University of Pennsylvania

The Wharton School

Department of Operations and Information Management

MIDTERM EXAM: OPIM 101, Spring 2009

Tuesday, March 3rd, 6:00-8:00pm.
Professors Cachon and Lee

Q1 Consider a process that has 3 stations, ordered in sequence: A, B and C. At each station, two
consecutive tasks are performed one after the other. The time (in seconds per unit) it takes for a
single person to perform each task is given in the table below (e.g., task A2 takes 10 seconds per
unit):
Station # of Task Task Task Task Task Task
Workers A1 A2 B1 B2 C1 C2
A 1 20 10 - - - -
B 2 - - 40 40 - -
C 1 - - - - 15 5

The table also gives the number of workers at each station. What is the capacity of this process
(in units per minute)?

Answer: The capacity of station 1 is 60/(20+10) = 2 units per minute. Station

2 is 60/(40+40) = 0.75 units per worker, or 2 x 0.75 = 1.5 units in total.
Station 3 is 60/(15+5) = 3 units per minute.

Q2-3 Trader Bob, an organic food retail chain, operates 365 days a year. In 2007, the company
turned its inventory approximately 25 times. The companys COGS were 60% of its Sales and its
annual Sales were about $7,000M that year.

Q2 What was Trader Bobs average inventory in 2007 (in $M)?

Answe: COGS = 0.6 x 7000 = 4200.

Inventory = COGS / Turns = 4200 / 25 =
$168M
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Q3 Assuming Trader Bobs annual inventory holding costs are 20% (an item that cost $10 to
purchase would cost $2 to hold in inventory for one year), what is the inventory cost of an item
which sells for $20 and costs Trader Bob $12 to buy? Assume that this item has inventory turns
of 25 per year.

Answer: 20% per year with 25 turns is

20/25% = 0.8%. COGs is $12. So
Inventory cost is 0.8% x $12 = $0.096

Q4 Consider the following four step process:

A B C D
The following data are available for the four steps:
A B C D
Activity time per unit (min) 0.25 0.33 0.2 0.5
Capacity per worker (units/min) 4 3 5 2
Number of workers 2 3 2 4

Suppose the steps in activity D are made easier, so the activity time per unit in step D is reduced
by 50% (to 0.25 min per unit). If the assignment of workers to steps remains the same, by how
much does the capacity of the entire process increase in units per min?

Answer: Before the change the process capacity is min (4 x 2, 3 x 3, 5 x

2, 2 x 4) = 8 units per min. If the activity time is cut in half for stage D,
then process capacity for step D is (1/0.25) x 4 = 16 units per min. Step
A can only produce 8 units per minute, so the total capacity of the
process doesnt increase.
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Q5 Panini, a popular sandwich shop, offers 3 types of sandwiches: Grill vegetables, grilled
chicken and pastrami. The table below provides demand data:

Grilled Vegetables Grilled Chicken Pastrami

Demand per hour 25 15 10

There are up to five steps in the process of making sandwiches, listed below with activity times.
Only 50% of customers want their sandwich toasted, no matter which sandwich is ordered.

Step Grilled Vegetables Grilled Chicken Pastrami

Cut bread .75 minutes .75 minutes .75 minutes
Grill 1.4 minutes 1.4 minutes -
Slice meat - - 3 minutes
Toast 2 minutes 2 minutes 2 minutes
Wrap .5 minutes .5 minutes .5 minutes

Suppose Panini employs 1 worker at each step. What is the highest implied utilization of this
process?

Answer : Evaluate workload per hour on each

step: Cut = 0.75 x 50 = 37.5; Grill = 1.4 x 40 =
56; Slice = 3 x 10 = 30; Toast = 2 x 0.5 x 50 =
50; Wrap = 0.5 x 50 = 25. Implied utilizations
are then 37.5/60, 56/60, 30/60, 50/60 and 25/60.
The largest one is 56/60 = 0.93

Q6-8 Consider the following two step process:

A B
Activity time (min) 1 0.1
Setup time (min) - 9
Step A has an activity time of 1 minute per unit but no setup is required. Step B has an activity
time of 0.1 minutes per unit but a setup time of 9 minutes is require per batch. A buffer with
ample inventory is allowed between the two steps.
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Q6 Suppose units are produced in batches of 5 (i.e., after each set of 5 units are produced, step B
must incur a setup of 9 minutes). What is the capacity of the process (in units per minute)?

Answer: Capacity of the painting process is 5 / (9 + 0.1 x 5) = 0.53 dice per minute.
The first activity makes 1 die per minute, so the bottleneck is the second step.

Q7 What is the batch size that maximizes the flow rate of this process with minimal inventory?
Assume there is ample demand.

Answer: Recommended batch size = 1 x 9 / (1 - 1 x 0.1) = 10

Q8 Now suppose the inventory buffer is removed between steps A and B:

A B
Activity time (min) 1 0.1
Setup time (min) - 9
Thus, when B is being setup, A cannot work because there is no place to put its completed units.
Once B has finished its setup and is ready to work on units, A can resume its work because B is
now ready to accept As output. What batch size achieves a flow rate of 0.82 units per minute?

Answer: After 9 minutes, the process can resume. The first unit takes 1.1
minutes, while all others take 1 min. Hence, it is as if the process takes 9.1
minutes to setup and then produces every 1 minute. So the target batch size is
0.82 x 9.1 / (1 - 1 x 0.82) = 41.46.
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Q9 Max Stamp approves study abroad documents for Penn. Students must wait in line with their
forms outside Max's office. One student at a time is allowed in his office and Max takes
precisely 25 minutes to evaluate each students set of documents. On average 2.2 students per
hour go to his office and they spend on average 160 minutes trying to get their forms approved
(time waiting in queue plus time in Maxs office having him evaluate their documents). On
average, how many students are waiting outside of Maxs office? Ignore start-of-the-day and
end-of-the-day effects.
Answer: p = 25, a = 60/2.2 = 27.27. Tq = T - Tp = 160
- 25 = 135. Iq = (1/a) x Tq = 4.95.

Q10 Larry Ellison starts a company that manufacturers high-end custom leather bags. He hires
two employees. Each employee only begins working on a bag when a customer order has been
received and then she makes the bag from beginning to end. The average production time of a
bag is 1.8 days with a standard deviation of 2.7 days. Larry expects to receive one customer
order per day on average. The inter-arrival times of orders have a coefficient of variation of 1.

What is the expected duration, in days, between when an order is received and when production
begins on the bag (i.e. include the time waiting to start production but do not include the time in
production)?

Answer: Parameters are p = 1.8, a = 1, CVp = 1.5, CVa = 1, m

= 2. Utilization = p / (a x m) = 1.8 / (1 x 2) = 0.9. We need to
evaluate Tq. The capacity factor is (p / m) = 1.8 / 2 = 0.9. The
utilization factor is 8.58 and the variability factor is 1.63.
Multiply the three terms and you get 12.55.

Q11 A small call center normally has 5 employees answering calls while open. On average 5
calls arrive every 4 minutes with a CVa = 1. Under normal operating conditions each employee
on average handles each call in 3.5 minutes with a standard deviation of 3. But today, one
employee has the flu and they need to operate with 4 employees during this time. The manager in
nervous that they may be supply constrained and so she directs her employees to hurry up their
processing of calls today. What is the maximum average processing time for each call that they
need to achieve today so that they have a stable queue (i.e., they will be supply constrained if
their processing time is higher than this target and they will be demand constrained if it is lower
than this target)? Assume CVa and CVp dont change even after the potential change in
processing times.

Answer: Utilization is p / (a x m) and this equals 100% at the target

processing rate. Hence 1.0 = p / (4/5 x 4). Solve for p = 16/5 = 3.2
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Q12 The Journal of Cryptic Psychology follows the following process to decide what to print.
First, authors submit their papers to one of the 40 Associate Editors who either rejects the
paper or allows the author to revise their paper. If the decision is revise then an author
revises his/her paper based on the Associate Editors comments, and when finished, submits the
revision to the Editor.
80%
Reject
Associate 25% Reject
Editor Authors
Editor
revise
20% Revise Accept
75%
The Editor decides to reject or accept the paper and only accepted papers are printed in the
journal. Associate Editors choose revise with only 20% of papers they see and the Editor
accepts only 75% of the papers she sees. The average and standard deviation of processing times
are given in the table below:

Associate Editors Authors Revise Editor

Average processing time (in months) 2 6 0.2
Standard deviation of processing time (in months) 2 10 0.4

The journal prints on average 30 papers per year. On average, how many manuscripts are
currently being revised by authors?

Answer: The journal prints 30 papers per year, but the Editor accepts only
3/4ths of them. So the Editor must read 30 x 4/3 = 40 papers per year. Hence,
the authors must be revising 40 papers per year. Use Littles Law, I = R x T,
where R = 40 and T = 1/2, so I = 20 papers.
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Q13-14 Bruno Fruscalzo decided to setup a small production facility in Sydney to sell to the
local restaurants who want to offer gelato on their dessert menu. To start simple, he would offer
only 3 flavors of gelato: fragola (strawberry), chocolato (chocolate) and bacio (chocolate with
hazelnut). After a short time he found his demand and setup times to be

Fragola Chocolato Bacio

Demand (kg/hour) 10 15 5
Setup time (hours) 3/4 1/2 1/6

Bruno first produces a batch of fragola, then a batch of chocolato, then a batch of bacio and then
he repeats that sequence. For example, after producing bacio and before producing fragola, he
needs 45 minutes to setup the ice cream machine, but he needs only 10 minutes to switch from
chocolato to bacio. When running, his ice cream machine produces at the rate of 50 kgs per hour
no matter which flavor it is producing (and of course it can produce only one flavor at a time).

Q13 Suppose Bruno wants to minimize the sizes of the batches he produces while still satisfying
the demand for each of the flavors. (He can choose a different batch size for each flavor.) What
batch size (in kgs) should he make of fragola?

Answer: Each batch consists of the set of three flavors. The total setup time is 3/4 +
1/2 + 1/6 = 17/12. The desired capacity is 10 + 15 + 5 = 30 kg/hr. The activity time
is 1/50 hrs / kg. The desired batch size for the set of three is 30 x 17/12 / (1- 30 x
1/50) = 106 kgs. Fragola is 10/35ths of demand, so produce (10/35) x 106 = 35.42
kgs of fragola.

Q14 Bruno is trying to negotiate a deal with his milk supplier. He needs about 9000 kgs of milk
per month. The suppliers trucks can carry 3000 kgs. If Bruno orders one truckload per order,
the supplier will charge only a $20 delivery fee, and $0.50 per kg. Bruno has the storage
capacity to handle ordering one truck at a time. Furthermore, he estimates with this deal his
inventory holding cost will be $0.01 per kg per month. If he takes this option, how much will he
spend on average per month in inventory holding costs and delivery charges?

Answer: Parameters are h = 0.01, Q = 3000, K = 20, d = 9000.

Cost per month will be h x Q / 2 + K x d / 2 = 75
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Q15-16 A process requires 6 tasks, A, B, C, D, E and F, that must be performed in that order.
Currently there are 3 employees that are equally skilled at each task. Employee 1 is assigned
tasks A and B, employee 2 is assigned tasks C and D and employee 3 is assigned tasks E and F.
The task times (all in seconds) are given in the process diagram below. For example, task A
requires 90 seconds.

A B C D E F
90 40 60 20 50 10
Q15 Suppose the system started without any work in process inventory (i.e., an empty system).
How long would this process take to produce 10 units (in seconds)?.

Answer: The first unit takes 270 seconds. The next 9 units take 9 x 130
seconds = 1170. The total time is 270 + 1170 = 1440.

Q16 Suppose now the 3 employees can be assigned to any task, but employees must be assigned
to consecutive tasks (e.g., an employee cannot be assigned tasks B and D). What would be the
processes maximum capacity (units per hour)?

Answer: If you assign task A to employee 1, tasks B and C to employee 2 and tasks
D, E and F to employee 3, then employee 2 is the bottleneck with a capacity of
1/(40+60) = 1/100 units per second. There are 3600 seconds in an hour so the
process can produce 1/100 x 3600 = 36 units. However, if you assign every task to
each employee, then each employee takes 270 seconds per unit, or one unit
produced every 90 seconds, which yields 3600 / 90 = 40 units per hour.

Q17 A computer server currently has a queue of 5 jobs, sequenced from A to E with A the one
that has been waiting the longest and E the one that was most recently received. The following
table provides their processing times in milliseconds:

A B C D E
Time (milliseconds) 5 78 50 2 15

Suppose the server is designed to minimize the average waiting time across jobs (i.e., time in
queue waiting to start processing). Ignore the amount of time these jobs have been already
waiting and suppose the server is immediately available to start working on one of the jobs and
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the server is aware of each jobs processing time. What is the minimum total time these five jobs
will wait before beginning processing? (Additional jobs may or may not arrive before the
processing of these jobs is completed.) For example, if A is processed first and B next, then As
wait will be 0 and Bs wait will be 5 (the time to complete A) so the total time for these two jobs
alone is 0 + 5 = 5.

Answer: Use shortest processing time to evaluate. Hence, the jobs will be
sequenced D, A, E, C, B. Wait times are D = 0, A = 2, E = 2 + 5, C = 2 + 5 + 15,
B = 2 + 5 + 15 + 50. Total time is 2 + 7 + 22 + 72 = 103. This is the minimum
because it will only be longer if additional jobs arrive.

Q18 Recall the salt production process. At a facility on the island of Vanuatu they have 7 salt
pans, each covering 6 acres. The pans are flooded with sea water, and evaporation leaves the pan
dry, covered with sea salt. From the time the pan is flooded, it takes 10 weeks on average for a
salt pan to be ready for harvesting. Harvesting the salt involves using bulldozers to scoop up the
salt, which is then carted off to a terminal to be loaded on a ship. A single bulldozer requires 3
days to harvest each acre of salt and this facility has 2 of them. There is ample capacity of trucks
to transport salt from the pans to the terminal. Harvesting can occur any day during the week and
clearly the pan cannot be flooded during harvesting. Each acre yields 1000 cubic meters (m3) of
salt. After salt is harvested from a pan, it is flooded with sea water to begin the process again.
Assume (i) there is ample demand for salt, and (ii) ship capacity and the loading process is
sufficiently fast so that they do not constrain the process. How much salt can this facility produce
per day on average (in m3)?

Answer: Each 6 acres require 10 weeks for evaporation. With one bulldozer, 18
days are required for harvesting, but they have 2, so the harvesting of the pan
can be done in 9 days. So 6 acres can be produced in 10 x 7 + 9 = 79 days. 6
acres yields 1000 m3 , and so 6000 / 79 = 75.9 m3 is produced per pan per day.
There are 7 pans, so total production is 7 x 75.9 = 532 m3
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Q19 Potty Parity Laws were implemented in the U.S. because (choose the best
answer)
A) There was concern regarding the safety of potty trainers for children.
B) The U.S., by culture and convention, is not amenable to unisex public
restrooms.
C) The quality of the fixtures in womens rooms was not comparable to the
quality in mens rooms.
D) Under previous building codes womens restrooms were the same physical
size as mens restrooms but this did not provide sufficient capacity.
E) All of the above Answer = D
F) None of the above.

Q21 Is it possible for two firms to have the same annual inventory turns and the
same gross-margin but different days-of-supply?
A) Yes, because days-of-supply measures how long the firm can satisfy demand
with its current inventory whereas inventory turns measures the frequency at
which inventory turns over.
B) Yes, inventory turns and gross margin are related but they are independent of
days-of-supply
C) Yes, the firm with the higher days-of-supply will have the lower return on
invested capital.
D) No, if firms have the same gross-margin then they must have the same days-
of-supply.
E) No, if firms have the same inventory turns then they must have the same days-
of-supply.
F) None of the above.
Answer = E
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Q22 YourNurse (YN) Inc uses certified nurses to answer medical queries from
customers over the phone. When patients call into YN they are first asked to
provide their zipcode which then allows YN to route their call to the call center
nearest to the patient (they operate 10 across the country). Which single
suggestion in the following list (and explanation) is most likely to reduce the
average time callers wait before speaking with a nurse?
A) Run an advertising campaign to increase demand and to better utilize their
nurses.
B) Train their nurses so that they spend more time answering the patients
questions.
C) Instead of using callers zipcodes, route calls to the call center with the fewest
callers to help prevent situations in which there are idle nurses at the same
time that there are callers on hold.
D) Play a recording of useful medical information while callers are on hold so as
to decrease their perception of how long they are waiting.
E) None of the above
Answer = C

Q24 Why is it prudent to avoid sending re-work through a bottleneck step in a

process? (Choose the best answer).
A) Sending rework through the bottleneck reduces the processes overall
capacity.
B) Rework handled by the bottleneck leads to quality defects and higher warranty
costs.
C) Rework always has to be sent through a bottleneck process even though this is
costly.
D) Sending rework through the bottleneck starves the bottleneck.
E) Sending rework through the bottleneck decreases flow time through the
process.
F) None of the above. Answer =A
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Q25 A high volume paper manufacturer borrows $1M to purchase a new printing
machine. The annual debt payment is $150,000. The machine can make different
types of paper but the machine must be shut down for one day each time it
switches production to another type of paper. The manufacturer spends about 24
days per year due to produce changeovers. Dividing the annual debt payment over
those 24 days yields $6250 per day. Should this cost, $6250, be used as an input
to the EOQ model to determine optimal batch sizes for each type of paper?
Choose the best answer/explanation.
A) Yes, $6250 is incurred per day independent of the subsequent production
volume, so it is the setup cost in the EOQ model.
B) Yes, $6250 is incurred per day independent of the subsequent production
volume, so it is the holding cost in the EOQ model.
C) No, the square root of $6250 should be input into the EOQ model as the
setup cost.
D) No, $150,000 should be input into the EOQ model as the holding cost
because it is the opportunity cost of capital.
E) None of the above.

Answe: The annual debt payment is a sunk cost and should not be used in the
calculations of the batch sizes. C is incorrect because the explanation is wrong. D is
also incorrect because the explanation is incorrect.