Isye 3104: Introduction to Supply Chain Modeling

ISyE 3104: Introduction to Supply Chain Modeling:

·  Manufacturing and Warehousing

Instructor: Spyros Reveliotis

Summer 2006

Homework #5

Due Date: Thrusday, 7/6/06

Reading Assignment:

·  The PowerPoint slides presented in class on

o  Product and Process Selection, Sourcing, Equipment Selection and Capacity Planning;

o  The Selection of the Process Layout and on Cell Formation.

·  Sections 1.9, 1.11 and Appendix 1-A from your textbook (however, you are not going to be held responsible for the model discussed in pages 40-41 of your text)

·  Also, for those of you interested to see some more discussion on the material presented in class, Chapters 5, 7 (including the Supplement of Chpt. 7) and the relevant part from Chapter 9 from the book by Jay Heiter and Barry Render, entitled “Operations Management”, that I have passed to the Library Reserves.

Problem set:

1. Answer the following questions:

1.  Explain what is robust product design and why it is important.

2.  What is a “House of Quality”, and what is the main information encoded in it?

3.  What are the advantages of standardization?

4.  Does group technology promote standardization or not? Explain your answer.

5.  How do companies respond to customer request for more extensive customization while promoting standardization for their products and processes?

6.  Discuss the importance of flexibility in modern production processes and explain how this concept manifests itself in the operation of contemporary organizations.

7.  In the break-even analysis presented in class for the “make or buy” problem, there was a single “break-even-point”. Can you contemplate a situation where there might be two break-even-points? Explain clearly your answer, providing all the necessary quantitative analysis.

8. For each situation listed below, recommend the type of layout, among the four discussed in class and listed below, that would be most suitable for an effective operation. Explain briefly the reason for each choice.

Type A Fixed location layout

Type B Product layout otherwise known as flow line

Type C Product family layout otherwise known as cellular or group layout
Type D Process layout otherwise known as functional layout or job shop

a. General Electric (GE) dishwasher manufacturing facility. GE is the second-largest manufacturer in the U.S. of this type of appliance.

b. A large business center that serves many different customers in a major city, such as a Kinko’s Center, with fast and slow copy machines, graphic arts equipment, binding machines for report assembly, computers for word processing, etc.

c. A large automobile dealer repair/maintenance facility, with services ranging from minor diagnostics and repairs to engine/transmission work to body repair.

d. An electronics appliance repair shop that handles a wide variety of products, such as televisions, video recorders, stereos, short-wave radios, microwave ovens, burglar alarms, etc.

e. Manufacturing a luxury cruise boat of a capacity 100,000 tons (this is more than the Titanic weighed).

f. Manufacturing aluminum ladders that range from 12 to 24 ft. long that sell in the range of $200-500 each through large discount stores and through catalog retailers.

g. A large sporting/recreational facility that contains tennis, squash, racquetball, diving pool, lap pool, sauna, basketball court, running track, exercise room, weight training room, fitness diagnostic room, locker rooms for men and women, bathrooms, shower rooms, offices.

h.  A mail service company that prepares mass mailings for customers. Services may include: artwork, printing, printing of items, printing of envelopes, insertion of items into envelopes, sorting of envelopes by postal (zip) code, imprinting of postage meter imprint. Not all customers need all of these services.

B. Solve the following problems:

1.  A company needs to introduce a new part in its production. The capital expenses for supporting the in-house production of this item are estimated at the range of $500,000. The labor cost for in-house production is estimated at $20 per unit, while the necessary raw material can be procured at a cost of $35 dollars per unit. Alternatively, the company can out-source the production of this part to one of its suppliers at a cost of $80 per unit. If the production requirements for this part are expected at the level of 500 units per month, what is the minimum life-span of the part that can justify (from an economical standpoint) its in-house production?

2.  A printed circuit board is manufactured on an assembly line with 4 workstations. The estimated demand in the next few months is 200 units/day. It is important to have enough capacity to meet this demand, for reasons of profit and goodwill. The number of machines and the resulting production capacity at each station are as follows:

The production manager has suggested that production capacity be increased by purchasing 3 additional machines for station 3; each machine will have a capacity of 50 units/day, and each machine will cost $210,000, installed. The alternative is to subcontract the required extra production, at a cost of $50/unit.

a. Explain whether the manager’s proposition is a viable solution or not.

1. What would be a reasonable capacity expansion plan that would enable the company to meet all the expected demand by producing in-house?
2. What will be the cost of outsourcing all the extra demand for the entire next year to the aforementioned subcontractor? Assume that the year has 260 working days.
3. An alternative plan that is contemplated by the company is to add only two machines at station 3 and outsource all the extra demand to the aforementioned subcontractor. Compare this solution to the solution of item c above, assuming that the variable cost for in-house production is $30 per unit.

3. An electronics firm is currently manufacturing an item that has a variable cost of $.50 per unit and a selling price of $1.00 per unit. Fixed costs are $14,000 per month. Current demand volume is 360,000 units per year. The firm can substantially improve the product quality by adding a new piece of equipment at an additional monthly fixed cost of $6,000. Variable cost would also increase to $.60 per unit, but annual demand volume is also expected to jump to 600,000 units due to the improved product quality.

a. Based on the above information, determine whether the addition of the new equipment is a profitable proposition for the company.

b.  What is the minimum unit price that would render profitable the addition of the new equipment?

Demonstrate clearly all the calculations that support your answers to the above questions.

4. Residents of Mill River have fond memories of ice skating at a local park. An artist has captured the experience in a drawing and she is thinking to reproduce it and sell framed copies to current and former residents during a local fair that is to take place in 6 months. Her producing company has offered her two options: either to run a batch of 250 units, at $50 per unit, or to run two batches for a total of 500 units, at $30 per unit. On the other hand, the artist believes that, if the market is good at the time that the fair will take place, she could sell around to 600 units at the price of $125, but if the market is not good, then, she could sell around to 200 units. Furthermore, she believes that, in the case of a bad market, she could further boost her sales by another 100 units by lowering her price to $80.

i. Assuming that the chances of a good market are 60%, use the decision tree theory presented in class in order to identify the strategy that maximizes the expected profit for the aforementioned artist. In your work, indicate clearly the structure of the involved decision tree and all the underlying calculations.

ii. What should be the minimum probability for a good market so that it is profitable for the artist to order two batches of her drawing?

iii. Explain why, under the stated assumptions, the artist should definitely order the production of at least one batch.

5.  The accompanying table lists the sequence of machine types required for nine part types produced by a manufacturing facility:

(a)  Set up a part-machine processing indicator matrix for the data in the table.

(b)  Determine machine groups and part families using

(i)  the Row and Column Masking clustering algorithm presented in class;

(ii)  the Similarity Coefficient approach, with the clustering threshold set to 0.5.