Assignment 01

Operations Management II

Submission deadline: 10 February 2020

Full Marks: 65

Submission instructions:

• Concept related to questions 6-9 will be discussed in forthcoming classes.

• Use the data file attached with this assignment.
• Each group requires to make one submission for the assignment.
• Use Spreadsheet and POM-QM for Windows if required.
• All members of a group will get equal marks.
• Late submission penalty will be a deduction of three marks per 12 hours.

(1) A major airline is attempting to evaluate the effect of recent changes it has made in scheduling
flights between New York City and Los Angeles. Data available are shown below.

Number of Number of
Flights Passengers
Month prior to schedule change 21 8,335
Month after schedule change 24 10,608

a. Using passengers per flight as a productivity indicator, comment on the apparent effect
of the schedule change.
b. Do you suggest any other measures of productivity?

(2) A fast-food restaurant has a drive-through window and during peak lunch times can handle a
maximum of 60 cars per hour with one person taking orders, assembling them, and acting as
cashier. The average sale per order is $7.00. A proposal has been made to add two workers and
divide the tasks among the three. One will take orders, the second will assemble them, and the
third will act as cashier. With this system it is estimated that 100 cars per hour can be serviced.
All workers earn the minimum wage.
a. Use productivity arguments to recommend whether or not to change the current system.
b. Figure out the possible reasons that might be driving the productivity of the second
system in the restaurant.

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(3) Refer to the data attached at the end of this document. The section Stores and people and
Comparative income statements are of major interest to OM implications.
(a) If you compute anticipated net sales by average ticket multiplied by number of
transaction, you expect anticipated sales should be equal to the reported net sales.
However, you may find that this is not the case. What is the mean absolute percent
error (MAPE)? What do you understand from this?
(b) If number of stores, selling square feet, and number of employees are considered
inputs, determine the productivity for each input. Plot the productivity over years,
and observe the trend. What conclusions do you draw?
(c) If the three parameters in (b) are considered the independent variables, regress net
sales for if these parameters are significant in explaining or predicting the net sales.

4. Monthly sales data for iPhone of last four years are presented below:

Year 1 2 3 4 5
Jan 742 791 971 1051 1,155
Feb 697 750 868 961 1,157
Mar 776 824 960 1038 1,251
Apr 898 982 1,130 1,209 1,410
May 1,030 1,149 1,279 1,374 1,593
Jun 1,107 1,273 1,401 1,522 1,762
Jul 1,165 1,340 1,378 1,586 1,736
Aug 1,216 1,399 1,511 1,655 1,733
Sep 1,208 1,391 1,548 1,704 1,653
Oct 1,131 1,346 1,528 1,700 1,545
Nov 971 1,116 1,245 1,503 1,244
Dec 783 951 1,098 1,309 1,138

(a) Plot the data and describe its nature.

(b) Using multiplicative seasonal model (Winter’s model), compute monthly demand of
the next year if (i) trend in the data is ignored, and (ii) trend in the data is taken into
consideration.
(c) What is the value of tracking signal?

5. Miles per gallon data of a minivan at each fuel tank filling for a period of two years are
attached with this assignment. By using POM-QM for Windows and the data attached,
observe with various forecasting methods, and pick one of those methods based on MAD,

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 MSE, etc., to analyse error statistics. With the chosen method calculate tracking signal and
chart them.
(a) In your understanding what do the data speak?
(b) Do you observe spiking tracking signal? If yes, why does it display such
characteristics?
(c) By observing tracking signal, state your understanding about the trend.

6. The Welsh Corporation uses 10 key components in one of its manufacturing plants.

ABC Data for Problem 3

SKU Item Cost ($) Annual Demand

WC219 $0.15 13,000
WC008 1.20 22,500
WC916 3.25 400
WC887 0.41 6,200
WC397 4.65 12,300
WC654 2.10 350
WC007 0.90 225
WC419 0.45 6,500
WC971 7.50 2,950
WC713 12.00 1,500

(a) Perform an ABC analysis from the data shown above. Explain your decisions and logic.
(b) How will this classification be useful for the Welsh Corporation?
(c) The Welsh Corporation was not satisfied with classification, and places item WC971 in A
class. What is your take here?

7. High Tech, Inc. is a virtual store that stocks a variety of calculators in their warehouse. Customer
orders are placed; the order is picked and packaged, and then shipped to the customer. A fixed
order quantity inventory control system (FQS) helps monitor and control these SKUs. The
following information is for one of the calculators that they stock, sell, and ship.

Average demand 12.5 calculators per week

Lead time 3 weeks
Order cost $20/order
Holding cost $1.20/calculator/year

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 Number of weeks 52 weeks per year
Standard deviation of weekly demand 3.75 calculators
SKU service level 90 percent
Current on-hand inventory 35 calculators
Scheduled receipts 20 calculators
Backorders 2 calculators

(a) What is cycle and average inventory?

(b) What is the average flow rate for the calculator?
(c) What is the Economic Order Quantity?
(d) What is the annual ordering and inventory-holding costs for the EOQ?
(e) What is the total cost?
(f) Instead of using EOQ, the company is currently using a lot size of 500 units. What is the
annual holding cost and annual ordering cost? Without determining EOQ and its
corresponding cost, from these two costs how can you conclude that current lot size is
too large?
(g) What is the reorder point without safety stock?
(h) What is the reorder point with safety stock?
(i) Assess the inventory position before and after planning an order.
(j) Based on the above information, is it the time to place a fixed order quantity as an
order, and if so, for how many calculators?

8. Tune Football Helmets Company is considering changing its current inventory control system for
football helmets. The information regarding the helmets is given below.
Demand = 200 units/week
Lead time = 2 weeks
Order cost = $60/order
Holding cost = $1.50/unit/yr
Desired service level = 95%
Standard deviation of weekly demand = 40
Number of weeks per year = 52

(a) Compute review period (T) and replenishment level (M) for a fixed period inventory system
model with and without safety stock.
(b) Explain how this system would operate.

9. Maruti Suzuki uses a periodic review inventory control system for one of its stock items
with review interval 5 weeks, and the lead time for receiving the materials ordered from its
wholesaler is 2 weeks. Weekly demand is normally distributed, with a mean of 150 units
and a standard deviation of 30 units.

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 (a) What is the time interval, i.e., protection period, during which the company faces a
risk of stockout?
(b) What is the average and the standard deviation of demand during the protection
period?
(c) If the company aims 98.5 percent stockout protection, what should be the target
inventory level?
(d) Given 300 units were on hand at the time of a periodic review, how many units should
be ordered?

10. Suppose the High Tech, Inc. in the Problem 5 uses a periodic (P) review system instead of
continuous (Q) review system.
(a) What should be the period of review, T (in working days), and target inventory, M, to
approximate the cost trade-offs of the EOQ?
(b) Compared to the Q system in Problem 5, how many more safety stock is needed?
(c) If it is time for the periodic review, how many units should be ordered?

11. Agarwal bakery prepares all its cakes between 6 AM and 8 AM such that they can sell it
fresh. At the end of the day, Agarwal bakery plans for two options for the leftover cakes:
(1) to give it in charity, and (2) sell it at 60% discount off the regular price ₹300. The bakery
invests ₹100 to bake each cake, and estimates demand which follows normal distribution
with a mean of 100 and a standard deviation of 50. How much Agarwal bakery should stock
each day?

12. Case: Forecasting Ticket Revenue for Orlando Magic Basketball Games

For its first 2 decades of existence, the NBA’s Orlando Magic basketball team set seat prices for its 41-
game home schedule the same for each game. If a lower-deck seat sold for $150, that was the price
charged, regardless of the opponent, day of the week, or time of the season. If an upper-deck seat
sold for $10 in the first game of the year, it likewise sold for $10 for every game.
But when Anthony Perez, director of business strategy, finished his MBA at the University of
Florida, he developed a valuable database of ticket sales. Analysis of the data led him to build a
forecasting model he hoped would increase ticket revenue. Perez hypothesized that selling a ticket
for similar seats should differ based on demand.

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 Studying individual sales of Magic tickets on the open Stub Hub marketplace during the prior
season, Perez determined the additional potential sales revenue the Magic could have made had they
charged prices the fans had proven they were willing to pay on Stub Hub. This became his dependent
variable, y, in a multiple-regression model.
He also found that three variables would help him build the “true market” seat price for every
game. With his model, it was possible that the same seat in the arena would have as many as seven
different prices created at season onset—sometimes higher than expected on average and sometimes
lower.
The major factors he found to be statistically significant in determining how high the demand
for a game ticket, and hence, its price, would be were:
◆ The day of the week (x1)

◆ A rating of how popular the opponent was (x2)

◆ The time of the year (x3)

For the day of the week, Perez found that Mondays were the least-favored game days (and
he assigned them a value of 1). The rest of the weekdays increased in popularity, up to a Saturday
game, which he rated a 6. Sundays and Fridays received 5 ratings, and holidays a 3 (refer to the
footnote in Table below).

His ratings of opponents, done just before the start of the season, were subjective and range
from a low of 0 to a high of 8. A very high-rated team in that particular season may have had one or
more superstars on its roster, or have won the NBA finals the prior season, making it a popular fan
draw.
Finally, Perez believed that the NBA season could be divided into four periods in popularity:
◆ Early games (which he assigned 0 scores)

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◆ Games during the Christmas season (assigned a 3)

◆ Games until the All-Star break (given a 2)

◆ Games leading into the play-offs (scored with a 3)

The first year Perez built his multiple-regression model, the dependent variable y, which was
a “potential premium revenue score,” yielded an r2 = .86 with this equation:
y = 14,996 + 10,801x1 + 23,397x2 + 10,784x3

Table above illustrates, for brevity in this case study, a sample of 12 games that year (out of
the total 41 home game regular season), including the potential extra revenue per game (y) to be
expected using the variable pricing model.
A leader in NBA variable pricing, the Orlando Magic have learned that regression analysis is
indeed a profitable forecasting tool.

(a) Use the data in Table above to build a regression model with day of the week as the only
independent variable.
(b) Use the data to build a model with rating of the opponent as the sole independent variable.
(c) Using Perez’s multiple-regression model, what would be the additional sales potential of a
Thursday Miami Heat game played during the Christmas holiday?
(d) What additional independent variables might you suggest to include in Perez’s model?

13. Refer to the case in your textbook (Chapter 9), Boston Red Sox Spring Training Decision Case Study,
and answer the following questions:
(a) Using the center-of-gravity model compute the center of gravity for the population of the
county? Show all computations, explain, and justify.
(b) Using a weighted scoring model of your own design what are the summary scores for each
stadium site for the qualitative criteria in Exhibit 9.8. (You must decide how to scale and
weight each criterion and whether to include or not include cost estimates.) Show all
computations, explain, and justify.
(c) How will you combine these results (your center-of-gravity results. cost, and qualitative
criteria analyses? How might you compute a summary score for each site using all three
criteria? Explain and justify.
(d) What is your final stadium site recommendation? Explain and justify.

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