Chapter 1

3. Evaluate how the activities described in the box “What Do Operations Managers Do?” can be applied to a student organization or fraternity to improve its effectiveness.

4. Review the box for Pal’s Sudden Service and find Pal’s website. Based on this information, describe all of the OM activities that occur in a typical day at Pal’s.

6- Choose one of the following services and explain, using specific examples, how each of the ways that services differ from manufactured goods applies.

1. family practice medical office
2. a fire department
3. a restaurant
4. an automobile repair shop

8- Draw the customer benefit package (CBP) for one of the items in the following list, and explain how your CBP provides value to the customer. Make a list of a few example processes that you think would be necessary to create and deliver each good or ser- vice in the CBP you selected, and briefly describe issues that must be considered in designing these processes.

a .trip to Disney World

a. new personal computer

a. credit card

a. fast-food restaurant

a wireless mobile telephone

a one-night stay in a hotel

9- One of our students, who had worked for Taco Bell, related a story of how his particular store developed a “60-second, 10-pack club” as an improvement initiative and training tool. The goal was to make a 10-pack of tacos in a minute or less, each made and wrapped correctly, and the total within 1 ounce of the correct weight. Employees received recognition and free meals for a day. Employees strove to be- come a part of this club and, more important, service times dropped dramatically. Techniques similar to those used to improve the taco-making process were used to improve other products. Explain how this anecdote relates to process thinking. What would the employees have to do to become a part of the club?

Chapter 2

1-What is the best way to increase value the most, given the following information for one customer?

Base Case: Perceived benefits 5 $50 and Price 5 $10.00

Improvement Option A: Perceived benefits 5 $65 and Price 5 $13.00

Improvement Option B: Perceived benefits 5 $65 and Price 5 $12.50

Improvement Option C: Perceived benefits 5 $60 and Price 5 $12.50

2- Describe a value chain based upon your work experience, summer job, or experience as a cus- tomer. Sketch a picture of it (as best you can). List suppliers, inputs, resources, outputs, customers, and target markets in a format similar to that in Exhibit 2.1, or use a pre- and postproduction paradigm similar to that in Exhibit 2.3.

5- Select two organizations and provide examples of their value chains using the framework in Exhibit 2.2.

6- Marine International manufactures an aquarium pump and is trying to decide whether to produce the filter system in-house or sign an outsourcing contract with Bayfront Manufacturing to make the filter system. Marine International manufactures an aquarium pump and is trying to decide whether to produce the filter system in-house or sign an outsourcing contract with Bayfront Manufacturing to make the filter system.

7- A firm is evaluating the alternative of manufacturing a part that is currently being outsourced from a supplier. The relevant information is as follows:

For in-house manufacturing:

Annual fixed cost 5 $100,000

Variable cost per part 5 $140

For purchasing from supplier: Purchase price per part 5 $160

Using this information, find the best decision if the demand is 4,000.

Determine the break-even quantity for which the firm would be indifferent between manufactur- ing the part in-house or outsourcing it.

8- Refer to the information provided in question 7 to answer the following:

a.If demand is forecast to be 5,500 parts, should the firm make the part in-house or purchase it from a supplier?

b-The marketing department forecasts that the up- coming year’s demand will be 5,500 parts. A new supplier offers to make the parts for $158 each. Should the company accept the offer? If so, how much can they save?

C .What is the maximum price per part the manu- facturer should be willing to pay to the supplier if the forecast is 5,500 parts, using the information in the original problem (question 7)?

9- A university currently has a recycling program for paper waste. The fixed cost of running this program is $10,000 per year. The variable cost for picking up and disposing of each ton of recyclable paper is $40. If the work is outsourced to a recycling company, the cost would be $65 per ton

1. If the forecasted demand is 275 tons, what should the university do?
2. Find the break-even point.
3. If the university recycles 200 tons each year, what should it do?

Chapter3

2-Each day, a FedEx competitor processes approximate- ly 85,000 shipments. Suppose that they use the same Service Quality Index as FedEx and identified the following numbers of errors during a five-day week (see the “FedEx: Measuring Service Performance” box): These values are hypothetical and do not reflect any real company’s actual performance.

Complaints reopened:

Complaints reopened125

Damaged packages: 18

International: 102

Invoice adjustments: 282

Late pickup stops: 209

Lost packages: 2

Missed proof of delivery: 26

Right date late: 751

Traces: 115

Wrong day late: 15

Compute the Service Quality Indicator by finding the weighted sum of errors as a percentage of total shipments. How might such an index be used in other organizations, such as a hotel or automobile service facility?

4- A major airline is attempting to evaluate the effect of recent changes it has made in scheduling flights be- tween New York City and Los Angeles. Data available are as follows:

Month prior to schedule change

Month after schedule change

Number of Flights

16

25

Number of Passengers

8,795

15,653

Using passengers per flight as a productivity indica- tor, comment on the apparent effect of the schedule change.

6- A hamburger factory produces 60,000 hamburgers each week. The equipment used costs $10,000 and will remain productive for four years. The labor cost per year is $13,500.

a.What is the productivity measure of “units of output per dollar of input” averaged over the four-year period?

b.The company has the option of purchasing equipment for $13,000, with an operating life of five years. It would reduce labor costs to $11,000 per year. Should it consider purchasing this equipment (using productivity arguments alone)?

7- A fast-food restaurant has a drive-through window and during peak lunch times can handle a maximum of 50 cars per hour with one person taking orders, assembling them, and acting as cashier. The average sale per order is $9.00. A proposal has been made to add two workers and divide the tasks among the three. One will take orders, the second will assemble them, and the third will act as cashier. With this system, it is estimated that 80 cars per hour can be serviced. Use productivity arguments to recommend whether or not to change the current system.

sustainable lawn Care Case study

“Chris, we make the highest-quality grass seed and fer- tilizer in the world. Our brands are known everywhere!” stated Caroline Ebelhar, the vice president of manu- facturing for The Lawn Care Company. “Yeah! But the customer doesn’t have a Ph.D. in organic chemistry to understand the difference between our grass seed and fertilizer compared to those of our competitors! We need to also be in the lawn-care application service business, and not just the manufacturer of super-perfect prod- ucts,” responded Chris Kilbourne, the vice president of marketing, as he walked out of Caroline’s office. This ongoing debate among Lawn Care’s senior management

team had not been resolved, but the chief executive of- ficer, Mr. Steven Marion, had been listening very closely. Soon they would have to make a major strategic decision.

The Lawn Care Company, a fertilizer and grass seed manufacturer with sales of almost $1 billion, sold some of its products directly to parks and golf courses. Customer service in this goods-producing company was historically very narrowly defined as providing “the right product to the right customer at the right time.” Once these goods were delivered to the customer’s premises and the cus- tomer signed the shipping documents, Lawn Care’s job was done. For many park and golf course customers, a

local subcontractor or the customers themselves ap- plied the fertilizer and seed. These application personnel often did the job incorrectly, using inap- propriate equipment and methods. The relationship among these non–Lawn Care application service personnel, The Lawn Care Company, and the customer also was not always ideal.

When claims were made against The Lawn Care Company because of damaged lawns or polluted then became one of who was at fault. Did the quality of the physical product or the way it was applied cause the damage? Either way, the customers’ lawns or waterways were in poor shape, and in some cases, the golf courses lost substantial revenue if a green or hole was severely dam- aged or not playable. One claim filed by a green advocacy group focused on a fish kill in a stream near a golf course.

One of Lawn Care’s competitors began an appli- cation service for parks and golf courses that routinely

applied the fertilizer and grass seed for its primary customers. This competitor bundled the application service to the primary goods, fer- tilizer and grass seed, and charged a higher price for this service. The competitor deliv- ered and applied the fertilizer on the same day to avoid the liability of storing toxic fertil- izer outside on the golf course or park grounds. The competitor learned

the application business in the parks and golf course target market segment and was beginning to explore expanding into the residential lawn-care application service target market. The Lawn Care Company sold the “highest-quality physical products” in the indus- try but it was not currently in either the professional park and golf course or the residential “application service” lawn-care market segments. The Lawn Care Company considered its value chain to end once it de- livered its products to the job site or non–Lawn Care application service. The competitor sold the customer “a beautiful lawn with a promise of no hassles.” To the competitor, this included an application service bundled to grass seed and fertilizer.

CASE QuESTIOnS fOr DISCuSSIOn

1. Define Lawn Care’s current strategic mission, strategy, competitive priorities, value chain, and how it wins customers. What are the order qualifiers and winners? Draw the major stages in its value chain without an application service.

2. What problems, if any, do you see with Lawn Care’s current strategy, vision, customer benefit package and value chain design, and pre- and postservices?

3. Redo questions (1) and (2) and provide a new or re- vised strategy and associated customer benefit package and value chain that is more appropriate for today’s marketplace.

4. What does operations have to be good at to success- fully execute your revised strategy?

5. What are your final recommendations?

CHAPTER 4: Operations Strategy 89

The competitor bundled application service to the primary goods—fertilizer and grass seed.

lakes and streams,

—

Bracket international—the rfid decision case study

Jack Bracket, the CEO of Bracket International (BI), has grown his business to sales last year of $78 million with a cost of goods sold of $61 million. Average inventory levels are about $14 million. As a small manufacturer of steel shelving and brackets, the firm operates three small factories in Ohio, Kentucky, and South Carolina. BI’s number one competitive priority is “service first,” while high product quality and low cost are #2 and #3. Service at BI includes preproduction services such as custom- ized engineering design, production services such as meeting customer promise dates and being flexible to customer-driven changes, and postproduction services such as shipping, distribution, and field service.

The Ohio and Kentucky factories are automated flow shops, whereas the South Carolina factory spe- cializes in small custom orders and is more of a batch- processing job shop. All three factories use bar coding labels and scanning equipment to monitor and control the flow of materials. BI manually scans about 8,850 items per day at all three factories. An item may be an individual part, a roll of sheet steel, a box of 1,000 rivets, a pallet load of brackets, a box of quart oil cans, a fin- ished shelf or bracket set ready for shipment, and so on. That is, whatever a bar code label can be stuck on is bar coded. A factory year consists of 260 days. One full-time BI employee works 2,000 hours per year with an average salary including benefits of $55,000.

Two recent sales calls have Mr. Bracket considering switching from the old bar coding system to a radio- frequency identification device (RFID) system. The RFID vendors kept talking about “on-demand” opera- tional planning and control and how their RFID and software systems could

and in some cases physically reposition the item. Item orientation is a problem with manual bar coding.

● The 10-second bar code scan time does not include the employee walking to the bar coding spot or equip- ment. It is assumed that the employee is in position to scan the item. The 10 seconds does not include the time to replace a scratched or defective bar code label. Replacing a damaged bar code tag, including changes to the computer system, may take up to 5 minutes.

● All three BI factories can be fitted with RFID technology (readers, item tags, and hardware-related software) for $620,000. In addition, new supply chain operating system software that takes advantage of the faster pace of RFID information is priced for all three factories at $480,000 and includes substantial training and debugging consulting services.

● RFID scan time is estimated to be 2/100ths of a second, or basically instantaneous.

● For the sheet metal business, bar code misreads average 2 percent (i.e., 0.02) over the year of total reads, and this is estimated to reduce to 0.2 percent (i.e., 0.002) for RFID technology. The 0.2 percent is due to damaged RFID tags or occasional radio-frequency interference or transmission problems. Misreads are a problem because items are lost and not recorded in BI’s computer system. The vendor guessed that a single misread could cost

a manufacturer on average $4 but noted this estimate could vary quite a bit.

● According to the RFID vendors, other benefits of RFID systems include readily located inventory, fewer required inventory audits, and reduced misplacements and theft. However, they did not have any information quantifying these benefits.

Bracket International recently had problems adapting quickly to chang- ing customer require- ments. BI had to deny a Wolf Furniture job order request because it could not react quickly enough to a change in job speci- fications and order size. Eventually, BI lost the Wolf Furniture business that av- eraged about $2 million per year. Another BI customer,

speed up the pace of BI’s workflows. One RFID vendor provided the fol- lowing information:

● Bar code scan times for the sheet metal business (similar to BI) average 10 seconds per item and include employee time to find the bar code, pick up the item and/or position the item or handheld bar code reader so it can read the bar code,

Bracket International manufactures steel shelving and Home Depot, keeps talk-

brackets.

ing about BI needing to be

CHAPTER 5: Technology and Operations Management 105

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