your analysis, should James take this action?