OPMA 3306 Exam 2

From an operational perspective, yield management is most effective when

(1) Demand can be segmented by customer; (2) Fixed costs are high and variable costs are low; (3) Inventory is perishable; (4) Product can be sold in advance and (5) Demand is highly variable.

If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity utilization rate?

.75 Capacity utilization rate = actual output/ best operating level 300/400 = .75

A company's production process has an 85 percent learning curve rate. The process has produced 1,000 units to date. A process refinement is estimated to allow a future learning curve rate for the identical product of 75 percent. However, the initial unit made using the new process will take the same amount of time as the very first unit produced using the old process. At what point, using the new process, will the production rate exceed the production rate achieved by the old process?

1000^ (log(.85)/log(2))=.1980 need to get a number that is just right under this decimal from the answer choices the correct answer is 50th 50^ (log(.75)/log(2))= .1972

The unit improvement factor for an 80% learning curve at 100 units is 0.2271. The first and second timings of a person doing a job are 20 minutes and 16 minutes respectively, what is the learning-adjusted time estimate for unit number 100?

4.542 learning adjusted time estimate = Time1 x C(AKA unit improvement factor) T1 x C -> 20 x 0.2271 = 4.542

Planning service capacity involves consideration of the mean arrival rate and the mean service rate. When the mean arrival rate exceeds or gets too close to the mean service rate the quality of the service declines. The operating point is the ratio of mean service rate to mean arrival rate. According to the text, what is the best operating point for the typical service operation?

70%

Compared with a service operation, a manufacturing operation's capacity is which of the following? A. Demand can be smoothed by inventory policies B. Subject to more volatile demand fluctuations C. More capable of reacting to demand fluctuations D. Utilization more directly impacts quality E. More dependent on time and location

A. Demand can be smoothed by inventory policies (Service capacity is more time- and location-dependent, (than manufacturing capacity) it is subject to more volatile demand fluctuations, and utilization directly impacts service quality. Also, unlike goods, services cannot be stored for later use.)

The capacity utilization rate is found by dividing best operating level by capacity used. T/F

FALSE

Which of the following is not a step used in determining production capacity requirements? A. Forecasting raw material usage B. Projecting equipment availability C. Projecting availability of labor D. Forecasting to predict product sales E. Calculating equipment and labor needs

A. Forecasting raw material usage In determining capacity requirements, we must address the demands for individual product lines, individual plant capabilities, and allocation of production throughout the plant network. Typically this is done according to the following steps: 1. Use forecasting techniques to predict sales for individual products within each product line. 2. Calculate equipment and labor requirements to meet product line forecasts. 3. Project labor and equipment availabilities over the planning horizon.

You have just determined the actual number of workstations that will be used on an assembly line to be 6 using the assembly-line balancing procedure. The cycle time of the line is 5 minutes and the sum of all that tasks required on the line is 25 minutes. Which of the following is the correct value for the resulting line's efficiency?

Actual number of workstation = 6 Cycle time = 5 minutes. (if given in seconds, convert to minutes. In this case its already minutes) Sum of all task times = 25 minutes Efficiency = Sum of all task times / (Actual number of workstations × cycle time) = 25 / (6 × 5) = 25/30 = 0.833

A firm will work with a customer to design the product, and then make it from purchased materials, parts, and components. This firm is called:

An assemble to order firm

Which of the following basic types of process structures is one which equipment or work processes are arranged according to the progressive steps by which the product is made?

Assembly line An assembly line is where work processes are arranged according to the progressive steps by which the product is made.

A company can produce a small lot of products the first time at a cost of $3,000. If their 65 percent Learning Curve allows them to reduce their costs on each lot, what is the cost of producing the 20th lot? A. $18,585 B. $466.20 C. $60,000 D. $155.40 E. $1,950

B. Without learning curve table Log(0.65)/Log(2) = -0.6214 3000 (20^-0.6214) = 466.29 or about 466.20

With a 70 percent unit improvement factor learning curve and an initial time of 100 minutes to do a job, at what number of repetitions does the job take less than 50 minutes? A. 2 repetitions of the job B. 4 repetitions of the job C. 3 repetitions of the job D. 6 repetitions of the job E. 5 repetitions of the job

B. Without the learning curve table we have to find the decimal that is right below or closest to 50 here. Log(0.70)/Log(2)= -0.51457 then we do 100(N^-0.51457) Plug answers into N and we get 100(4^-0.51457)= 49.0002

When deciding to add capacity to a factory which of the following need not be considered? A. Use of external capacity B. Immediate product demand C. Maintaining system balance D. Availability of raw materials E. The frequency of capacity additions

B. Immediate product demand Many issues must be considered when adding or decreasing capacity. Three important ones are maintaining system balance, frequency of capacity additions or reductions, and the use of external capacity. In many cases, the size of a plant may be influenced by factors other than the internal equipment, labor, and other capital expenditures. A major factor may be the cost to transport raw materials

The capacity cushion is the ratio of capacity used to the best capacity level. T/F

FALSE (A capacity cushion is an amount of capacity in excess of expected demand.)

Which of the following models uses a schematic model of the sequence of steps in a problem and the conditions and consequences of each step? A. Probability indexing B. Decision mapping C. Decision trees D. Johnson's sequencing rule E. Activity System Maps

C. Decision Trees

In conducting aggregate operations planning there are a number of required inputs. Which of the following are considered inputs internal to the firm?

Current physical capacity and current workforce

Using the assembly-line balancing procedure, which of the following is the required cycle time if the production time in minutes per day is 1440 and the required output per day in units is 2000?

Cycle time = production time / required output 1440/2000 = .72

Which of the following computational methods are used to calculate learning curve statistics? A. Simple compounding B. Calculus C. Exponential smoothing D. Logarithms E. Negative recursive multiplication

D. Logarithms

According to Little's Law, which of the following can be used to estimate work-in-process inventory? A. Set up time/Throughput rate B. Value added time/Process velocity C. Process time/Cycle time D. Throughput rate times Flow time E. Process velocity/Flow time

D. Throughput rate times Flow time Simple systems can be analyzed quickly using a principle known as Little's law. Little's law says there is a long-term relationship between the inventory, throughput, and flow time of a production system in steady state. The relationship is: Inventory = Throughput rate × Flow time.

A production facility develops virtuosity and works best when it focused on a widely varied set of production objectives. Group of answer choices T/F

FALSE (A production facility works best when it focuses on a fairly limited set of production objectives.)

Which of the following is not a step in developing a manufacturing cell layout?

Disposing of left-over machinery and outsourcing ungrouped processes Shifting to a cellular layout entails three steps: 1. Grouping parts into families that follow a common sequence of steps. 2. Identifying dominant flow patterns of parts families as a basis for location of processes. 3. Physically grouping machines and processes into cells.

An assumption of learning curve theory is which of the following? (MAYBE TEST) A. Unit time will decrease at an increasing rate B. Organizational learning is not included in learning theory C. The time required to do a task will vary randomly each time the task is repeated D. Learning will not be transferred from one worker to the next E. The reduction in unit time will follow a predictable pattern

E. Learning curve theory is based on three assumptions: 1. The amount of time required to complete a given task or unit of a product will be less each time the task is undertaken. 2. The unit time will decrease at a decreasing rate. 3. The reduction in time will follow a predictable pattern.

What is an important difference between capacity planning in services as contrasted to capacity planning in manufacturing operations? A. Utilization impacts service B. Time C. Location D. Demand volatility E. All of these

E. All of these are differences capacity planning in service and manufacturing Utilization impacts service Time Location Demand volatility

The optimal utilization rate of a service operation is context specific. Planning for low utilization rates is appropriate when both the degree of uncertainty and the stakes are high as in emergency response services. Which of the following services should plan for a high utilization rate? A. An expensive restaurant B. The fire department C. A hospital ambulance service D. A customer help line E. A stage performance

E. Stage performance (All sports teams like sellouts, not only because of the virtually 100 percent contribution margin of each customer, but because a full house creates an atmosphere that pleases customers, motivates the home team to perform better, and boosts future ticket sales. Stage performances share this phenomenon.)

The placement of which of the following is not determined by production process organization decisions?

Emergency exits Emergency exits are determined by safety concerns, not by production process organization decisions.

A decision tree problem does not need probabilities or payoffs to generate a solution. T/F

FALSE

A process map shows the physical location of the various processes within a supply chain. T/F

FALSE

Capacity planning is generally viewed in three time durations: Immediate, Intermediate, and Indeterminate. T/F

FALSE

Pricing for a service should primarily relate to the cost of providing the service and has little to do with capacity issues the service provider might face. T/F

FALSE

The unit improvement factor is not as useful as arithmetic tabulation of learning curve statistics in adjusting time estimates for learning. T/F

FALSE (Although the arithmetic tabulation approach is useful, direct logarithmic analysis of learning curve problems is generally more efficient because it does not require a complete enumeration of successive time-output combinations. Moreover, where such data are not available, an analytical model that uses logarithms may be the most convenient way of obtaining output estimates.)

Best operating level is usually a multiple of the level of capacity for which a process was designed. T/F

FALSE (Best operating level) is the level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized.

Break-Even Analysis can only be used in production equipment decision making when dealing solely with fixed costs, no variable costs. T/F

FALSE (Break-Even Analysis) is most suitable when processes and equipment entail a large initial investment and fixed cost, and when variable costs are reasonably proportional to the number of units produced.

The point at which the scale economy curve and the learning curve intersect is called the capacity optimum. T/F

FALSE (Capacity optimum is a meaningless term not referenced in the text.)

In a decision tree, the only time probabilities are applied to a decision node is when the decision is being made by someone else such as you customer or your competitor. T/F

FALSE (Decision trees are composed of decision nodes with branches to and from them. Usually squares represent decision points and circles represent chance events. Branches from decision points show the choices available to the decision maker; branches from chance events show the probabilities for their occurrence.)

Overtime and personnel transfers are solutions to capacity problems in the intermediate term. T/F

FALSE (Short range —less than one month. This is tied into the daily or weekly scheduling process and involves making adjustments to eliminate the variance between planned and actual output. This includes alternatives such as overtime, personnel transfers, and alternative production routings)

A piece of equipment with twice the capacity of another piece typically costs twice as much to purchase and to operate. T/F

FALSE (The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops. This is partially due to lower operating and capital cost, because a piece of equipment with twice the capacity of another piece typically does not cost twice as much to purchase or operate.)

The learning curve states that the more experience you have in a particular activity; the less surprised you will be when something goes wrong. T/F

FALSE A learning curve is a line displaying the relationship between unit production time and the cumulative number of units produced.

Firms facing cyclical demand fluctuations would be wise to introduce complementary products whose cycles are the same as their current products. T/F

FALSE Complementary products may work for firms facing cyclical demand fluctuations. For instance, lawnmower manufacturers will have strong demand for spring and summer, but weak demand during fall and winter. Demands on the production system can be smoothed out by producing a complementary product with high demand during fall and winter, and low demand during spring and summer (for instance, snowmobiles, snowblowers, or leafblowers).

A make-to-order firm will work with the customer to design the product, and then make it from purchased materials, parts, and components. T/F

FALSE Firms that make the customer's product from raw materials, parts, and components are make-to-order firms.

Process selection refers to the strategic decision of choosing the volume of output to produce in a manufacturing facility depending upon the way that facility produces. T/F

FALSE Process selection refers to the strategic decision of selecting which kind of production processes to use to produce a product or provide a service.

The closer the customer is to the customer order decoupling point the longer it takes the customer to receive the product. T/F

FALSE Selection of decoupling points is a strategic decision that determines customer lead times and can greatly impact inventory investment. The closer this point is to the customer, the quicker the customer can be served.

If the sum of the task times required to produce a product is 80 minutes and the cycle time for the same product is 15 minutes, the theoretical minimum number of workstations is 8 using the assembly-line balancing procedure. T/F

FALSE Sum of task time required / cycle time = minimum number of workstations 80 minutes / 15 minutes = 5.3, round up to 6

A learning curve is a line displaying the way unit production time decreases as time passes.

FALSE The Learning Curve A learning curve is a line displaying the relationship between unit production time and the cumulative number of units produced.

The assembly-line balancing procedure determines the precedence relationships of manufacturing tasks. T/F

FALSE The assembly-line balancing problem is one of assigning all tasks to a series of workstations so that each workstation has no more than can be done in the workstation cycle time, and so that the unassigned (that is, idle) time across all workstations is minimized. The problem is complicated by the relationships among tasks imposed by product design and process technologies. This is called the precedence relationship, which specifies the order in which tasks must be performed in the assembly process.

The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's short-range competitive strategy. T/F

FALSE The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size—that best supports the company's long-range competitive strategy.

The time needed to respond to a customer's order is called the customer response time. T/F

FALSE The time needed to respond to a customer order is called the lead time

The larger the capacity cushion the better. T/F

FALSE This is false for the firm whose competitive advantage is low cost or price. For a firm competing on speed of delivery or innovative ability, for example, a larger capacity cushion will allow more flexibility and enable an appropriate response to unplanned orders.

Little's law states that supply chain processes can be regarded as unrelated and thus treated and analyzed separately. T/F

FALSE We can think of Little's law as a relationship between units and time.

The problem of keeping demand sufficiently high to keep a large factory busy is a sales issue and not a diseconomy of scale. T/F

FALSE While this can be viewed as a sales issue, it is one brought on by the large scale of operations and is thus also a diseconomy of scale.

In balancing an assembly line, workstation cycle time has to be less than the time between successive units coming off the end of the line. T/F

FALSE Workstation cycle time is defined as the time between successive units coming off the end of an assembly line.

Little's Law =

Inventory/Throughput Rate = Flow time Inventory = Throughput rate × Flow time Throughput Rate/Inventory = 1/Flow Time Inventory/Flow time = Throughput rate:

The unit improvement factor for a 60% learning curve at 25 units is 0.0933. The first and second timings of a person doing a job are 10 minutes and 6 minutes respectively. The learning-adjusted time estimate for the unit number 25 is 0.9330 minutes. T/F

Learning curve rate = 60% = 0.6 Unit improvement factor at 25 units = 0.0933 Time required for 1st unit = 10 minutes The unit time for the nth unit can be calculated using learning curve formula as follows: Tn = T1 x C T1 = time required for first unit Tn = time required for nth unit C = unit improvement factor T25 = T1 x C = 10 x 0.0933 = 0.9330 minute TRUE

In a workcenter, machine A has a ten minute set-up time per batch and a two minute per unit run time. Machine B performs the identical function but has a set-up time of thirty minutes and a one minute run time per unit. The workcenter makes products in batches ranging from one unit to one hundred units. Assuming capacity is not a limitation on either machine, on which batches should machine B be used?

Let # of units that make both the machine equal in total processing time = X Total time taken by Machine A = setup time + total units run time = 10 + 2*X Total time taken by Machine B = 30 + 1*X 10+2X = 30+X (as both the machine will take equal time to make X units) X = 20 SO WHATEVER ANSWER HAS 20 For less than 20 units, Machine A should be selected as it will take shorter process time & For more than 20 units, Machine B should be selected as it will take shorter process time.

Capacity planning involving acquisition or disposal of fixed assets such as buildings, equipment or facilities is considered as which one of the following planning horizons?

Long-range

If a firm fills its customer's orders from finished goods inventory. It is a:

Make to stock firm Firms that serve customers from finished goods inventory are known as make-to-stock firms.

You are hired as a consultant to decide if your client should purchase a new, highly specialized, piece of equipment. The product to be produced by this equipment is forecast to have a total worldwide demand of 15,000 units over the entire product life. The initial investment to acquire and install the equipment is $256,000. The variable cost to produce each unit will be $15 and the selling price for the finished product will be $30. Which of the following best describes the situation the firm is facing? A. The company will recover its initial investment B. All of these C. The company's total margin will be less than its investment D. It is a good investment E. The break-even is lower than the 15,000 units that are expected to sell

PART 1 TESTING: Margin per unit = $30 - $15 = $15 $15 x 15,000 units = $225,000. Since it's $225,000 is the projected margin & $256,000 is the total initial investment for this, the projected margin will be less than the investment required. Part 2 testing for demand: Breakeven = fixed cost or initial investment/(finished product price - variable cost) 256,000 / (30 - 15) = 17,066 Since demand is less than the breakeven quantity, one can say the company will not be able to recover the investment made

A company's production process has an 80 percent learning curve rate. The process has produced 1,000 units to date. A process refinement is estimated to allow a future learning curve rate for the identical product of 75 percent. However, the initial unit made using the new process will take the same amount of time as the initial unit produced using the old process. At what point, using the new process, will the production rate exceed the production rate achieved by the old process? A. Before the 250th unit B. Before the 100th unit C. Before the 120th unit D. Before the 80th unit E. Before the 50th unit

T = aNb Where T= time to produce Nth units a= time to produce first unit b=slope=Log(learning rate)/log2 We need our answer to be less than the decimal we get from 1000^(log0.8)/log2) So 1000^(log0.8/log2) = 0.108917 Then N^(log0.75/log2) < =0.108197 So we plug our N from all the answers until we get a decimal smaller than for our answer above at N=250 250^(log0.75/log2)=0.101103 which is <=0.108197

A company's production process has an 85 percent learning curve rate. The process has produced 1,000 units to date. A process refinement is estimated to allow a future learning curve rate for the identical product of 75 percent. However, the initial unit made using the new process will take the same amount of time as the very first unit produced using the old process. At what point, using the new process, will the production rate exceed the production rate achieved by the old process?

T = aNb Where T= time to produce Nth units a= time to produce first unit b=slope=Log(learning rate)/log2 We need our answer to be less than the decimal we get from 1000^(log0.85)/log2) So 1000^(log0.85/log2) = 0.1979 Then N^(log0.75/log2) < =0.10819 So we plug our N from all the answers until we get a closest decimal smaller than for our answer above at N=50 50^(log0.75/log2)=0.1971 which is <=0.1979

You time someone completing a single task the first time at 120 minutes and the second time they do the task it takes 108 minutes. You should use a 90 percent Learning Curve to estimate the length of time this worker will take to complete this task in the future. T/F

T1 = time required for first unit = 120 minutes T2 = time required for 2nd unit = 108 minutes Tn = time required for nth unit Learning rate from 1st to 2nd unit = Time required for 2nd unit/time required for 1st unit = L2/ L1 T2/ T1 = 108/120 = 0.90 TRUE

You have just timed a person doing a hair cut for the first time. It took 50 minutes. What unit improvement factor learning curve would you use if the person took 35 minutes on the second hair cut?

T2/T1 .70 = 70%

A project layout is characterized by a high degree of task ordering T/F

TRUE

A project layout is characterized by a relatively low number of units produced in comparison with process and product layout formats. T/F

TRUE

At some point, the size of a growing plant can become too large and diseconomies of scale becomes a capacity planning problem. T/F

TRUE

In practice achieving a perfectly balanced plant is usually both impossible and undesirable. T/F

TRUE

On a learning curve plot, the time per unit is usually displayed on the vertical axis. T/F

TRUE

The Aggregate Operations Plan translates annual and quarterly business plans into broad labor and output plans for the intermediate term of 3 to 18 months. T/F

TRUE

The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops. T/F

TRUE

When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion. T/F

TRUE

When evaluating capacity, managers need to consider both resource inputs and product outputs. T/F

TRUE

One difference between an assembly line process flow and a continuous process flow is that on the assembly line the flow is discrete rather than continuous. T/F

TRUE A continuous process is similar to an assembly line in that production follows a predetermined sequence of steps, but the flow is continuous such as with liquids, rather than discrete.

A high-level map or diagram of a supply chain process can be useful to understand how material flows and where inventory is held. T/F

TRUE A high-level map of a supply chain process can be useful to understand how material flows and where inventory is held.

One methodology used to evaluate equipment investment decisions where the investment entails an initial investment, fixed costs, and variable costs is Break-Even Analysis. T/F

TRUE A standard approach to choosing among alternative processes or equipment is breakeven analysis.

The term "assembly line" refers to progressive assembly linked by some material handling device. T/F

TRUE An assembly line is a layout design for the special purpose of building a product by going through a progressive set of steps. The assembly steps are done in areas referred to as "stations," and typically the stations are linked by some form of material handling device.

Engineer-to-order firms will work with the customer to design the product, and then make it from purchased materials, parts, and components. T/F

TRUE An engineer-to-order firm will work with the customer to design the product, and then make it from purchased materials, parts, and components.

Assembling-to-order means moving the customer order decoupling point from finished goods to components. T/F

TRUE Assembling-to-order derives significant advantages from moving the customer order decoupling point from finished goods to components.

In solving a decision tree problem, calculations start at the ends of the "branches" of the tree and work backwards to the base of the tree. T/F

TRUE In solving a tree problem, we work from the end of the tree backward to the start of the tree.

Sharing capacity is a common source of external capacity. T/F

TRUE In some cases, it may be cheaper to not add capacity at all, but rather to use some existing external source of capacity. Two common strategies used by organizations are outsourcing and sharing capacity.

Learning curves have a wide range of business applications. T/F

TRUE Learning (or experience) curve theory has a wide range of application in the business world

A general purpose machine is less capable than a special purpose machine in certain tasks but can perform a broader variety of tasks. T/F

TRUE Less specialized equipment is referred to as "general-purpose," meaning that it can be used easily in many different ways if it is set up in the proper way. More specialized equipment, referred to as "special-purpose," is often available as an alternative to a general-purpose machine. For example, if we need to drill holes in a piece of metal, the general-purpose option may be to use a simple hand drill. An alternative special-purpose drill is a drill press. Given the proper setup, the drill press can drill holes much quicker than the hand drill can.

The essential issue in satisfying customers in the make-to-stock environment is to balance the level of finished inventory against the level of service to the customer. T/F

TRUE The essential issue in satisfying customers in the make-to-stock environment is to balance the level of finished inventory against the level of service to the customer.

The focus in the make-to-stock environment is on providing finished goods where and when the customers want them. T/F

TRUE The focus in the make-to-stock environment is on providing finished goods where and when the customers want them.

A learning curve shows the decrease in time required for each successive unit completed. T/F

TRUE There are two ways to think about the improved performance that comes with learning curves: time per unit or units of output per time period. Time per unit shows the decrease in time required for each successive unit. Cumulative average time shows the cumulative average performance times as the total number of units increases.

The volume requirements for the product are one determinant of the choice of which process structure to select. T/F

TRUE Two dimensions (of the product/process matrix, exhibit 6.3) are shown. The first dimension relates to the volume of a particular product or group of standardized products. Standardization is shown on the vertical axis and refers to variations in the product that is produced. These variations are measured in terms of geometric differences, material differences, and so on. Standardized products are highly similar from a manufacturing processing point of view, whereas low standardized products require different processes.

For the purposes of assembly-line balancing, the required workstation cycle time is found by dividing production time per day by the required units of output per day. T/F

TRUE Workstation cycle time = (Production time per day/Required output per day in units)

A difference between project and continuous flow categories of process flow structures is which two of the following?

The size and bulk of the product In a project layout, the product (by virtue of its bulk or weight) remains in a fixed location. Continuous processes are usually highly automated and, in effect, constitute one integrated machine.

Which of the following basic types of process structures is one which similar equipment or functions are grouped together?

Workcenter The formats by which a facility is arranged are defined by the general pattern of work flow; there are five basic structures (project, workcenter, manufacturing cell, assembly line, and continuous process).

In an overview of the major operations planning activities in a typical service organization, which of the following activities follows aggregate sales and operations planning?

Workforce scheduling

Assume a fixed cost for a process of $10,000. The variable cost to produce each unit of product is $30, and the selling price for the finished product is $50. Ignoring inventory, how many units must the firm sell to break even?

breakeven = fixed cost/(finished product price - variable cost) 10,000/(50-30) = 500

Using the assembly-line balancing procedure, which of the following is the required cycle time in minutes per unit if the daily production time is 480 minutes and the required daily output is 50 units?

cycle time = production time/required unit 480/50 = 9.6

The main purpose of the aggregate plan

is to specify the optimal combination of production rate, workforce level, and inventory on hand.

The essence of yield management is:

the ability to manage demand.

The objective of the Aggregate Operations Plan is

to minimize the cost of resources required to meet demand over that period.