ADM 3318 Chapter Notes - Chapter 15: Materials Management, Six Sigma, Comparative Advantage
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Question 1
In order to compete effectively in todayâs increasingly globalised market, many companies have used features related to environmental sustainability to âwinâ new customers.
In relation to the company you work in or one that you are familiar with,
(a) Explain the term âsustainable business strategyâ and how this strategy relates to operations and supply chain management.
(8 marks)
(b) Identify an operations and supply chain-related "disruption" that impacted the company. What could the company have done to minimise the impact of this type of disruption prior to it occurring?
(7 marks)
(c) You have recently been appointed as the production manager of the company. To meet the demands of its global market, the company has set up production locations in two different countries. One is located in the USA while the other is located in a Southeast Asian country. You want to find out what is the productivity of the current operations at the two production locations. You have obtained the following results from the production supervisor (Table 1).
Table 1
*FC â Foreign Currency where $1 = FC 10
| USA | Southeast Asia | |
| Sales (units) | 100,000 | 20,000 |
| Labour (hours) | 20,000 | 15,000 |
| Raw materials (currency) | $20,00 | *FC 20,000 |
| Capital equipment (hours) | 60,00 | 5,000 |
(i) Calculate the multifactor productivity figures for labour and capital together. Do the results make sense?
(5 marks)
(ii) Calculate raw material productivity figures (units/$) and explain any differences in these figures.
(5 marks)
Question 2
(a) A Japanese fast food restaurant, OiShi is concerned about its ability to provide quality service as they continue to grow and attract more customers. Its management has collected data from Friday and Saturday nights, its busiest times of the week. During these nights, about 75 customers arrive per hour for service. Given the number of tables and chairs, and the typical time it takes to serve a customer, the restaurant can serve on average about 100 customers per hour.
Analyse the restaurant service process in these nights where the data are collected and comment on whether the services are in the zone of service, the critical zone, or the zone of non-service? (Refer to Figure 2 when providing your answers)
Figure 2: Relationship between the Rate of Service Utilisation (r) and service quality
(4 marks)
The management anticipates that the restaurantâs demand will double in one year as long as it can provide good service to its customers. How much will the restaurant have to increase its service capacity to stay out of the critical zone?
(4 marks)
(b) Describe the characteristics of service processes of a typical fast food restaurant based on your service encounters.
(10 marks)
(c) Examine the strategies to manage service encounters. You should provide details on any TWO (2) possible customer-introduced variability in the service processes and propose THREE (3) accommodating strategies to effectively address these variabilities.
(7 marks)
Question 3
(a) Consider your organisation or one that you are familiar with that plays a role in the global supply chain network. This organisation can be a supplier, manufacturer, distributor, logistics service provider or retailer in a particular industry (e.g. fast-moving consumer goods, electronics, oil and gas, and pharmaceuticals). In your answer, you should relate the concepts and strategies in operations and supply chain management to the work environment.
Explain how the aggregate operations plan can help match supply with demand and optimise operational costs in this organisation.
(4 marks)
Provide TWO (2) strategies that can be used to influence demand and TWO (2) strategies that can be used to adjust capacity to match demand.
(8 marks)
(b) The development of web-based tools has allowed companies to collaborate on a larger scale and perform its operations and supply chain activities with greater ease. Demonstrate how collaborative techniques can be used to forecast demand. You should provide details such as the various stages of activities that are involved.
(8 marks)
Discuss the risks of being too reliant on the internet as a collaboration tool in demand forecasting and management.
(5 marks)
Question 4
Kee Wah Store sells a variety of exquisite European cookies and candies to the consumer market. The demand for cookies and candies is volatile and varies from month to month. The store orders from its suppliers. The lead time is normally one month, mainly consisting of the sea freight transportation time from Europe to Singapore. The store keeps a certain level of inventory at its warehouse.
The total demand for chocolate cookies is estimated to be 7,200 packets a year. The chocolate cookie packet is sourced from the supplier at $5 per packet and is sold to the end consumer at $15 per packet. It costs $100 to place an order to the supplier, and costs 20% of unit cost to store a packet of chocolate cookies for one year.
(a) Give FOUR (4) reasons why Kee Wah Store needs to maintain some inventory at its warehouse.
(8 marks)
(b) Examine the inventory situation for Kee Wah Store by applying the EOQ model to solve for order quantity and reorder point. What is the annual ordering cost, annual holding cost and total annual cost?
(10 marks)
(c) One supplier, Nee Ann Import Inc., approaches Kee Wah Store and proposes that it could shorten the lead time from one month to one week using airfreight.
What are the factors that Kee Wah Store needs to consider before deciding to accept or reject Nee Ann Importâs offer?
----- END OF PAPER -----
(7 marks)
Wesco Incorporatedâs only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores.
Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 31,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar.
The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 39 direct labor-hours and the following chemicals:
| Chemicals | Quantity in Pounds |
| AG-5 | 350 |
| KL-2 | 230 |
| CW-7 | 180 |
| DF-6 | 240 |
The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.12 per pound selling and handling expenses.
Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $590.
Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:
| Raw Material | Pounds in Inventory | Actual Price per Pound When Purchased | Current Market Price per Pound | ||
| AG-5 | 21,000 | $ | 0.74 | $ | 0.84 |
| KL-2 | 4,500 | $ | 0.47 | $ | 0.52 |
| CW-7 | 8,000 | $ | 1.36 | $ | 1.56 |
| DF-6 | 6,040 | $ | 0.56 | $ | 0.57 |
| BH-3 | 4,800 | $ | 0.68 | (Salvage) | |
The current direct labor wage rate is $10 per hour. The predetermined overhead rate is based on direct labor-hours (DLH). The predetermined overhead rate for the current year, based on a two-shift capacity with no overtime, is as follows:
| Variable manufacturing overhead | $ | 5.40 | per DLH |
| Fixed manufacturing overhead | 8.00 | per DLH | |
| Combined predetermined overhead rate | $ | 13.40 | per DLH |
Wescoâs production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 340 hours of its two-shift capacity this month. Any additional hours beyond the 340 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wescoâs direct labor wage rate for overtime is $15 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.
Required:
1. Wesco has decided to submit a bid for the 31,000 pound order of Zwingerâs new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.
2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 31,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrowNWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices.
Wescoâs standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 31,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed.
Wesco Incorporatedâs only product is a combination fertilizer/weedkiller called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores.
Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delivering a 32,000-pound order of the private brand compound to Zwinger. While the chemical composition of the Zwinger compound differs from that of GrowNWeed, the manufacturing processes are very similar.
The Zwinger compound would be produced in 1,000-pound lots. Each lot would require 38 direct labor-hours and the following chemicals:
| Chemicals | Quantity in Pounds |
| AG-5 | 310 |
| KL-2 | 200 |
| CW-7 | 160 |
| DF-6 | 330 |
The first three chemicals (AG-5, KL-2, and CW-7) are all used in the production of GrowNWeed. DF-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.10 per pound selling and handling expenses.
Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of $520.
Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:
| Raw Material | Pounds in Inventory | Actual Price per Pound When Purchased | Current Market Price per Pound | ||
| AG-5 | 20,000 | $ | 0.77 | $ | 0.87 |
| KL-2 | 4,900 | $ | 0.43 | $ | 0.48 |
| CW-7 | 8,500 | $ | 1.25 | $ | 1.45 |
| DF-6 | 9,260 | $ | 0.47 | $ | 0.53 |
| BH-3 | 6,400 | $ | 0.74 | (Salvage) | |
The current direct labor wage rate is $12 per hour. The predetermined overhead rate is based on direct labor-hours (DLH). The predetermined overhead rate for the current year, based on a two-shift capacity with no overtime, is as follows:
| Variable manufacturing overhead | $ | 4.90 | per DLH |
| Fixed manufacturing overhead | 8.10 | per DLH | |
| Combined predetermined overhead rate | $ | 13.00 | per DLH |
Wescoâs production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 330 hours of its two-shift capacity this month. Any additional hours beyond the 330 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wescoâs direct labor wage rate for overtime is $18 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.
Required:
1. Wesco has decided to submit a bid for the 32,000 pound order of Zwingerâs new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs.
2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 32,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrowNWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices.
Wescoâs standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 32,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed.
Wesco has decided to submit a bid for the 32,000 pound order of Zwingerâs new compound. The order must be delivered by the end of the current month. Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental manufacturing costs. (Round all intermediate calculations and final answer to 2 decimal places.)
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Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 32,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However, production could be scheduled so that 60% of each Zwinger order could be completed during regular hours. As another option, some GrowNWeed production could be shifted temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices.
Wescoâs standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 32,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed. (Round your intermediate DLHs to the nearest whole hour. Round all other intermediate calculations and final answers to 2 decimal places.)
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