Managing Operations

LOG202_JUL_2018_ExamPaper.pdf

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LOG202

Examination – July Semester 2018

Managing Operations

Friday, 23 November 2018 4:00 pm – 6:00 pm ____________________________________________________________________________________

Time allowed: 2 hours ____________________________________________________________________________________

INSTRUCTIONS TO STUDENTS:

1. This examination contains FOUR (4) questions and comprises FIVE (5) printed pages (including cover page and Appendix A).

2. You must answer FOUR (4) questions.

3. All answers must be written in the answer book.

4. This is a closed-book examination.

At the end of the examination

Please ensure that you have written your examination number on each answer book

used.

Failure to do so will mean that your work cannot be identified.

If you have used more than one answer book, please tie them together with the string

provided.

THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR

SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS.

You must answer ALL the questions. (Total 100 marks)

Question 1

(a) Choose a service provider company that you work for or one that you are very familiar with. Analyse four (4) types of variability that the customers may

introduce to the service processes at the company. Provide an example for each.

(8 marks)

(b) Explain different categories of costs involved in the Cost of Quality concept in producing goods or service outputs.

(8 marks)

(c) As the owner of the StoreHub warehouse, you need to make capacity decisions in the face of considerable business uncertainties over the next four years. You

have three options:

Option 1: Move to a new site

- New site cost is $180,000, - Payoffs: strong growth = $170,000; weak growth = $112,000.

Option 2: Expand the current site

- Expanding current site cost is $85,000, - Payoffs: strong growth = $145,000; weak growth = $95,000.

Option 3: Do nothing

- Payoffs: strong growth = $115,000; weak growth = $80,000.

Use the decision tree technique to evaluate your capacity alternatives. Assume

that the strong growth has a 60% probability. (Note that you need to construct

the decision tree in your answer.)

(9 marks)

Question 2

(a) A factory produces 40,000 bags each week (assuming 52 weeks per year). The equipment used costs $10,000 and will remain productive for 4 years. The

labour cost per year is $11,500.

(i) Calculate the productivity measure of “units of output per dollar of input” averaged over the four-year period.

(4 marks)

(ii) As the factory manager, you have the option of purchasing a $13,000 equipment with an operating life of 5 years. It would reduce labour costs

to $8,500 per year. Relate how you can apply the productivity concept to

decide whether you should consider purchasing this equipment. Show

the calculations.

(4 marks)

(b) What are the differences between functional products and innovative products in the Supply Chain Uncertainty Framework?

(8 marks)

(9 marks)

Question 3

(a) You have been recently appointed as the procurement manager of your firm. Discuss the concept of the total cost of ownership in procurement. In your

answer, you should outline the three (3) cost categories involved.

(10 marks)

(b) The following table shows the most recent 4 months of demand for LG Refrigerator at the Courts store in JEM.

Month Actual

Demand

1 52

2 55

3 57

4 58

As the person in charge of demand forecasting at Courts,

(i) Apply the single exponential smoothing model with α = 0.4 to calculate the forecast for the 5th month, assuming that the forecast for

Month 1 was 54. (Use two decimal points and do not round your

forecasted values.)

(5 marks)

(ii) Apply the simple linear regression analysis to construct the regression equation. Then by using this equation, calculate the forecast for the 5th

month.

(10 marks)

Question 4

(a) Most businesses still keep a supply of inventory even though it is the largest asset on the balance sheet at any given time and it can be difficult to convert

back into cash. Offer any three (3) reasons why firms keep a supply of

inventory.

(9 marks)

(b) Next week, Air Asia has a flight from Singapore to Bali that will be booked to capacity. Historical data has shown that an average of 20 customers (with a

standard deviation of 12) cancel their reservation or do not show up for the

flight. Revenue from a ticket on the flight is $114 (the cost of underestimating

the number of cancellations). If the flight is overbooked, Air Asia has a policy

of getting the customer on the next available flight and giving the person a $200

booking voucher (the cost of overestimating cancellations). By how many seats

should Air Asia overbook the flight?

(6 marks)

(c) Popular bookstore at SIM uses a continuous review system for managing its inventory. As the new store manager, your responsibility is to ensure that the

order quantities for the stationary items are correctly established. The

characteristics of one of the stationary items are as follows:

Demand = 45 units/day (Assume 365 days per year, and 7 days per week)

Lead time (L) = 4 weeks

Standard deviation of weekly demand = 110 units

Unit cost (C) = $42

Holding cost (H) = 20 percent of the item unit cost per year

Ordering cost (S) = $23/order

Desired service level = 95% (z = 1.64)

Examine the inventory situation at Popular for the above item by calculating the

following:

 Economic order quantity

 Total annual cost

 Reorder point including the safety stock (10 marks)

----- END OF PAPER -----

Appendix A: Formula sheet

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