SMU Classification: Restricted

OPIM617 Operations and Supply Chain Management

A processor makes two components, A and B, which are then packaged together as the final
product (each product sold contains one A and one B). The processor can do only one component
at a time: either it can make A or it can make B. There is a setup time when switching between A
and B. Current plans are to make 60 units of A then 60 units of B. The setup time for A is 2 minutes
and that for B is 3 minutes. The unit run time for A is 0.3 minute and that for B is 0.2 minute. The
packaging of the two components takes 0.4 minute per unit of the final product. There is one
operator for the processor and one for packaging.
(a) What is the capacity of this process?

(b) What is the total idle time, direct labor content and direct labor utilization for a batch of 60
units? (Consider setup time as a part of direct labor content)

(c) What is the batch size that makes the process balanced?

QUESTION 2

The layout of a process consists of two welding machines in parallel, one grinding and one drilling
machine. Two panels are released simultaneously to two welding machines where some parts are
fitted to the panels using these welding machines. The fitting operation requires 25 minutes per
panel. The next step is grinding. Panels are placed in a buffer in front of the grinding machine if
the machine is busy. The grinding operation takes 30 minutes per panel. The last step is drilling.
After the grinding operation, panels are moved to a buffer in front of the drilling machine if the
drilling machine is busy. The drilling operation takes 10 minutes per panel.
(a) Draw a process flow diagram.

(b) Draw a Gantt chart for the production of TWO panels.

(c) How long will it take to fill a rush order of one panel?

(d) What’s the hourly capacity of the process?

(e) Suppose you now have a budget of $2000 to buy additional machines to add to the process in
order to increase your capacity as much as possible. The unit prices for the welding, grinding,
and drilling machines are all the same, i.e., $1000 each. How are you going to spend the
money? Please explain your reasons and calculate the new capacity after investment.

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QUESTION 3

SMU library has 12 copies of the Operations Management textbook. The interarrival time between
rental requests for the textbook is 4 days, on average, with a standard deviation of 2 days. Assume
that, if all copies are rented, students are willing to wait until there is a copy available. A copy is
rented, on average, for 8 days, with a standard deviation of 6 days.
(a) What is the average number of textbooks that are rented out by students?

(b) What is the average time a student has to wait to rent a copy?

(c) How would the waiting time change if SMU library decides to limit all book rentals to exactly
8 days? Assume that if such a restriction is imposed, the average interarrival time will reduce
to 2 days, with the standard deviation changing to 1.5 days.

QUESTION 4

Party Hat Inc. is a manufacturer of party hats, primarily for the Halloween season. One of their
popular products is the Elvis wig. The Elvis wig is produced in China, so Party Hat must make a
single order well in advance of the upcoming season. The marketing manager of Party Hat expects
demand to be 30,000 and the following is his entire demand forecast:

The Elvis wig’s price is $11. Its production cost is $6. Leftover inventory can be sold to
discounters for $2.

(a) Suppose Party Hat orders 55,000 Elvis wigs. What is the chance they have to liquidate 15,000
or more wigs with discounters?

(b) What is the optimal order quantity that maximizes expected profit?

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(c) If Party Hat wants to have at least 75% service level, then how many Elvis wigs should be
ordered?

(d) If Party Hat insists on a 100% service level for its customers, what is its expected profit?

QUESTION 5

Sourcebooks Inc., an independent book publisher, buys two items (30% recycled bright white laser
paper and printer toners) from the same supplier. Sourcebooks pays $5 for one pack of paper and
$11 for one unit of toner. A setup cost of $370 is assumed for all orders. This includes the cost of
tracking and receiving the orders. Holding costs are based on an 9% annual interest rate.
Sourcebooks uses an average of 540 packs of paper and 85 units of toner every month.

(a) Suppose that Sourcebooks orders papers and toners separately. How many packs of papers
and how many units of toners should be ordered? What is the annual cost of holding and
setup?

If both items are ordered and received simultaneously, the setup cost of $370 applies to the
combined order.

(b) Suppose that papers and toners are both ordered when the papers would normally be
ordered. What is the annual cost of holding and setup?

(c) Suppose that papers and toners are both ordered when the toners would normally be
ordered. What is the annual cost of holding and setup?

(d) Based on your results from parts b and c, should papers and toners be ordered
simultaneously? If so, should they be ordered according to part b or c?

QUESTION 6

Sally’s Fashion Inc., is an outdoor clothing and accessories chain that purchases a line of parkas
at $12 each from its Asian supplier. Unfortunately, at the time of order placement, demand is still
uncertain. Sally forecasts that its demand is normally distributed with mean of 2,400 and standard
deviation of 1,500. Sally sells these parkas at $25 each during the season. At the end of the season,
any unsold parka can be salvaged $7 apiece.

(a) How many parkas should Sally buy from her supplier to maximize expected profit?

(b) If Sally wishes to ensure a 90 percent in-stock probability, how many parkas should she order?