MGMT 361 Midterm 1 Practice questions, MGMT 361 Exam 1

When will the utilization of a bottleneck resource be less than 100%?

A process that is demand-constrained will have a flow rate less than the bottleneck capacity, which means there is slack capacity at the bottleneck resources, causing a less than 100% utilization.

In 2017, Chevron had revenue of $127,500 million, cost-of-goods sold of $100,300 million, and inventory of $5,585 million. What was their monthly turns?

Monthly turns = (COGS / 12 ) / Inventory = ($100,300 million / 12) / $5,585 million = 1.497.

process flow diagram shapes?

a graphical way to describe a process (inputs,outputs) BOXES - resources ARROWS - flows TRIANGLES - inventory location / inventory and buffers

flow time

average time to go through the entire process "average throughput time"

capacity given batch size =

batch size / (set up time + (batch size * time per unit))

process capacity

determines the maximum flow rate a process can provide per unit of time, for whatever we want = min {capacity of stage 1 , ... , capacity of stage 3}

process flow diagrams outline a ________________ __________ in the process - what are the two kinds?

directional flow - upstream: beginning of the flow - downstream: end of the process

inventory / buffers

do not have a capacity but may have limited space

process view

efficient and effective management of processes that create goods and/or provide services

how do we determine how much we SHOULD produce

if process capacity > customer demand (demand rate) = min (demand, capacity)

if demand rate < process capacity what do we focus on first?

improving demand

capacity _______ w batch size and _______ w setup time

increases, decreases

in process view, ______ transformed to ______ by ________ examples of each

inputs, outputs, resources ex: - inputs - raw material, customer in need - outputs - finished goods, served customer - resources - machine, worker

capacity

max # of flow units that can flow through that resource per unit of time = 1/activity time

utilization

measures how BUSY the stage / process is ratio between flow rate (how fast process is currently operating) and process capacity (how fast the process could be operating if there was sufficient demand)

the process CAN vs the process SHOULD

process can: CAPACITY ANALYSIS - bottleneck - process capacity - process CT process should: DEMAND ANALYSIS - demand rate

capacity constrained process (supply)

process capacity </ demand rate demand exceeds supply

demand constrained process

process capacity > demand rate supply exceeds demand

bottleneck

stage / resource with the SMALLEST capacity

frequent inventory indicates what?

that inventory is kept for a short amount of time before it is sent to the customer

how can the largest possible capacity be achieved?

when set up time is eliminated capacity = 1 / time per unit

batch operations with a proces

within the same process, some stages may use batch operations while others do not

work in process / inventory (measured in units)

# of flow units contained within the process

demand rate

# of flow units that customers want per unit of time

A bank has three tellers. It takes a teller 6 minutes to serve one customer. What is the capacity of the bank (in customers per hour) over the course of an 8-hour workday?

Capacity = 3/6 × 60 customers per hour × 8 hours = 240 customers per day.

Ten customers visit C&A Bakery from 8 a.m. to 10 a.m. The customers spend 10, 15, 20, 11, 8, 12, 5, 18, 29, and 32 minutes in the bakery. What is the average flow rate of customers in this bakery per hour?

Flow rate = 10 customers/2 hours = 5 customers per hour.

What would be the best process improvement idea from the following proposals, assuming an unlimited demand?

Physicians are the bottleneck, so increasing their capacity by hiring more of them is the best idea.

One employee is in charge of the following activities at a refreshment stand: Activity times for each step (5 sec, 25 sec, 1.5 min, 30 sec) If the demand rate is 20 customers per hour, what are the flow rate, utilization, and cycle time?

Processing time = 5 + 25 + (1.5 × 60) + 30 = 150 seconds. Process capacity = 1/150 × 60 (seconds/minute) × 60 (minutes/hour) = 24 customers per hour. Flow rate = Min(Demand, Process capacity) = Min(20, 24) = 20 customers per hour. Utilization = Flow rate/Process capacity = 20/24 = 0.83. Cycle time = 1/Flow rate = 1/20 × 60 (minutes/hour) = 3 minutes per customer.

A grocery chain recently reported annual sales of $80 billion, inventory of $6.2 billion, and annual cost of goods sold of $50 billion. What is the firm's annual inventory turns?

Turns = $50 billion annual COGS / $6.2 billion inventory = 8.1

B) What is the utilization of depositing if the batch size is 75 wafers?

Utilization of Depositing = flow rate × processing time of Depositing = 1.4019 units per minute × 0.18 x 100% = 25.23%.

Which of the following statements about utilization of a resource is TRUE?

Utilization of a resource is at its maximum when it is equal to one, or when flow rate is equal to capacity.

wip, fr, and ft in other terms

WIP = average inventory FR = cost of goods sold FT = average time to sell inventory

It takes a barber 5 minutes to serve one customer. a) What is the capacity of the barber expressed in customers per hour? b)Assuming the demand for the barber is 6 customers per hour, what is the flow rate? c)Assuming the demand for the barber is 6 customers per hour, what is the utilization? d)Assuming the demand for the barber is 6 customers per hour, what is the cycle time?

a) 60 minutes / 5 minutes = 12 customers per hour b) 6 customers c) 6 demand / 12 capacity = 50.00% d) Cycle time = 1/flow rate, 6/60 minutes = 10.00 minutes per customer

Capacity is constrained when __________ exceeds __________ and the flow rate is equal to __________.

demand, supply, process capacity Flow rate is the minimum of demand or process capacity.

what are the three measures for process performance?

flow rate (FR) flow time (FT) work in process / inventory (WIP) all run time parameters that depend on demand all three performance metrics are AVERAGES

what is the flow rate and actual CT for demand constrained process?

flow rate = demand rate actual ct = 1 / flow rate = 1 / demand rate

what is the flow rate and actual CT for capacity constrained process?

flow rate = process capacity actual ct = 1 / flow rate = 1 / process capacity

total inventory comes from which financial statement?

from BALANCE SHEET

balancing for a fixed sequence of activities

have to carry out activities in a given order

gantt chart axis

horizontal = time vertical = resource arrows have indicators visualizes the parameters

Inventory is usually measured in the following units EXCEPT __________.

hours

process cycle time (CT)

how fast the process can produce a complete product = 1 / process capacity

stage cycle time (CT)

how fast the stage can complete a unit = 1 / stage capacity NOTE: this is based on the activity time of the stage with A SINGLE resource - be careful when there is more than one resource performing the SAME task

large vs small batch size

large batch size - less setup time and cost - higher capacity small batch size - more variety - more flexible - smoother production - less inventory

profits equation

profits = flow rate * ( average price - variable cost ) - fixed cost

process analysis

rigorous framework for understanding the detailed operations of a business - determines how many flow units can be processed per unit of time (process capacity) - determines how busy the resources of the process are (utilization)

WIP and flow time are what type of parameters?

run time they are affected by arrival schedule they can even be different w the same demand rate

process scope

set of activities and processes included in the overall process; can expand if narrow

setup

set of activities that are required to product the units but for which the time to complete these activities does not depend directly on the # of units subsequently produced; = fixed time / cost

what happens to stage CT when there are multiple resources in one stage?

stage CT will NOT equal the activity time because there are multiple resources

Little's Law can be used to identify

the average time flow units spend in the process.

gross margin

the difference between the selling price and the product costs - expressed as a % of the selling price of the item

inventory turns / turnover

the number of times inventory is sold / used inn a year

run time parameters

these indicate the CURRENT performance under a SPECIFIC DEMAND RATE and these values CHANGE WITH DEMAND flow rate = min {process capacity, demand rate} resource utilization = flow rate / resource capacity process utilization = flow rate / process capacity

design parameters

these indicate what a process CAN achieve and are NOT affected by DEMAND resource capacity (single resource) = 1 / processing time = 1 / activity time resource capacity (multiple resources) = sum {individual resource capacities} process capacity = min {stage capacities} designed cycle time = 1 / process capacity

cycle time

time between two consecutive flow units

processing time

time it takes a resource to complete one flow unit

WIP

work in process average #of units in each resource of the process over time

does every process have bottleneck?

yes! even a process that is demand constrained will (even if it is not binding since the supply is exceeding the demand in this case)

process utilization

= flow rate / process capacity

methods to improve process capacity

- add more resources to bottleneck stage - reduce activity time (processing time - LINE BALANCING

activities / stages

- denoted by squares - carried out by RESOURCES - value adding and necessary - have a capacity (max # that can flow through within a unit of time)

important features of a batch

- multiple units in one batch - starting a new batch requires a new setup - set up takes time

littles law

- when process is demand constrained - WIP = FT * FR - given two measures, we can find the third

balancing activities with no fixed sequence

-can reshuffle the activities in your process -should lead to higher average labor utilization and lower costs of direct labor -extra bit of flexibility

line balancing

-reallocate tasks to reduce imbalances within a process -can reduce our cost without adding any resources!!

LaVilla is a village in the Italian Alps. Given its enormous popularity among Swiss, German, Austrian, and Italian skiers, all of its beds are always booked in the winter season and there are, on average, 1,100 skiers in the village. On average, skiers stay in LaVilla for 10 days. How many new skiers are arriving, on average, in LaVilla every day?

1,100 beds divided by 10 days = 110 new skiers per day.

how do you define the flow unit? (relates to output)

1. choose a flow unit that corresponds to what you want to track and measure with the process 2. stick with the flow unit you defined - do not combine things in different units 3. choose a flow unit that can be used to measure and describe all of the activities within the process

run time parameters

1. flow rate (throughput): actual amount of units flow through the process under given demand 2. actual cycle time: actual speed of production under given demand = 1 / flow rate

A manufacturer of farm equipment has annual turns of 3, and its Cost of Goods Sold (COGS) is $39 billion. What is the average inventory it holds? (in billion $s)

13.0 billion Average inventory = $39 billion COGS / 3 turns = $13.0 billion

A Rhode Island company produces communion wafers for churches around the country and the world. The little company produces a lot of wafers, several hundred million per year. When in production, the process produces wafers at the rate of 79 per second. During this production process, the wafers must spend 6 minutes passing through a cooling tube. How many wafers does the cooling tube hold, on average, when in production (in other words, don't count the time they are not in production)?

28,440 wafers 79 per second × 60 seconds per minute × 6 minutes = 28,440

One of the chair lifts at a ski resort unloads 1,500 skiers per hour at the top of the slope. The ride from the bottom to the top takes 13 minutes. How many skiers are riding on the lift at any given time?

325 skiers 1,500 skiers divided by 60 minutes per hour (flow rate) × 13 minutes (flow time) = 325 skiers

The table below provides the time stamps for the 8 people who called a reservation desk for a ferry service between 8:00 am and 8:40 am. Based on the data in the table, what is the flow rate of callers?

8 calls divided by 40 minutes = 0.2 calls per minute.

inventory turns =

= 1 / avg time to sell inventory = 1 / FT = cost of goods sold / avg inventory = FR / WIP

idle time; direct labor cost

= actual CT - activity time of that worker (labor content); = total wages / flow rate

maximum inventory =

= batch size * (1 - (flow rate * processing time))

capacity of n parallel / multiple resources?

= capacity of resource 1 +.... + capacity of resource n

stage utilization

= flow rate / stage capacity

A product requires four parts that are made on the same lathe. Call the parts A, B, C, and D. The product requires 1 unit of A, 2 of B, 4 of C, and 8 of D. Which of the following production cycles is most appropriate?

A: 100, B: 200, C: 400, D: 800; The ratios of the quantities among the parts should match the ratios of the parts needed for the product. For example, twice as many B parts should be made as A parts.

Which of the following pieces of information is needed to compute flow time at a dentist's office?

Arrival and departure times are needed to compute the flow time.

Suppose a retailer turns its inventory of soda 52 times per year. On average, it has 418 bottles of soda on its shelves. What were the average daily sales? (Assume 365 days per year.)

Average daily sales = (418 inventory × 52 turns) / 365 days = 59.6 bottles

On average, a patient spends 5 minutes waiting and 15 minutes being treated at C&A Clinic. The average number of patients waiting and being treated at the clinic is 50. What is the average flow rate of patients per minute on a typical day?

Average flow rate = 50 patients/(5 + 15) minutes = 2.5 patients per minute.

Which of the following actions does not relate to off-loading the bottleneck? A) Reassigning activities to other, non bottleneck resources B) Automating some of the activities at the bottleneck C) Increasing wages for production workers D) Outsourcing some of the bottleneck activities

C) Increasing wages for production workers

we have assumed that the process is operating as fast as it [can/should], but is it always good for the business to do this?

CAN; NO! - have to look at customer demand

Patients are arriving at a clinic at a rate of two per minute. Each patient's visit consists of four steps: check in, record vital signs, receive treatment, and check out. A receptionist takes 1 minute to check a patient in. A nurse takes 2 minutes to record the patient's vital signs. A doctor spends 10 minutes with a patient. A staff member takes 3 minutes to check a patient out. What is the cycle time of the process in minutes?

Capacity = 1 / Processing time. Capacity at check in, record vital signs, receive treatment, and check out is 1, 0.5, 0.1, and 0.333 patient per minute respectively. The lowest capacity is the bottleneck and is Process capacity = 0.1 patient per minute = 0.1 × 60 (minutes/hour) = 6 patients per hour. Flow rate = Min(Demand, Process capacity) = Min(2, 0.1) = 0.1. Cycle time = 1 / Flow rate = 1 / 0.1 = 10 minutes.

One employee is in charge of the following activities at a bank's drive-through: Activity time per customer per activity: 2 sec, 2 sec, 2 min, 10 sec. What is the capacity (in customers per hour) of the employee?

Capacity = 1/[2 + 3 + (2 × 60) + 10] = 0.007 customer per second = 0.007 ×60 (seconds/minute) ×60 (minutes/hour) = 26.67 customers per hour.

There are four steps in the manufacturing process of a stuffed toy: cutting, stuffing, sealing, and packaging. There are two employees each for cutting and stuffing but one each for sealing and packaging. The processing times of cutting, stuffing, sealing, and packaging are 8, 5, 3, and 2 seconds per toy. What is the bottleneck in the process?

Capacity = Number of workers/Processing time. Capacity = 2/8, 2/5, 1/3, and 1/2 for cutting, stuffing, sealing, and packaging. The bottleneck is the lowest capacity = 2/8, which is cutting.

A process is replicated in another country where wages are 50 percent lower. Staffing and processing times are identical. What would be the effect on the costs of direct labor?

Costs of direct labor would be 50 percent lower.

The batch size is tripled on a resource that has a setup time. What is the likely impact on the resource's capacity?

Increase by less than 300 percent; The resource's capacity will increase, but by less than a 3 fold increase.

does flow rate change for different resources?

NO!! only capacity does

It takes a lawyer 120 minutes to serve one customer. Demand is 4 customers per 10-hour day. The lawyer has a wage rate of $250 per hour. a. What is the cost of direct labor for the lawyer expressed in $ per customer? b. What is the labor utilization of the lawyer?

The Direct Labor cost is 10 hours × $250 per hour) / 4 customers = $625 per customer. Flow rate = 1/5 customers per hour. Capacity is 1/4 customer per hour. Labor utilization = Flow rate / Capacity = 1/5 / 1/4 = 0.80

Customers are served in a process with two resources. The first resource has a capacity of 14 customers per hour. The capacity of the second resource is 18 customers per hour. The first resource has 6 workers and the second resource has 6 workers. Demand for this process is 10 customers per hour. Wages are $11 per hour.What is the cost of direct labor (in $s)?

The first resource is the bottleneck. The process capacity is equal to that of the bottleneck and is, therefore, 14 units per hour. The process is demand constrained (demand is less than capacity) so the throughput rate is equal to 10 units per hour (0.167 units per minute). With 12 workers, the direct labor cost per hour is 12 × $11 = $132 per hour. The cost of direct labor is $132 / 10 = 13.2000 per unit.

The table below provides the time stamps for the 8 people who called a reservation desk for a ferry service between 8:00 am and 8:42 am. Based on the data in the table, what is the flow time of callers?

To calculate the flow time of the callers, subtract the callers departure time from his or her arrival time. 128 total minutes divided by 8 callers = 16.0 minutes.

A) What is the process capacity in units per hour with a batch size of 75 wafers?

To compute process capacity, we must identify the operation with the minimum capacity (i.e., the bottleneck) using the formula: Capacity = Batch size / [Setup time + (Processing time x Batch size)].The capacity of Depositing is 75 / (40 + (0.18 × 75)) = 1.4019 units per minute.The capacity of Patterning is 75 / (26 + (0.22 × 75)) = 1.7647 units per minute.The capacity of Etching is 75 / (18 + (0.16 × 75)) = 2.5000 units per minute.Thus, Depositing is the bottleneck and the process capacity (i.e., flow rate) is 1.4019 units per minute x 60 minutes per hour = 84.11 units per hour.

A campus deli serves 250 customers over its busy lunch period from 11:30 a.m. to 1:30 p.m. A quick count of the number of customers waiting in line and being served by the sandwich makers shows that an average of 15 customers are in process at any point in time. What is the average amount of time that a customer spends in process?

To solve this problem, use Little's Law. Inventory = Flow rate × Flow time. 15 people in line (average inventory) = 2.0833 flow rate × flow time The flow rate is 250 customers divided by 120 minutes = 2.0833 customers/minute Flow time = 15 / 2.0833 = 7.2 minutes

Consider the baggage check-in process of a small airline. Check-in data indicate that from 9 a.m. to 10 a.m., 230 passengers checked in. Moreover, based on counting the number of passengers waiting in line, airport management found that the average number of passengers waiting for check-in was 33. How long did the average passenger have to wait in line?

To solve this problem, use Little's Law. Inventory = Flow rate × Flow time. 33 people in line (average inventory) = 230 customers / 60 minutes (flow rate) × flow time. Flow time = 8.6 minutes

gantt chart CT and utilization

actual CT = inter-departure time flow rate = 1 / actual CT utilization % for each step = ????

flow time vs cycle time

actual ct = time between consecutive units (departures) flow time = time between entry and departure of the SAME unit

how do we choose a flow unit properly?

all activities must be described in the same flow unit

how do we improve capacity? what does this do?

by adding resources at the bottleneck stage; it creates multiple resources (parallel) in a stage

______ depends on batch size

capacity

Customers drive away after failing to find a place to park at a supermarket. The current process is _________.

capacity -constrained --->Customers leaving without being served means that the demand exceeds supply, or that the supermarket is capacity-constrained.

how do you determine the capacity when there are multiple parallel resources? what about stage CT?

capacity = SUM of the capacities from each resource (see other flashcard) stage CT = do NOT sum up the processing times of each resource, use the NEW stage capacity and calculate 1/stage CT

cost of goods sold

carrying value of goods sold during a particular period from the INCOME STATEMENT (not revenue/sales)

batch

collection of flow units (products, customers, etc) that are processed during one production / service cycle