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MGMT 401 Fall 2018
Quiz 3
4 Key Formulas and Definitions:
WIP = TH * CT
CW (critical WIP) = RPT (raw process time) * BNR (bottleneck rate)
Utilization = time used/time available = demand rate/station rate
Bottleneck = Station with highest long-term utilization
Bottleneck Rate for Product Flow = Rate of the Bottleneck Station
The VUT equation:
The Due Date Quoting equation:


4m
z s2 2 1 + 2 2 + 1 
zs 
m


= +
2

2
Variability in Lead Time Demand
 =  D2 + d 2 L2
Problem #1 Multiple choice (2 points each – 27 questions)
(54 points)
1. Based on the chart below, if the number of orders per 6 months increases
from 5 orders per 6 months to 10 orders per 6 months, inventory needed to maintain the
same fill rate:
a. increases
b. decreases
c. stays the same
Name: _____________________________
Page 1
2. The primary driver for the answer to (1) based on the chart on page 1 for question 1
involves:
a. Reorder point
b. Order quantity
c. Cycle counting
3. If replenishment time decreases and fill rate remains the same, the reorder point will:
a. increase
b. decrease
c. stay the same
4. Reorder point always equals a multiple of reorder quantity:
a. True
b. False
5.
Reorder point inventory, conceptually described as safety stock (not cycle stock):
a. Helps cover demand that shows up during the time between when you replace a
replenishment order and it actually arrives
b. Is dependent on order quantity
c. Is dependent on order cost
6. The graph below shows the following about implementation of Q, r policies:
a. Team following policy with inventory position staying between (r+1) and (r+Q)
b. Team not following policy
c. Team following policy of ordering two weeks worth every time there is two
weeks of inventory left
600
500
400
300
Min of old qty
Min of r
200
Min of Q+r
100
1/4/2007
1/15/2007
1/24/2007
2/6/2007
2/16/2007
2/26/2007
3/9/2007
3/20/2007
3/29/2007
4/9/2007
4/19/2007
4/27/2007
5/7/2007
5/15/2007
5/25/2007
6/6/2007
6/14/2007
6/22/2007
6/30/2007
7/12/2007
7/20/2007
7/30/2007
8/7/2007
8/16/2007
8/27/2007
9/6/2007
9/17/2007
9/25/2007
10/9/2007
10/19/2007
10/29/2007
11/7/2007
11/15/2007
11/28/2007
12/6/2007
12/17/2007
12/28/2007
1/14/2008
1/24/2008
2/4/2008
2/12/2008
2/22/2008
3/6/2008
3/17/2008
3/28/2008
0
340-20500
POLICY STARTED HERE
Initials: ___________
Page 2
7.
If capacity is expensive and inventory is cheap, a good reason to hold inventory is to
level load capacity by using inventory as a buffer between demand variability and
capacity utilization:
a. True
b. False
8. In the hierarchical pull planning framework reviewed in class, the Inventory Monitor
and WIP Counts are examples of:
a. Strategies
b. Tactics
c. Controls
9. In the hierarchical pull planning framework reviewed in class, reorder point and reorder
quantity inventory policies should be applied as a long-term strategy planning tool
instead of at a tactical policy and control level:
a. True
b. False
10. Which of the following ties directly to the balance sheet:
a. Inventory
b. # of kaizen events
c. # of six sigma projects
11. If a key strategic goal is customer service, which is the better focus for goals:
a. 99% utilization and earned hours
b. High on-time delivery and low average days late
12. In a CONWIP shop floor control system, what happens to cycle time if throughput
drops below its planned target/quota:
a. Cycle time goes up
b. Cycle time goes down
c. Cycle time stays the same
13. Digital Manufacturing Tools can improve profit and return on capital by:
a. Reducing Variability and Buffer Cost
b. Being Cool
14. In an assembly operation with 2 components whose individual service level to the
assembly line is 90%, the overall service assuming no issues in assembly itself will be:
a. 90%
b. 81%
c. 72%
Initials: ___________
Page 3
15. The end finished good product item in a bill of materials experiences:
a. Independent demand
b. Dependent demand
16. A child item in a bill of material experiences:
a. Independent demand
b. Dependent demand
17. In the hierarchical pull planning framework reviewed in class, where should you
determine your portfolio of buffers:
a. Strategy
b. Tactics/Policies
c. Control
18. The chart below shows a strategic inventory/order interface choice.
inventory immediately prior to assembly, the operation should:
a. Reduce cycle time seen by the customer
b. Reduce Finished Goods Inventory
c. Improve Fill Rate to Assembly
d. All of the above
By managing
Assemble To Order/Make to Order
Frozen window
(Assemblies)
Production
Crib
Inventory
Assembly
Demand
End Item frozen window
.
Strategy. Execution. Profit.
19. Process batches must equal move batches:
a. True
b. False
20. In the Rosemount Case, Throughput was 133 units per day. What WIP level would
deliver a 5 day cycle time:
a. 399
b. 665
c. 133
Initials: ___________
Page 4
21. In the Rosemount Case, the team made arrivals to the flow lab less variable and
reduced cycle time by:
a. Moving meters to the flow lab more than once a day
b. Grouping the meters into batches by size
c. Reducing mean time to repair
22. In the Factory Physics Framework, the three buffers are:
a. Lean, Six Sigma, and ERP
b. Lean Six Sigma, Theory of Constraints, and Kaizens
c. Inventory, Time, and Capacity
23. What is being “buffered” in the Factory Physics Framework :
a. Six Sigma
b. Business Process Reengineering
c. Variability
24. If the revenue generated by increasing variability is larger than the cost of the buffers
needed to cover the variability increase, then increasing variability is a profitable
decision:
a. True
b. False
25. In the chart below, both suppliers have the same average lead time. If you want
equivalent service levels against the planned lead time in your planning system for these
suppliers, which of the following describes the lead time input to the planning system
for these suppliers:
a. Lead times for both suppliers should be the same
b. Lead time for supplier 1 needs to be greater than lead time for supplier 2
c. Lead time for supplier 2 needs to be greater than lead time for supplier 1
Effect of Variability on Purchasing Lead Times
PDF of Delivery Time
0.18
0.16
Supplier 1
0.14
0.12
0.1
0.08
0.06
0.04
Supplier 2
0.02
0
0
5
10
15
20
25
30
35
40
Days
© Wallace J. Hopp, Mark L. Spearman, 1996, 2000
Initials: ___________
www.factoryphysics.com
44
Page 5
26. In the chart below, data is provided on the predominant source of variability (demand or
supply). Based on this data, would you recommend investing resources in:
a. Improving forecasting
b. Improving supplier performance with supplier development initiatives
27. Operations Strategy is:
a. selecting the portfolio of buffers to support the business strategy
b. a waste of time
c. lean, six sigma, and theory of constraints
Problem # 2: (Measures Alignment)
[6 points total]
A contract manufacturer of food ingredients built an entire marketing campaign around best in
class responsiveness. The dominant measures they used in operations were capacity utilization
and earned hours. They didn’t measure lead-time, service level, or average days late. Based on
the measurements they had, they knew utilization was very high (97%+). Based on complaints
from the sales force, they believed customer service was poor. Using the Factory Physics
Framework, please describe why it appears the company’s operations strategy does not support
its business strategy.
Initials: ___________
Page 6
Problem 3: (Inventory Analysis)
[10 points total]
Use the chart below:
1. What is actual inventory and service level? (2 points)
2. Is the current actual for inventory and service level optimal? Why or why not? (3
points)
3. Name two optimal points (service level, inventory $$):
Initials: ___________
Page 7
Problem #4: (Inventory Strategies)
[10 points total]
Explain how a leader in operations could use the following three charts to develop and execute
inventory strategy:
Initials: ___________
Page 8
Problem # 5: (Business and Operations Strategies)
[10 points total]
In class, we discussed that key elements of deploying the Factory Physics Framework often
include:
1. Aligning Operations Strategy with Business Strategy
2. Determining the Portfolio of Buffers at a Strategic Level
3. Assessment of Utilization
4. Finding the Bottleneck
5. Using a WIPCAP
6. Reviewing opportunities to optimize inventory including “Common Components for
Assemble to Order”
7. Setting Lead-times using the Concept of Due Date Quoting
Please discuss why each of these is important to analyze an operation and how it could be used in
an analysis of the following medical device manufacturing business:
A Multi-Billion Dollar Medical Devices Company produces devices which are assemblies. Given
the critical nature of delivery of devices to hospital and doctors, medical device companies do
not want to stock out. This medical device company in this case was plagued by long lead-times
(2 months) and poor service (50%) from its internal plants to its distribution centers. The
distribution centers compensated for the poor performance by holding a large inventory (order
of magnitude in hundreds of millions) buffer of Finished Goods inventory in its warehouses.
This tied up valuable cash that could be used for R&D to fuel future growth. Below is a picture
of a Demand-Stock-Flow diagram for the current process:
USE NEXT PAGE FOR RESPONSE
Initials: ___________
Page 9
RESPONSE PAGE FOR QUESTION 5
GO TO NEXT PAGE FOR QUESTION 6
Initials: ___________
Page 10
Problem # 6: (Business and Operations Strategies)
[10 points total]
In the final CSUITE case in-class, the company was losing money due to lost sales when its leadtime expanded well beyond the industry standard of 25 days based on the following operations
data:
Initials: ___________
Page 11
Changes were made to achieve the following financial and service outlook:
GO TO NEXT PAGE FOR QUESTION AND ROOM TO RESPOND
Initials: ___________
Page 12
Please describe the changes below that resulted in this outcome in terms of their impact on
variability and the portfolio of buffers (inventory, capacity and time):
• Improve Yield on Miyano
• Convince customers to place year-long blanket orders on retainers, cinch
plungers, cuff locks and a few swiss other parts
• Avoiding adding costly capacity buffers for new machines
• Overtime is a good flexible capacity level (model on FANUC, Miyano, Sodick to
see overtime vs. inventory vs. cycle time)
• Set a lead-time of 24 days compared to current industry standard of 25 days
Initials: ___________
Page 13

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