Question

1) Consider two products A and B that have identical cost, retail price and demand parameters and the same short selling season (the summer months from May through August). The newsvendor model is used to manage inventory for both products. Product A is to be discontinued at the end of the season this year, and the leftovers will be salvaged at 75% of the cost. Product B will be re-offered next summer, so any leftovers this year can be carried over to the next year while incurring a holding cost on each unit left over equal to 20% of the product's cost. How do the stocking quantities for these products compare?  

a) Stocking quantity of product A is higher. b) Stocking quantity of product B is higher. c) Stocking quantities are equal. d) The answer cannot be determined from the data provided.

2) Customers arrive at a mountain bike rental store in Moab, Utah, between 10 am and 12 pm at a rate of 12 customers per hour. From 12pm to 6pm, the arrival rate is at 6 customers per hour. The average time it takes a staff person of the bike rental store to help a customer get set on the bike, charge their credit card, and chat about the dangers of local riding is 50 minutes and the coefficients of variation for both the inter-arrival time and the service time is equal to one. All customers patiently wait until they are served. Assume that 8 staff members are working in the rental store throughout the day.

How much idle time, on average, will a staff member have from 10 am and 12 pm?
a. 0 mins b. 5 mins c. 10 mins d. 15 min e. 20 mins f. None of the above


3) A recent article on GM said that the company had a target of 91 days of supply of cars. When viewed thru the lens of Little’s Law, this statement is staying
a. T = 91 b. 1/T = 91 c. R = 91 d. I = 91

4) If a process is demand constrained, then adding capacity to the bottleneck is likely to have the following impact:
a. the flow rate will increase

b. utilization of the bottleneck will increase

c. both inventory turns and days of supply will increase

d. all of the above e. none of the above

5) A construction company has signed a contract to build an office tower. The contract stipulates that the project will be completed in 1500 days from today and also includes a penalty on the construction company of $30,000 per day if the project is late. In addition, the construction company estimates that its internal cost is $60,000 for each day the project is late. However, completing the project early is costly to the firm as well: each day the project is early costs the firm $45,000. (This includes the opportunity cost of capital and idle capacity.) The firm estimates the project’s completion time is Normally distributed with a mean of 1400 days and a standard deviation of 60 days.  
Given this data, how many days should the firm wait to begin construction?

Choose the closest answer.
a. 0 days, they should start immediately

b. 50 days c. 75 days

d. 100 days

e. 125 days


6) In the National Cranberry Case, the trucks were forced to wait due to which of the following factors (circle all that are correct)
a. The dryer was the bottleneck

b. The holding bins had limited capacity

c. The dry berries had to wait behind the wet berries on trucks.

d. The destining machine was a full capacity

e. There was uncertainty in the arrival process.

7) In the Virginia Mason Medical Center case, the practices of Lean Manufacturing allowed for the following changes to take place within the hospital


a) Computer automation of processes

b) Standardization of process

c) Elimination of non-value added activities

d) Removal of all inventory within the hospital

e) Involvement of all employees in the waste elimination process

Answer 1

1) b) Stocking quantity of product B is higher.

Given all other parameters same for both products, the only difference is Overage cost (Co) . Overage cost of product A is 1-75% = 25%

Overage cost of product B is 20%

Optimal service level = Cu/(Cu+Co) . Therefore, optimal service level is higher for product B as compared to A. Therefore, stocking quantity of product B should be higher.

2) a) 0 mins

Arrival rate, a = 12 per hour

Servie rate, s = 1/(50/60) = 1.2 per hour

Number of staff members, k = 8

Utilization of each staff member = a/(sk) = 12/(1.2*8) = 1.25

Utilization is more than 1, therefore, each member is overloaded with work and idle time is 0

3) d) I = 91

In Little's law, I represents Inventory . 91 days of supply of cars is the target inventory

4) e) none of the above

In a demand-constrained process, adding capacity is not desirable, because it does not improve the flow rate, utilization or inventory turns.