Operation Management

MGMT400 Assignment 3 – Chapters 5 & 7 (Show your work to receive credit)

1. Identify the four types of layouts and their characteristics.

2. The manufacturing engineers at Suny Manufacturing were working on a new remote- controlled toy Monster Truck. They hired a production consultant to help them determine

the best type of production process to meet the forecasted demand for this new product.

The consultant recommended that they use a product layout. He told the manufacturing

engineers that the line must be able to produce 600 Monster Trucks per day to meet the

demand forecast. The workers in the plant work eight hours per day. The task information

for the new Monster Truck is given below:

Task Time (seconds) Predecessors

A 28 -

B 13 -

C 35 B

D 11 A

E 20 C,D

F 6 D,E

G 23 F

H 25 F

I 37 G

J 11 G,H

K 27 I,J

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical minimum number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operating

time rule.

e. What is the efficiency of the balanced line?

3. The Jazzy Java Company is considering upgrading its espresso machine to reduce the time to make each cup of coffee. The current machine has fixed costs of $3,000 per year

and variable costs of $.75 per cup of coffee. With the new machine, fixed costs increase

to $7,000 per year and variable costs are $.40 per cup of coffee. On average, the price of

coffee is $3.00 per cup.

a. What is the break-even point of the current process? b. What is the net income with the current process if 8,000 cups of coffee are sold per

year?

c. What is the indifference point between the two processes? d. If the forecast is for 12,500 cups of coffee to be sold each year, which process should

be used? Why?

4. Why do some executives believe that inventory is “bad”? Explain why this thinking is incorrect.

5. Explain the different types of costs related to inventory planning.

6. The following table contains data about the inventory for 5 items at Jones Corporation.

Item Beginning Unit

Inventory

Ending Unit

Inventory

Average Unit

Inventory

Annual Unit

Sales

Inventory

Turnover

1 150,000 120,000 400,000

2 40,000 60,000 80,000

3 85,000 97,000 190,000

4 200,000 170,000 350,000

5 50,000 60,000 165,000

Total

a. Complete the missing items in the table, including the Total row. Is the total inventory turnover a sum of inventory turnovers for the five items?

b. Suppose Jones Corporation determined that its annual inventory carrying cost = 18% of inventory product value. The item unit cost was as follows:

Item 1 = $25.00

Item 2 = $60.00

Item 3 = $5.00

Item 4 = $10.00

Item 5 = $1.00

Compute the annual sales $$ value and the average inventory carrying cost for each

item.

c. Suppose Jones Corporation believes that in the upcoming year, the rate of sales expected for each of the 5 items is as follows:

Item 1 = 4,000 units per day

Item 2 = 2,000 units per day

Item 3 = 15,000 units per day

Item 4 = 7,000 units per day

Item 5 = 2,000 units per day

Compute the days of supply for each item. Use ending unit inventory (and not

beginning or average) because days of supply is the number of days of business

operations that can be supported with the inventory on-hand (current inventory).

7. Explain the relationship (tradeoff) between inventory holding costs and ordering costs in the economic order quantity. How does EOQ change with changes in the variables in the

formula (demand, order cost, unit cost, inventory holding cost rate)? How does our

calculation of total acquisition cost (TAC) change when quantity discounts are

considered? Why?

8. Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information:

Average demand = 20 units per day

Average supplier lead time = 3 days

Item unit cost = $50

Ordering cost = $25

Annual inventory holding cost = 25%

The business year is 250 days

a. How many chairs should the firm order each time? Assume there is no uncertainty at all about the demand or the lead time. What will be the breakdown of costs?

b. What will be the firm’s average inventory? c. What will be the reorder point? d. What will be the annual inventory turnover rate? e. The firm found a new supplier who offers the item unit cost of $50 for orders of less

than 150 units and $40 for orders of 150 units or more (instead of $50). Assuming no

other changes to the information given above, how many chairs should the firm order

to the new supplier each time?