CH1 CH7解答

Chapter
1 Operations as a Competitive
Weapon
DISCUSSION QUESTIONS
1. Answering this question demonstrates that processes underlie all of our jobs. What might
be surprising is how many students would put their job in the category of “other,”
suggesting that many jobs do not fall neatly into any one functional area. Perhaps many in
the “other” category might best be called “operations” on further reflection. Customers,
both internal and external, are part of each process, and the goal is to manage the
processes to add the most value for them.
2. Some responsibilities generally supported will include responsibilities to stockholders, to

customers, to the environment, to provide safe working conditions, and to pay taxes. More
debatable are responsibilities to provide medical care, maternity leave, child care,
retirement, and minimum wages and responsibilities to the community other than paying
taxes.
3. The problems of unions faced with international competition are mentioned in the
Caterpillar video. NAFTA and GATT are still in the news. Does lifting trade barriers
expose workers to competition from workers in undeveloped economies? Or does
increased opportunity to compete result in more exports and more jobs? With decreased
tariffs, are multinationals moving operations elsewhere to escape unions and
environmental regulations? Students should recognize that effective operations
management is a key to favorable outcomes.
2z PART 1 z Using Operations to Compete
PROBLEMS
1. Boehring University
a. Productivity has increased by 76% compared to Solved Problem 1
(productivity = 100
. ).
Value of output:
students credit-hours ⎛ $200 tuition + $100 state support ⎞
75 ×3 ×⎜ ⎟ = $67,500 class
class student ⎝ credit-hours ⎠
Value of input: labor + material + overhead
⎛ $25 ⎞
$6500 + ⎜ × 75 students ⎟ + $30, 000
⎝ student ⎠ = $38,375 class
class
Productivity ratio:
Output $67,500
Productivity = = = 1.76
Input $38,375
Labor productivity has increased about 58% compared to Solved Problem 1.
b. Value of output is the same as in part a: $67,500 class

Labor-hours of input:
hours weeks hours
20 × 16 = 320
week class class
Productivity ratio:
Output $67,500
Labor Productivity = = = $210.94 hour
Input 320 hours
The $192 season ticket price is not used in this calculation. It is a “red
herring.”
These calculations can be confirmed with Tutor 1.1 by substituting students into
the “ticket sold” field, tuition (for 3 credit-hours) into the “price filed,” and state
support for the “Surcharge” field. Their results are shown following:
Operations as a Competitive Weapon z CHAPTER 1 z 3
Tutor 1.1 Productivity Measures
Place cell pointer on green-shaded areas to examine formulas.
a. Multifactor productivity is the ratio of the value of output to the value of input.
Step 1. Enter the number of tickets sold during a season, the price per ticket, and the surcharge per
ticket. To compute value of output, multiply tickets sold by the sum of price and surcharge.
Students: 75 Value of output: $67,500
Tuition: $600
State support: $300
Step 2. Enter labor costs, materials costs per passenger, and overhead cost. For value of input, add
together labor costs, materials costs times number of passengers, and overhead costs.
Labor costs: $6,500 Materials costs: $25.00 Overhead: $30,000
Value of input: $38,375
Step 3. To calculate multifactor productivity, divide value of output by value of input.

Multifactor productivity: 1.76
b. Labor productivity is the ratio of the the value of output to labor hours. The value of output is
computed in part a, step 1.
Step 1. Enter person-hours per week and the number of weeks in the season; multiply the two together
to calculate labor hours of input.
Hours per week: 20 Weeks: 16
Labor hours of input: 320
Step 2. To calculate labor productivity, divide value of output by labor hours of input.
Labor productivity: $210.94
2. Suds and Duds Laundry

Output per person does not vary much whether it is Sud, Dud, or Jud working.
Productivity declines when all three are present. Perhaps there isn’t enough work to keep
three persons occupied, or perhaps there is not enough work space or equipment to
accommodate three workers.
Number of Input Output Output/Input

Week Workers (Labor-hours) (Shirts) Ratio
1 2 24 68 2.83 shirts/hour
2 2 46 130 2.83 shirts/hour
3 3 62 152 2.45 shirts/hour
4 3 51 125 2.45 shirts/hour
5 2 45 131 2.91 shirts/hour
3. Compact disc players

Value of Output: $300
Value of Input: Labor + Materials + Overhead
Ouput $300
Input $30 + $70 + $50
10% productivity improvement → 2.00 × 110. = 2.200
Given productivity = 2.20 , and the value of output = $300, we solve for the cost of
inputs:
4z PART 1 z Using Operations to Compete
Ouput $300
Input Input
$300
Input = = $136.36 or $136
2.2
The cost of inputs must decrease by ( $150 − $136 ) = $14 .
a. A $14 reduction in material costs is $14 $70 = 20.00%
b. A $14 reduction in labor costs is $14 $30 = 46.67%
c. A $14 reduction in overhead is $11 $50 = 28.00%
CASE: CHAD’S CREATIVE CONCEPTS *
A. Synopsis
This case describes a small furniture manufacturing company that has gained a reputation for
creative designs and quality by focusing on producing custom-designed furniture. As its
reputation grew it began to sell some standard furniture pieces to retail outlets. The overall
growth in sales volume and the diversification into the production of standard furniture
pieces have caused a number of issues to arise concerning both the internal
manufacturing operations and its relationship to the other functional areas of the
company.
B. Purpose
This case is designed to be used as either a “cold-call” case for class discussion or an
assigned homework reading. Major points to be brought out in the discussion include:
1. The range of decisions that are made in designing and operating processes
2. The impact that these operating decisions have on the organization as a whole, such as on
marketing and finance
3. The impact that decisions made in other functional areas of the organization have on the
operating function
4. The need to go beyond the “functional silo” mentality and manage in an integrative
manner
*
This case was prepared by Dr. Brooke Saladin, Wake Forest University, as a basis for classroom discussion.
Chapter
2 Operations Strategy
1. Amazon.com offers a very broad range of services and products at competitive prices. Its competitive
priorities would include fast delivery time, on-time delivery, customization, variety and low-cost
operations. As a business, Amazon.com is actually assembling a customized basket of goods that must
be delivered in a short window of time in a dependable fashion. Low-cost operations are needed to
remain competitive. To remain in business, Amazon.com needs to maintain high volumes of traffic.
Operations strategy must focus on stock availability and quick, economical, and dependable delivery.
2. The hospital’s commitment to provide attention to patients arriving to the emergency unit in less than 15
minutes and never to turn away patients who need to be hospitalized implies that the facility must be
designed to have extra capacity in both beds and emergency room facilities. It must plan on having extra
personnel in the emergency room and also plan on having additional emergency personnel on call to take
care of unprecedented heavy loads. In line with the mission statement, maximum utilization of the
facilities (i.e., beds and emergency room personnel) would not be one of the performance objectives for
the hospital.
3. FedEx traditionally competed on the basis of fast, dependable delivery. Before the boom in Internet
applications, many businesses relied on FedEx to get things to other businesses overnight. Now, this
need is beginning to diminish as sophisticated systems are being installed to assist companies in planning
operations better. And, the dot-com companies are adding more demands for ground deliveries to
specific customer doors, at low cost. FedEx, to remain competitive with companies such as UPS, will
have to move into the door-to-door delivery business, perhaps through acquisition. Nonetheless, it will
require changes to this company’s competitive priorities.
4. A service package consists of the supporting facilities, facilitating goods, explicit services, and
implicit services. The responses below are indicative of the four major components of a service
package in each situation.
a. For an insurance company, the supporting facilities would include the office space and
equipment and the insurance agents and support staff. Some insurance companies have their
own accident repair estimate facilities. The facilitating goods would include all of the office
supplies as well as the damaged automobile, which sets the service in motion. The explicit
services would include financial support in case of an accident, creating a policy fitting the
client’s needs, and servicing damage claims (sometimes representing a client in a court case).
Implicit services include the courtesy of the agents, the promptness of response, and convenient
access to agents.
Operations Strategy z CHAPTER 2 z 17
b. The supporting facilities for a dental service would include the office and equipment for
repairing a crown and the dentist and supporting staff. The facilitating goods would include the
materials for creating a crown as well as the patient’s damaged tooth, which jump starts the
service. The explicit service is the repair of the crown and processing insurance claims. The
implicit services include the pleasant demeanor of the dentist and staff and the ambience of the
dental office and waiting room.
c. The supporting facilities for an airline flight would include the airplane (and its specific
design regarding seats and other amenities), baggage equipment, personnel such as pilots,
attendants, and baggage handlers. The facilitating goods include the passenger and the food
consumed on the flight. The explicit service is transportation from one location to another. The
implicit services include safety, demeanor of the attendants, and the convenience of flight
availability.
5. Technology Management. To identify a market segment, we need to determine answers to questions

such as: Which colleges and departments within colleges currently offer the subject? What do
instructors desire in the way of textbook support? Is there a trend toward Technology Management
courses? Are there other Technology Management texts? Some needs assessment can be
accomplished by survey, but response rate may be low. A high-investment strategy would be to ask
or hire instructors to review and critique a list of topics, then an outline, then a draft. Explicit
services include supplying information about the subject in the form of a textbook and instructor
support in the form of ancillary publications.
6. It is not a good idea for a company to try to excel in all of the competitive priorities because it is
generally impossible to do so. Mediocrity is a predictable result. The choice and the minimum level
of one or more of the competitive priorities are set by the order qualifiers for the particular product
or service. The choice of the competitive priorities that the company should emphasize is usually
governed by the company’s strategy driven by its mission statement and the core competencies that
the company wants to harness to seek the best competitive advantage.
7. Core processes should link to a firm’s core competencies. Core processes are those processes that
provide the firm the best competitive advantage. Essential to the definition a firm’s core processes
is the concept of “interaction costs,” which are the money and time that are expended whenever
people and companies exchange services, products, or ideas. If the transaction costs are higher to
retain a process in the firm’s organization than they would be to outsource the process, the process
should be outsourced.
8. Russell’s Pharmacy probably should not move to Large Island.

a. Russell’s strategic plans should include the following:
Product and service plans: Should new services be offered?
Competitive priorities: How could Russell respond to price competition in Large Island?
Quality management: Will accurate prescriptions justify higher prices?
Capacity: How large would the Large Island facility be?
Location: Should Russell move to Large Island?
b. Environmental factors include a declining and aging population in River City and strong price
competition in larger markets. An aging population indicates increased demand for prescription drugs,
as well as other health aids. Russell might consider offering in-home services needed by older clients.
18 z PART 1 z Using Operations to Compete
c. Russell’s distinctive competency is knowing his customers and their health histories and accurate,
if occasionally slow or costly, service. If he moves to Large Island, he would not know his customers,
who would be less forgiving of slow or costly service.
9. Although the answers may vary depending on the “niche” elements of the business, the competitive
priorities would include on-time delivery, low-cost operations, and customization. The latter competitive
priority comes from the capability to assemble unique “baskets” of food items for each customer. There
may be a need to coordinate a given basket between two different stores. Capabilities to develop would
include information systems and Web page design, efficient scheduling of delivery trucks (which must
first collect the items in the basket and then deliver them to the customer’s door), and an adequate fleet
of trucks with drivers.
CASE: BSB, INC.: Pizza Wars Come to Campus *
A. Synopsis
BSB, Inc. presents the situation where launching a pizza service at a food service operation on a college
campus turns out to be very successful. As the manager of the food service operation is contemplating an
expansion of the service, an announcement by the university that a new food court will soon be opening
in the new student union causes some concern. The new food court will contain, for the first time on
campus, other food service companies, including a new Pizza Hut kiosk. This causes the manager of
BSB, Inc. to reevaluate the competitive environment and her own competitive priorities.
B. Purpose
BSB, Inc. provides the students an opportunity to discuss a number of strategically focused issues to
include the following:
1. Mission statements: Mission statements describe the fundamental purpose for which the organization
exists. The university decided that a focus on food service operations was not part of its primary
mission, so it contracted the service out to BSB, Inc. Students should be able to describe a mission
statement for BSB, Inc. This statement will help in discussing the second major focus of this case.
2. Comparison of competitive priorities: When the pizza service was launched a year ago, the
competitive priorities were to expand the product line to offer pizza that could be delivered quickly
at a reasonable price.
Costs were kept low, and turnaround time was short due to the limited combination of toppings
available.
With the addition of the food court and Pizza Hut on campus, competitive priorities may change.
Delivery may still be a differentiating competitive priority, but product flexibility (variety) and
volume flexibility (large order sizes) may become more important. BSB, Inc. may not be able to
compete on low cost when compared to Pizza Hut’s operations.
3. The impact changing competitive priorities has on operating decisions: Students need to discuss the
potential impact that different competitive priorities have on process design and operating systems. If
product flexibility and volume flexibility become more important, then there are implications for:
a. Equipment needs—conventional oven versus continuous chain drive
b. Capacity requirements—order size and delivery cycle
*
This case was prepared by Dr. Brooke Saladin, Wake Forest University, as a basis for classroom discussion.
Operations Strategy z CHAPTER 2 z 19
c. Inventory issues—inventory needed to support product flexibility
4. Product life cycles: Demand for pizza on campus has leveled off. Why? Has it reached its mature,
steady state? What will be the impact of new competition? What can be done to
reposition pizza into a growth stage? These are questions that should be asked of students to get them
to think about pizza’s product life cycle.
C. Analysis
A good analysis of the situation can be performed by going through the five questions at the end of the
case. The following is what you can expect from a first-year MBA student given the case as a take-home
assignment to read and to respond to the questions at the end.
Question 1: Does BSB, Inc. enjoy any competitive advantages or distinctive competencies?
BSB’s competitive advantage is close proximity to the customers. Though 43 percent of meals are
eaten off campus, 57 percent of meals are still eaten at BSB’s facilities. For pizza delivery the close
proximity is critical, as it allows for quicker delivery. In addition, delivery can be done at a lower cost
because bikes can be used.
BSB’s distinctive competencies are the location of facilities and market know-how. Being on
campus, BSB can provide delivery service quicker and at a lower cost. In addition, by being on campus,
BSB is closer to the customer base, which allows Kershaw, the manager, to be more knowledgeable of
her customer’s needs. She employs environmental scanning, such as the customer surveys, to keep
abreast of her market.
Question 2: Initially, how did Renee Kershaw choose to compete with her pizza operations? What were
her competitive priorities?
Initially, Kershaw chose to compete on delivery service and price. She used quick delivery as a key
selling point. In addition, without a reasonable price, she could not compete with the off-campus pizza
companies. In effect, her order qualifier was price, and her order winner was service.
Her initial competitive priorities for pizza were delivery speed and price. Her on-campus location
and limited standard toppings make these priorities possible. Unfortunately, this policy limits the variety
of pizzas available. The increased requests for additional topping combinations and the leveling of sales
suggest this policy may be hurting BSB.
Question 3: What impact will the new food court have on Kershaw’s pizza operations? What competitive
priorities might she choose to focus on now?
The new food court introduces new competition that has the same on-campus advantage as BSB.
In addition, these companies can also provide products at reasonable prices, but unlike BSB, they have
brand names. Her direct competitor, Pizza Hut, can probably provide a similar price. Most likely Pizza
Hut will also have limited varieties; however, BSB still maintains its delivery advantage.
The most likely new competitive priorities for BSB will be expanded product variety and longer service
hours. The increased requests for alternate toppings show a customer interest in variety, and the
expanded hours will enable BSB to offer service when the Pizza Hut is closed or when students are in
their dorm rooms.
Question 4: If Kershaw were to change the competitive priorities for the pizza operation, what are the
gaps between the priorities and capabilities of her process? How might this impact her operating
processes and capacity decisions?
An increase in product variety will affect both service and cost. Kershaw probably cannot
have as many premade pizzas ready to throw into the oven. She will also need to stock
additional toppings. If she wants to maintain service, she will need to hire additional
workers. She will inevitably have some trade-off between service and price if she adds
product variety.
Kershaw will also need to add capacity. At present, she is near capacity with her pizza
ovens. She may even have to consider a new location, as there seems to be limited space at
the grill location. Clearly she will need to determine the viability of pizza service before she
takes this step.
Question 5: Can you outline a service strategy for Kershaw’s operation on campus?
If she chooses to stay in the pizza business, delivery will remain important. Food, most likely pizza,
delivered from off campus, is a significant competitor. These competitive companies likely offer many pizza
combinations. Therefore, BSB will need to increase variety to remain competitive. The key to this strategy is
to maintain quality and to innovate on product offerings. Kershaw must use her proximity to the customer to
maintain her competitive advantage in determining their pizza delivery needs.
The other strategy would be total price competition. This would require her to keep the limited
menu and to push to keep costs at a bare minimum. Unfortunately this means maintaining the same basic
strategy she has now. However, this strategy will most likely lead to an inevitable decline in market share.
This strategy seems best if she decides to exit the market, but it gives her the opportunity to milk the market
before exiting.
In reviewing the student responses the instructor should note the following:
1. On question three, the student overlooks the continued importance of convenient, quick delivery. The
other food services do not provide this service.
2. Students tend to hedge on question five. They should be pressured into putting together a service strategy
as opposed to describing alternative choices only.
There are a number of positions Kershaw may take. What is important, however, is to look for
consistency in the strategies that students provide.
D. Teaching Strategy
This case is best assigned as a take-home assignment. Have the students focus on responding to the
questions at the end of the case. Tell them to pay particular attention to the last question. The first four
questions all lead up to the last one where students should describe a service strategy for pizza operations
of BSB, Inc. Tell students you want them to settle on a specific strategy they can support.
In class, start with the first question and cycle through to the final question, which describes their
service strategies. It is helpful to try to get two or three different strategies on the board to compare and
contrast approaches. It is important that students see that there are a number of good alternative strategies
and not just one best one.
A thorough discussion of this case will take 45 minutes to an hour, especially if alternative
strategies are discussed.
Chapter
3 Project Management
1. Software is an essential element for successful management of complex projects. It can

provide information on completion performance of critical activities, highlight activities
that need additional resources, and suggest the project duration that will minimize costs.
However, whether projects are large or small, the people who manage them or perform
the activities will ultimately determine the outcome of the project. The project manager
must have the ability to coalesce a diverse group of people into an effective team. The
organization of the firm must also be conducive to cross-functional inputs.
2. This question is best used when it is given as an assignment prior to class. Responses will
vary, but rely on the students with some business experience. The projects do not have to
be large ones. Stories in the headlines include natural disasters (earthquakes, fires,
tornadoes, and hurricanes), cleanup of oil spills, and delays in the introduction of new
products.
3. This question is best used when it is given as an assignment before class so that the
students will have a chance to think about it before discussion. Most everyone should be
able to describe some project they have been a part of. Common ones include preparing a
high-school yearbook, planning a major party, building a new home, and organizing a
banquet for a club or student group. Take time to elicit examples of activities and their
interrelatedness. Press the students for the reasons behind their rating of the project
manager. If the student is the project manager, ask the student what s/he thinks are
positive attributes for a project manager in such an example.
PROBLEMS
1. a. AON network diagram

D
2
B E G
4 1 3
Start A F H J Finish
2 8 5 7
C I
5 4
b. The critical path is A–C–F–H–J with a completion time of 27 days.
c. Earliest Latest Earliest Latest Total On Critical

Activity Duration Start Start Finish Finish Slack Path?
A 2 0 0 2 2 0 Yes
B 4 2 3 6 7 1 No
C 5 2 2 7 7 0 Yes
D 2 6 15 8 17 9 No
E 1 6 16 7 17 10 No
F 8 7 7 15 15 0 Yes
G 3 8 17 11 20 9 No
H 5 15 15 20 20 0 Yes
I 4 15 16 19 20 1 No
J 7 20 20 27 27 0 Yes
d. Free slacks: activity G has 9 days; activity H has zero days; and activity I has 1 day.
2. a. AON diagram
A C
4 5
Start D F H Finish
15 4 7
B E G
10 12 8
Project Management z CHAPTER 3 z 23
b. The critical path is B–E–G–H with a completion time of 37 weeks.
Results Gantt Chart
Solver - Project Management: Single Time Estimate A

B
Project time 37 C
D
Total
E
Early Early Late Late Activity
F
Activity Start Finish Start Finish Slack
G
A 0 4 2 6 2
H
B 0 10 0 10 0
C 4 9 6 11 2 0 10 20 30 40
D 10 25 11 26 1 Time
E 10 22 10 22 0
F 25 29 26 30 1
G 22 30 22 30 0
Critical
H 30 37 30 37 0
Activity time of noncritical task
Total Activity Slack
3. a. The AON network is:
ES ID EF
11 C 20 LS DUR LF
11 9 20
0 A 4 4 B 11 20 F 30 30 G 41
Start 0 4 4 4 7 11 20 10 30 30 11 Finish
41
11 D 14 14 E 28
13 3 16 16 14 30
b. Activity slacks for the project:
Start Finish Total Critical

Activity Earliest Latest Earliest Latest Slack Path?
A 0 0 4 4 0 Yes
B 4 4 11 11 0 Yes
C 11 11 20 20 0 Yes
D 11 13 14 16 2 No
E 14 16 28 30 2 No
F 20 20 30 30 0 Yes
G 30 30 41 41 0 Yes
Critical path is A–B–C–F–G, and the project completion date is week 41.
c. Free slacks: activity D has zero weeks and activity E has 2 weeks.
4. Web Ventures Inc.
Activity Statistics
Activity Optimistic Most Likely Pessimistic Expected Time Variance
( te ) (σ )
2
(a) (m) (b)
A 3 8 19 9 7.11
B 12 15 18 15 1.00
C 2 6 16 7 5.44
D 4 9 20 10 7.11
E 1 4 7 4 1.00
a.
te A = ( 3 + 4 ( 8 ) + 19 ) 6 = 54 6 = 9 days
te B = (12 + 4 (15 ) + 18 ) 6 = 90 6 = 15 days
teC = ( 2 + 4 ( 6 ) + 16 ) 6 = 42 6 = 7 days
te D = ( 4 + 4 ( 9 ) + 20 ) 6 = 60 6 = 10 days
te E = (1 + 4 ( 4 ) + 7 ) 6 = 24 6 = 4 days
b.
σ 2 A = ( (19 − 3) 6 ) = 7.11
2
σ 2 B = ( (18 − 12 ) 6 ) = 1.00
2
σ 2C = ( (16 − 2 ) 6 ) = 5.44
2
σ 2 D = ( ( 20 − 4 ) 6 ) = 7.11
2
σ 2 E = ( ( 7 − 1) 6 ) = 1.00
2
5. a. The expected activity times (in days) are:
Activity Optimistic Most Likely Pessimistic te σ2

A 5 8 11 8.00 1.00
B 4 8 11 7.83 1.36
C 5 6 7 6.00 0.11
D 2 4 6 4.00 0.44
E 4 7 10 7.00 1.00
Path Total Expected Time

A–C 8 + 6 = 14.00
A–D–E 8 + 4 + 7 = 19.00
B–E 7.83 + 7 = 14.83
The critical path is A–D–E because it has the longest time duration. The
expected completion time is 19 days.
T − TE
b. z=
σ2
Where T = 21 days, TE = 19 days, and the sum of the variances for critical
path A–D–E is (1.00 + 0.44 + 1.00) = 2.44.
21 − 19 2
z= = = 1.28
2.44 1562.
Assuming the normal distribution applies (which is questionable for a sample
of three activities), we use the table for the normal probability distribution.
Given z = 1.28, the probability that the project can be completed in 21 days is
0.8997, or about 90%.
c. Because the normal distribution is symmetrical, the probability the project can
be completed in 17 days is (1 – 0. 8997) = 0. 1003, or about 10%.
T − TE
6. z =
σ2
Where T = 20 weeks, TE = (5.5 + 9.0 + 4.5) = 19 weeks, and the sum of the variances
for critical path B–F–G is (0.69 + 2.78 + 0.69) = 4.16.
20 − 19 1
z= = = 0.4903
416
. 2.0396
Assuming the normal distribution applies, we use the table for the normal probability
distribution. Given z = 0.49, the probability for activities B–F–G taking longer than
20 weeks is (1 – 0.6879), or 31.21%.
7. a. The AON diagram is:
0 A 5 5 C 7 8 E 12 ES ID EF
4 5 9 9 2 11 11 4 15 LS DUR LF
Start Finish
0 B 3 3 D 8 8 F 15
0 3 3 3 5 8 8 7 15
b. Critical path is B–D–F. Expected duration of the project is 15 weeks.

c. Activity slacks for the project are:
Start Finish Total Critical

Activity Earliest Latest Earliest Latest Slack Path?
A 0 4 5 9 4 No
B 0 0 3 3 0 Yes
C 5 9 7 11 4 No
D 3 3 8 8 0 Yes
E 8 11 12 15 3 No
F 8 8 15 15 0 Yes
8.
7 C 14
7 7 14
ES ID EF
LS DUR LF
0 A 7 14 F 15 15 H 18
0 7 7 14 1 15 15 3 18
7 D 13
Start Finish
7 6 13
0 B 12 13 G 16 16 I 18
0 12 12 13 3 16 16 2 18
12 E 13
12 1 13
Resulting Time Project

Crash Critical Reduction Duration Crash
Trial Activity Path (weeks) (weeks) Cost
0 — A–C–F–H — 18 0
A–D–G–I
B–E–G–I
1 A, G A–C–F–H 1 17 $400
B–E–G–I
2 C, G A–C–F–H 1 16 $450
A–D–F–H
B–E–G–I
3 B, H A–C–F–H 1 15 $600
A–D–F–H
A–D–G–I
B–E–G–I
Total crash costs = $1450

To use OM Explorer for this problem, you need to modify the input data a little. The
problem already gives the cost to crash per week for each activity. Since OM Explorer
assumes it must calculate these values, multiply the number of weeks the activity can be
crashed by the cost per week given in the problem statement. The input sheet and the
resulting crash schedule should look like the exhibits below.
NOTE: For the Crash Costs Excel DID divide the entered per week $ by number of
allowable days. Thus it crashed B and A first, then kept crashing B. The Solver solution
does NOT match the (correct) manual solution
9. a. The AON diagram is:
5 C 7
6 2 8
ES ID EF
LS DUR LF
0 A 5 13 F 15
1 5 6 19 2 21
8 E 13
Start Finish
8 5 13
0 B 5 5 D 8 13 G 16 16 H 21
0 5 5 5 3 8 13 3 16 16 5 21
The critical path is B–D–E–G–H, and the project duration is 21 days.
b. Direct cost and time data for the activities:

Maximum Crash
Activity Crash Cost/Day Time (days)
A 200 1
B 600 2
C 300 1
D 500 1
E 150 2
F 100 1
G 0 0
H 200 2
A summary of the cost analysis follows. The recommended completion date is

day 17 by crashing activity E by 2 days and activity H by 2 days.
Resulting Reduc- Project Costs Crash Total Total Total

Crash Critical tion Duration Last Cost Indirect Penalty Project
Trial Activity Paths (days) (days) Trial Added Costs Costs Costs
0 — B–D–E–G–H — 21 $7,500 — $5,250 $700 $13,450
1 E B–D–E–G–H 2 19 $7,500 $300 $4,750 $500 $13,050
2 H B–D–E–G–H 2 17 $7,800 $400 $4,250 $300 $12,750
Further reductions will cost more than the savings in indirect costs and
penalties.
c. The critical path is B–D–E–G–H for minimum cost schedule..

10.
a. The critical path at the start is B-D-F at a duration of 18 weeks. We proceed
as follows: (1) Crash Activity B to its maximum reduction because it is the
cheapest activity on the critical path to crash per week and costs less than
$2,800, the sum of the indirect and penalty costs. The savings is $3,600. The
critical path is still B-D-F at a length of 16 weeks. (2) Reduce Activity D by 3
weeks for an additional savings of $2,400. The critical path is still B-D-F at a
duration of 13 weeks. No further reductions will lower total costs because the
cost to crash the other activities (that is, Activity F) exceeds the potential
reduction in indirect costs. Therefore, the minimum-cost schedule is 13
weeks.
b. The “normal” direct cost is $31,000, the “normal” indirect costs are $28,800,
the penalty costs are $7,200, and the total for the normal schedule is $67,000.
The cost for the schedule in part a is $31,000 + $8,000 (crash costs) + $20,800
(indirect costs) + $1200 (penalty) = $61,000. The total savings is $6,000.
11. Gumball Foods

a. Calculation of the activity statistics:
Activity Expected Time Variance

A 4 0.44
B 8 1.00
C 10 2.77
D 2 0.11
E 5 2.77
F 4 0.00
G 1 0.00
H 2 0.00
The AON diagram for the hiring project is:
0 A 4 4 D 6 6 G 7
7 4 11 11 2 13 13 1 14
0 B 8 8 E 13 14 H 16
Start Finish
1 8 9 9 5 14 14 2 16
0 C 10 10 F 14 ES ID EF
0 10 10 10 4 14 LS DUR LF
The critical path is C–F–H and the project is expected to take 16 weeks.
T − TE 14 − 16 2
b. z= = =− = −1.20
σ 2
2.77 1.66
Using the normal distribution table, the probability that the project can be
completed in only 14 weeks is (1 – 0.8849) or 0.1151.
c. No additional expenditures are recommended. Reducing activity A would not
help because it is not on the critical path. Reducing activity B would not
shorten the project by two weeks because it is also not on the critical path, and
even if it were, it would cost more than the lease costs for two weeks.
12. An AON diagram using the Alternative 1 (or “normal”) times follows.
D
9
A E G
12 12 8
B F H Finish
Start 13 8 2
C I
18 4
The critical path is A–D–G, and the project duration is 29 days.

Direct cost and time data:
Maximum Crash
Activity Crash Cost/Day Time (days)
A $600.00 1
B 112.50 4
C 750.00 2
D 250.00 4
E 225.00 2
F 350.00 1
G 200.00 2
H 200.00 1
I 900.00 2
Cost analysis for the project:
Resulting Time Project
Crash Critical Reduction Duration Crash
Trial Activity Path (weeks) (weeks) Cost
0 — A–D–G – 29 —
1 G A–D–G 2 27 400
2 D A–D–G 1 26 250
A–E–H
3 D, H A–D–G 1 25 450
A–E–H
The total cost for this project is:

$13,050 + $400 + $250 + $450 = $14,150.00
The activity times with crashing are:
A: 12 B: 13 C: 18 D: 7 E: 12
F: 8 G: 6 H: 1 I: 4
13. Sculptures International

a. The AON diagram for this project is:
0 A 4 4 C 7
0 4 4 4 3 7
7 E 10
Start Finish
7 3 10
0 B 1 1 D 3
4 1 5 5 2 7
b. The critical path is A–C–E, and the project duration is 10 days.
c. Activity Activity Slack

A 0
B 5–1=4
C 0
D 7–3=4
E 0
14. Reliable Garage

a. The AON diagram is:
12 D 17
17 5 22
0 A 2 2 B 8 8 C 12 12 E 19 22 H 25
Start Finish
0 2 2 2 6 8 8 4 12 15 7 22 22 3 25
12 F 17 17 G 22
12 5 17 17 5 22
b. Critical Path is A–B–C–F–G–H, and the duration is 25 days.
c. Activity Activity Slack

A 0
B 0
C 0
D 22 – 17 = 5
E 22 – 19 = 3
F 0
G 0
H 0
15. a.
The AON diagram for the hiring project is shown below.
A C F
10 9 13
Start D I K Finish
5 6 11
B G H
11 5 10
E J
8 9
b. The critical path is B–C–G–H–J–K, and the expected project duration is 55 days.
16. a. Calculation of the activity statistics:
The AON diagram for the advertising campaign is shown below.
20 G 23 23 I 27
23 3 26 32.33 4 36.33
0 B 9 9 D 11 20 F 26 26 H 31 31 J 36.33
Finish
9 9 18 18 2 20 20 6 26 26 5 31 31 5.33 36.33
0 A 10 10 E 20 31 K 33
Start
0 10 10 10 10 20 2 36.33
34.33
0 C 8
2 8 10
The critical path is A–E–F–H–J, the expected project duration is 36.33 days,
and the sum of the variances of the critical path activities is
(0.44 + 0.44 + 0.11 + 1.00 + 0.44) 2.43
T − TE 38 − 36.33 1.67
b. z= = = = 1.07
σ 2
2.43 1.56
The probability that the project will take more than 38 days is
1 – 0.8577 or 0.1423
c. The path A–E–G–H–J has a duration of 33.33 weeks with variance of 2.76.
T − TE 36.33 − 33.33
Therefore, z = = = 181
.
σ2 2.76
The probability that the path A–E–G–H–J exceeds 36.33 weeks is 1 – 0.9649,
or 0.0351.
17. a. AON diagram
F
4
C G K N
2 6 3 4
A
3
Start D H L P Finish
5 2 3 5
B
4
E I M O
3 1 2 1
J
4
Activity slacks for the project:
Results
Solver - Project Budgeting
Project time 25 Project Budget $2,125
Total
Early Early Late Late Activity
Activity Start Finish Start Finish Slack
A 0 3 2 5 2
B 0 4 0 4 0
C 3 5 5 7 2
D 4 9 4 9 0
E 4 7 7 10 3
F 9 13 9 13 0
G 5 11 7 13 2
H 9 11 15 17 6
I 7 8 13 14 6
J 9 13 10 14 1
K 13 16 13 16 0
L 11 14 17 20 6
M 13 15 14 16 1
N 16 20 16 20 0
O 15 16 19 20 4
P 20 25 20 25 0
The critical path is B–D–F–K–N–P, and the expected completion time is 25 days.
b. Project cost with the earliest start time for each activity:
Results
Project time 25 Project Budget $ 2,125
Period Total A B C D E F G H I J K L M N O P
1 70.83 33.33 37.50
2 70.83 33.33 37.50
3 70.83 33.33 37.50
4 100.00 37.50 62.50
5 147.50 62.50 35.00 50.00
6 97.50 35.00 50.00 12.50
7 97.50 35.00 50.00 12.50
8 147.50 35.00 12.50 100.00
9 47.50 35.00 12.50
10 106.25 50.00 12.50 25.00 18.75
11 106.25 50.00 12.50 25.00 18.75
12 118.75 50.00 18.75 50.00
13 118.75 50.00 18.75 50.00
14 150.00 50.00 50.00 50.00
15 100.00 50.00 50.00
16 250.00 50.00 200.00
17 43.75 43.75
18 43.75 43.75
19 43.75 43.75
20 43.75 43.75
21 30.00 30.00
22 30.00 30.00
23 30.00 30.00
24 30.00 30.00
25 30.00 30.00
Project cost with the latest start times for each activity:
Results
Project time 25 Project Budget $ 2,125
Period Total A B C D E F G H I J K L M N O P
1 37.50 37.50
2 37.50 37.50
3 70.83 33.33 37.50
4 70.83 33.33 37.50
5 68.33 33.33 35.00
6 97.50 62.50 35.00
7 97.50 62.50 35.00
8 97.50 35.00 50.00 12.50
9 97.50 35.00 50.00 12.50
10 112.50 50.00 50.00 12.50
11 81.25 50.00 12.50 18.75
12 81.25 50.00 12.50 18.75
13 81.25 50.00 12.50 18.75
14 168.75 100.00 18.75 50.00
15 100.00 50.00 50.00
16 125.00 25.00 50.00 50.00
17 68.75 25.00 43.75
18 93.75 50.00 43.75
19 93.75 50.00 43.75
20 293.75 50.00 43.75 200.00
21 30.00 30.00
22 30.00 30.00
23 30.00 30.00
24 30.00 30.00
25 30.00 30.00
Cost by day is plotted for Early Start and Late Start Schedules.
OM Explorer
Cost by Period
350
300
250
Cost
200
150
100
50
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Period
Early Start Late start
These two plots indicate the patterns of cash flow associated with the two different
project schedules. Management can select the schedule that fits better with its financial
status. Notice that the latest start dates delay cash flow requirements to the later time
periods of the project.
CASE: THE PERT STUDEBAKER *
A. Synopsis
The owner of the Roberts’ Auto Sales and Service Company is interested in restoring a
1963 Studebaker Avanti for advertising a new restoration business she wants to start. The
restoration project involves 22 activities and needs to be completed in 45 days so that the
car can be displayed in an auto show. The owner wants an assessment of how the
restoration business fits with the other businesses the company engages in, a report on the
activities that need to be completed and their interrelationships, an assessment of whether
the project can be completed on time, and a budget.
*
This case was prepared by Dr. Sue Perrott Siferd, Arizona State University, as a basis for classroom
discussion.
Chapter Part 2 Managing Processes
4 Process Strategy
1. Many operations at manufacturing facilities involve customer contact. Internal

customers would include those employees whose operation(s) are subsequent. Quality
Control could be considered an internal customer as could design engineering or sales.
Quality Control, design engineering, marketing, sales and other organizations represent
the customer at various stages of any process. Customer contact can be very high,
especially between production and engineering and production and quality control.
2. Some students may see this as a difference in competitive priorities. Others may see a
difference in management styles. Ritz-Carlton empowers their employees and the local
restaurant does not seem to empower. Ritz-Carlton believes that by having employees
treat customers and other employees with respect, customer service is enhanced. A
restaurant that does not allow employees to resolve a customer issue may not see
enhanced customer service. The restaurant may believe that the drive-up customer will
be better satisfied with fast and accurate orders. The in-store customer gets the chips and
salsa to utilize the time while waiting for an order to be prepared. The drive-up customer
has already placed that order and it is ready when the customer arrives at the pickup
window.
3. Student answers will vary. One idea that they may come up with is the use of electronic
files. The printing industry is undergoing a shift to pdf files. Medical imaging and
electronic file sharing is on the immediate horizon. The trick would be to convince
physicians that want to keep their pads and pencils, that their "blackberries" are their
pads and pencils.
4. Pollution control technology. The approach described in this question has actually been
proposed in the regulatory arena. The discussion is expected to focus on these issues: (1)
whether utilities ought to be able to buy the right to pollute, (2) fairness of making no
improvement in the local environment while lowering average pollution for the nation,
(3) universal requirement to install the new technology (the technology is so expensive,
great resistance to universal enforcement could result in defeating the regulation), and (4)
the broad “reduced regulation versus big government” debate.
5. Students from other countries may have experiences to relate here. NAFTA may reduce
the tendency to move dirty work to other countries to avoid stringent environmental
regulations. However, even small differences in regulations can have a large effect.
46 z PART 2 z Managing Processes
Within the United States a large amount of electric generation capacity is located in the
desert just outside the reach of California’s more stringent pollution standards.
Unfortunately, California experienced very expensive utility bills and power shortages
because such outside power sources provided an insufficient capacity during peak demand
periods.
PROBLEMS
1. Answers will vary with the process that the student chooses. Consider the process of
selling financial services, as characterized in Figure 4.4. Based on the table below, the
combined score is 5.8 if each is given a weight of 0.20. Arguments could be made to give
more weight to a dimension such as contact intensity, although more would need to be
known about the exact process. The process’s alignment on the customer-contact matrix
seems to fit a front office, with more jumbled work flows, high job complexity, and
process divergence. To be properly aligned, there should be considerable resource
flexibility in terms of both the employees and their equipment.
Dimension of Explanation Score

Customer Contact
Physical The customer is present for such steps as working to 5
presence understand customer needs and making customized
presentation. Other steps such as researching customer
finances and involving specialized staff do not involve
as much face-to-face contact.
What is The customer is the focus of what is being processed in 5
processed certain steps, such as the customized presentation.
However, researching customer finances lies more in
the category of information–based service rather than
people-processing services.
Contact intensity The customer is actively involved and there is high 7
service customization process
Personal Again there is a mix depending on the step. There is 6
attention considerable personal attention and confiding in
working to understand customer needs and in
maintaining a continuing relationship with the
customer. Less personal attention is involved with
offering a variety of services from specialized staff.
Method of Much of the delivery is through face-to-face contact, 6
delivery supplemented by individualized reports.
Process Strategy z CHAPTER 4 z 47
2. King Soopers. A tour of the King Soopers bakery is provided in the video, with the
facility’s layout shown on the next page. The processes shown are some form of
manufacturing because they are changing the material’s physical properties (baking the
bread), changing the material’s shape (creating the pastry shapes) machining to fixed
dimensions (cutting the bread), and assembling (applying the frosting to the cakes or
shrink wrapping the bread). Of course, there are non-manufacturing processes going on
in the office, such as planning production levels and managing the customer interface
process. The process choices for bread (a line process), pastries (batch process), and
cakes (job process) are properly aligned. For example, the bread line enjoys high
volumes and low customization. Thus it is highly automated with little customer
involvement and little equipment flexibility.
Warehouse Ingredients Bread Bread,

Cutting, continuous
receiving mixers rolling, and process
Holding loading
tanks machines
Cooling conveyor Bread Proofing conveyor

oven
Slicing Distribution
and Racks
bagging
Manual Ingredients Warehouse Pastry,

cutting and Mixers receiving batch
loading process
Proofing conveyor
Dough layering Assembly Pastry
and proofing using oven
fixtures
Distribution
Racks Packaging To cake
decorating
process
Warehouse Baked
cakes Cake
decorating
Frosting
ingredients Cake decoration tables
Frosting
mixers
Frosting Frosting
storage
Distribution
Racks Packaging
3. Two manufacturing processes

a. F1 + c1Q = F2 + c2Q
$50,000 + $700Q = $400,000 + $200Q
( $700 − $200 ) Q = ( $400, 000 − $50, 000 )
$350, 000
Q= = 700 units
$500
b. Choose the second process.
CASE: CUSTOM MOLDS, INC. *
A. Synopsis
Custom Molds, Inc. is a small fabricator of custom-designed molds that are used in
injection molding machines to make plastic parts. Its major customers are in the
electronics industry where large volumes of plastic connectors are used. The company
has recently noticed a shift in its market as the total demand for molds has declined, but
the requests for molded parts have increased. In response to this shift, Custom Molds,
Inc. has expanded its operations to include the manufacture of plastic parts. The case
provides students with the opportunity to analyze the different processes associated with
mold fabrication and parts production and to discuss the interaction between process
management decisions and competitive priorities.
B. Purpose
The purpose of this case is to focus the student on issues relating to process design and to
discuss how decisions involving process structure, customer involvement, vertical
integration, resource flexibility, and capital intensity interact with different competitive
priorities. Students need to resolve what it will take to compete effectively in each of
Custom Molds’ markets and how best to configure its processes. One needs to consider
specific issues:
1. There are two distinctly different processes taking place in the same facility. The
students should diagram each process (see flowcharts in Chapter 5) and
compare/contrast the strengths and weaknesses of each.
2. The different processes serve different customer needs. Mold fabrication requires
flexibility and quality where parts manufacturing competes on delivery and low cost.
The margin for parts is much smaller.
3. Although the number of orders has remained relatively stable, the volume per order
for parts has increased significantly over the last three years. This increase has
caused bottlenecks in the shop and has led to late deliveries of parts.
*
This case was prepared by Dr. Larry Meile, Boston College, as a basis for classroom discussion.
Chapter
5 Process Analysis
1. The answer can be debated. On one hand, relentless pressure to improve can create
considerable benefits over time, and could well put a company at the top of the industry.
On the other hand, small improvements do not lead to break-through solutions that might
be what is needed to remain competitive, particularly in an industry marked by rapid
change. However, radical change and process reengineering is strong medicine and not
always needed or successful.
2. This question was inspired by a similar situation faced by Ontario Hydro-Electric. Today
electricity is a commodity that competes on the basis of low-cost operations and
reliability. If the environmental protection equipment is installed, HEC must either
absorb the costs as a loss (immediate bankruptcy) or attempt to pass on the costs to
customers and see further erosion of their market (eventual bankruptcy). HEC would
probably decide to delay investment in environmental protection equipment for as long as
possible. Some discussion may focus on the issue of whether customers, as users of both
electricity and the environment, are better served by competition (lower cost of
electricity) or by regulated monopolies (better environment).
PROBLEMS
1.
2.
Process Analysis z CHAPTER 5 z 55
3.
Date Date Customer Date % % Total
App. Date sent to Date app to Info Info contact Confirmation Customer Associate problem Date app Associate Custom Total # app.
# Rec’d London scanned assoc entered complete date letter sent error Error resolved complete Error er Error Apps time
4.
5.
Date NSC Date

Call Data solve Customer Tech Tech Customer Service Parts Service
Call # rec’d entered problem Region selected notified notified call date needed complete
(Tech
Number Date Y/N Y/N (region #) number) Y/N date
6. King Soopers. The following diagram illustrates the processes in the bakery.
Warehouse Ingredients Bread Bread,

Cutting, continuous
receiving mixers rolling, and process
Holding loading
tanks machines
Cooling conveyor Bread Proofing conveyor

oven
Slicing Distribution
and Racks
bagging
Manual Ingredients Warehouse Pastry,

cutting and Mixers receiving batch
loading process
Proofing conveyor
Dough layering Assembly Pastry
and proofing using oven
fixtures
Distribution
Racks Packaging To cake
decorating
process
Warehouse Baked
cakes Cake
decorating
Frosting
ingredients Cake decoration tables
Frosting
mixers
Frosting Frosting
storage
Distribution
Racks Packaging
7. Referendum 13
Flowchart for yard sign assembly:
Stakes
Worker 1
Worker 2
Printed cards Glue

Gluing Table
Worker 3
Worker 4
Completed
signs Staples
Stapling Table
Human resource requirements:

One of many possible arrangements is to create several cells with four workers in each
cell.
Worker 1 is a materials handler, bringing printed cards and stakes (say in stacks or
bundles of 25) to the gluing table and taking completed signs (again in bundles of 25)
to the shipping area.
Worker 2 glues printed cards to the stakes. Worker 2 is also responsible for keeping
the area supplied with glue, staples, pizza, and beer.
Worker 3 is also a materials handler, transferring glued signs in small quantities (a
transfer batch) to the stapling table.
While worker 3 holds the material in place, Worker 4 staples the card to the stake to
hold it while the glue dries. Worker 4 also inspects the staples, drives loose ones
home with a hammer, and stacks completed signs in bundles of 25 for Worker 1 to
take away.
Accounting for interruptions, material shortages, and chaos, each cell will complete about
eight signs per minute, or about two signs per worker-minute. 10,000 signs would require
about 5,000 worker-minutes, or 83.33 worker-hours. In order to accomplish this work
within three hours (maximum attention span of college students) 83.33/3 = 27.78 or
about 28 student volunteers (all over 21) are required to staff 7 cells.
Material requirements (for 7 cells of 4 workers each):

10,000 printed cards
10,000 stakes
32,000 staples (16 boxes of 2,000 each)
28 12-ounce bottles of wood glue
4 cases beer
10 pizzas
Equipment requirements:
14 tables
7 staple guns
7 hammers (to set staples)
Process chart (using Process Chart Solver):
Process Yard sign assembly (25) Summar

Subject: Volunteer
Number of Distance
Beginning: Material to table Activity Time (min)
Steps (ft)
Ending: Completed signs removed Operatio 2 6.2
Transpor 4 4.0 15
Inspec 1 1.0
Delay 1 1.0
Stor 2 1.5
Step Time Distance I

Step Description
No. (min) (ft)
1 0.5 50. X 25 printed cards to gluing table
2 0.5 50. X 25 stakes to gluing table
3 3.2 X Glue 25 cards to 25 stakes
4 2.5 5. X Transfer individually to stapling
5 1.0 X Hold in position for stapling
6 3.0 X Insert three staples per sign
7 1.0 X Inspect staples and sign
8 1.0 X Stack signs into bundles of 25
9 0.5 50. X Carry signs to shipping area
1 0.5 X Store signs until distributed
8.
a. The gas station in part (b) has a more efficient flow from the perspective of
the customer because traffic moves in only one direction through the
system.
b. The gas station in part (a) creates the possibility for a random direction of
flow, thereby causing occasional conflicts at the gas pumps.
c. At the gas station in part (b) a customer could pay from the car. However, this
practice could be a source of congestion at peak periods.
9. Grading Homework Steps:

1. Check each paper to identify the author of the homework, then mark each
paper with section number and graduate status.
2. Sort by section and graduate status.
3. Correct and grade papers.
4. Alphabetize by section.
5. Record grades.
6. Return homework to appropriate instructor.
10. Oil Change
a. Each oil changing cycle takes 16.5 + 5.5 + 5.0 + 0.7 + 0.3 = 28 minutes. The
total labor cost is
($40/hr)[(28 min/service)/(60 min/hr)](2 services/hr × 10 hrs/day × 300
days/yr) = $112,000
b. ($40/hr) × (2.7 minutes saved per service/60 min/hr) (2 services/hr × 10
hrs/day × 300 days/yr) = $10,800 saved per year
11. Smith, Schroeder, and Tom (short moves)

a. The tally sheet given in the problem is essentially a horizontal bar chart. To
create a Pareto diagram, the categories are arranged in order of decreasing
frequency. This diagram was created using OM Explorer.
b. Cause-and-effect diagram
Machines Materials
Truck trouble No furniture pads
Defective door Packing materials
Complaints
Not familiar with service area Poor training/packing
Hired offensive lineman Scheduling too many
(hands of stone) deliveries on one day
Person Methods
12. Golden Valley Bank

a. Bar chart, from OM Explorer.
average =
(8 × 8) + (19 × 11) + ( 28 × 14 ) + (10 × 17 ) + ( 25 × 20 ) + ( 4 × 23) + (10 × 26 )
104
= 16.2 hours
b. Golden Valley’s average time is 16.2 hours or about two business days.
However, 39 of 104 customers waited longer than 18 “business hours.”
DeNeffe should first investigate the 14 applications that required more than
22 hours to find causes of long delays.
13. Oregon Fiber Board

a. Scatter diagram (see following)
b. As the production run size increases, the percent defective decreases. Should
schedule large runs when possible and determine what causes smaller runs to
be problematic, e.g. changeover issues
Scatter Diagram
8
0
0 1000 2000 3000 4000 5000 6000 7000 8000
Production Run Size
14. a. Scatter plot

Scatter Plot
40
Permeability Index
30
20
10
0
0 1 2 3 4 5 6
Carbon Content (%)
b. Correlation coefficient ρ = −0.547 . There is a relationship between

permeability and carbon content. However, it is does not seem to be very
strong.
c. Carbon content must be increased to reduce permeability index.
15. Superfast Airlines. One of many possible cause-and-effect diagrams follows.
Personnel
Passenger processing delays at gate
Gate agents Cabin cleaners late
Training Passengers Cabin crew late
Seat reservation errors Skip check-in Cockpit crew late
Quantity Lost boarding pass
Motivation Last-minute delays Passengers late
Late Information delays
P.A. system Security delays
Equipment
Wrong gate Metal detectors
Mechanical failures Long lines
Push-back tug Parking lot full
Oversensitive “Hi, Jack!”
Aircraft late to gate Remote gate location
Gate occupied Not enough time
between flights
Other Delayed
Baggage delays Fuel departures
Air traffic Desire to fill plane, increase income
Skis, golf clubs
Weather Food service Overbooking
Baggage system
Bumped passengers
Carry-on
Desire to accommodate late passengers
Weight and balance sheet
Acceptance of late passengers
Materials Cutoff too close to departure time
Standby boarding process Procedures
16. Shampoo bottling company

a. The tally of data into cells will be as follows.
Cell Cell Tally Frequency

Number Boundaries
1 12.65–12.85 4
2 12.85–13.05 8
3 13.05–13.25 9
4 13.25–13.45 9
5 13.45–13.65 11
6 13.65–13.85 12
7 13.85–14.05 16
8 14.05–14.25 11
9 14.25–14.45 10
10 14.45–14.65 8
11 14.65–14.85 2
b. 4% of the bottles filled by the machine will be out of specification, as can be

seen from the histogram (4% are below the lower limit).
ADVANCED PROBLEMS
17. Team exercise on shaving

a. One possible solution would look like this:
Process: Shaving Summary

Subject: Man
Number of Distance
Beginning Remove tools Activity
Steps
Time (min)
(ft)
Ending: Clear area O peration 4 6.20
Transport 4 0.50 20
Inspect 1 0.50
Delay 9 9.00
Store -- --
Step Time Distance I Step

No. (min) (ft)
1 0.10 5.0 X Rem ove shaving bowl and soap from cabinet
2 0.10 5.0 X Rem ove brush from cabinet
3 0.10 X Turn warm water faucet on
4 3.00 X Hold hand under faucet until water is warm
5 1.00 X Create shaving lather with brush & warm w ater
6 1.00 X Apply shaving lather to face
7 0.10 X Plug sink
8 3.00 X Turn faucet off when sink is half full
9 0.10 5.0 X Rem ove razor from cabinet
10 0.50 X Insert new razor blade
11 0.10 X Draw blade across face
12 0.10 X Rinse blade in sink
13 5.00 X Repeat steps 11-12 until face clear of stubble
14 0.50 X Inspect face
15 0.20 X Thoroughly rinse razor
16 0.10 X Dry face with tow el
17 0.20 5.0 X Return tools to cabinet
18 1.00 X Unplug sink, drain com pletely, and clear area
Additional comments (students may have slightly different observations): After Step 2,
he “walks back to sink”; Steps 3-4 and 7 & 8 are operations; The Delay step between 7
& 8 is “Wait for sink to half fill”; Between Steps 8 & 9 he “walks over to cabinet” to
remove the razor (unless he gets it at Step 1 or 2) and he needs to “walk back to sink” to
unplug and clean
b. Some ideas generated from brainstorming the process:
1. Leave bowl, soap, razor, and brush 9. Use disposable razor or electric
on the counter. razor.
2. Turn water on first. 10. Replace razor every other day.
3. Buy new water heater so water 11. Grow a mustache, beard, or goatee
warms faster. to reduce shaving time.
4. Use shaving cream or gel. 12. Go to a barber.
5. Shave in the shower. 13. Let face air dry.
6. Plug sink before turning water on. 14. Use cold water.
7. Run water while shaving instead 15. Do not inspect the face but shave
of plugging and filling sink. accurately the first time.
8. Fill sink one-fourth full instead of 16. Shave every other day.
half full. 17. Don’t rinse blade each time.
18. Conner Company

a. Tally sheet
Type of Defect Tally Number of Rejected Boards
A. Poor electrolyte coverage 12
B. Lamination problems 6
C. Low copper plating 26
D. Plating separation 4
E. Etching problems 2
Total 50 50
b. Pareto chart, from OM Explorer.

c. Cause-and-effect diagram (Note: several alternative ideas are possible here.)
Machines Materials
Voltage stability Composition
Setting Vendor
Low
Miscellaneous Copper
Dirty shop Excess variability Plating
Inspection Specification
Training Methods
Manpower
CASE: JOSE’S AUTHENTIC MEXICAN RESTAURANT *
A. Synopsis
Jose’s Authentic Mexican Restaurant is a small, independently owned local restaurant.
Ivan, the waiter, has noticed a significant reduction in the size of tips, leading him to
concerns about the quality of the food and service. The characteristics of the restaurant
and the process that takes place in the restaurant are described following. Students are
asked to think of the characteristics of this environment that define quality to the various
players, identify the implied costs of quality, and apply some of the analysis tools
provided in the text.
B. Purpose
This case provides a scenario to which students can relate. Nearly every student has eaten
at a small ethnic restaurant, and you can count on their collective experience to flesh out
the unspoken issues presented in the case. There is sufficient description of the process to
spark considerable discussion as to how the nature of the process (and the internal
customer chain) interacts with the external customer’s perception of quality. The students
need to develop definitions and measures of quality from several perspectives and then
think of how to integrate these different views. A discussion of the restaurant’s
management has been purposefully excluded from this case so that the students can freely
devise the interventions that should be taken to improve quality at Jose’s.
*
This case was prepared by Dr. Larry Meile, Boston College, as a basis for classroom discussion.
Chapter
6 Process Performance and Quality
1. Although major advances have been made in the area of quality over the past 10 years,
many of the improvements have been to processes that have been automated. Managers
can make additional advancements by increasing the involvement of employees in quality
efforts. Many firms are trying to develop organizational structures that foster teams and
“employee ownership” of processes. The concept of “value” as a quality concept needs to
be emphasized in the TQM philosophy.
2. It is important for the new corporation to have a high-quality product right at the start
because it has no market presence in the automobile market. Making sure that the process
is capable is very important for a secure start and long-term presence. Many companies
have failed miserably when introducing a new product because the production system
was not capable of producing a product without defects. The automobile industry is very
demanding from a quality perspective. Quality can be considered an “order qualifier” in
many instances. This puts pressure on any new venture, but especially on a new company
trying to compete against Japanese, American, and German companies who have been in
the market a long time. However, delaying a market entry has important marketing
implications. Competitors have more time to combat the entry and secure their own
market shares.
3. Responses to this question will be diverse. The objective of the exercise is to get the
students to think of nontraditional applications of SPC, particularly in their fields of
interest. Some generic responses would include:
Accounting and finance—In the billing process, audits can reveal incidences of
incorrect dollar amounts, bad addresses, incorrect items sold to the customer, and
tardy payments to suppliers. These could be treated with a p-chart and monitored for
improvements over time.
Marketing—In order processing, samples of orders can reveal accuracy problems,
delays in entering the order into the system, and the time taken to fill the order. These
measures can be controlled with attribute or variable control charts.
PROBLEMS
1. Quickie Car Wash

x = 390 sec, n = 9, R = 10 sec
From Table 6.1,
A2 = 0.337, D3 = 0.184, D4 = 1.816
UCLR = D4 R = 1.816(10 sec) = 18.16 sec
LCLR = D3 R = 0.184(10 sec) = 1.84 sec
UCLx = x + A2 R = 390 sec + 0.337(10 sec) = 393.37 sec
LCLx = x − A2 R = 390 sec – 0.337(10 sec) = 386.63 sec
2. Isogen Pharmaceuticals
x = 150 milliliters, n = 4, R = 3 ml
From Table 6.1,
A2 = 0.729 , D3 = 0.0 , D4 = 2.282
UCLR = D4 R = 2.282 ( 3 ml ) = 6.846 ml
LCLR = D3 R = 0.0 ( 3 ml ) = 0.0 ml
UCLx = x + A2 R = 150 ml + 0.729 ( 3 ml ) = 152.187 milliliters
LCLx = x − A2 R = 150 ml − 0.729 ( 3 ml ) = 147.813 milliliters
3. Garcia’s Garage
p = 0.10 , n = 100, z = 2
σ p = p (1 − p ) n = 0.10 ( 0.90 ) 100 = 0.03
UCL p = p + zσ p = 0.10 + 2 ( 0.03) = 0.16
LCL p = p − zσ p = 0.10 − 2 ( 0.03) = 0.04
At 8 of 100, the number of returns for service is below average, but this observation is
within the control limits. The repair process is still in control.
4. Canine Gourmet Company
x = 45 grams, n = 10, R = 6 grams
a. From Table 6.1,
A2 = 0.308, D3 = 0.223, D4 = 1.777
UCLR = D4 R = 1.777(6 grams) = 10.662 grams
LCLR = D3 R = 0.223(6 grams) = 1.338 grams
UCLx = x + A2 R = 45 grams + 0.308(6 grams) = 46.848 grams
Process Performance and Quality z CHAPTER 6 z 83
LCLx = x − A2 R = 45 grams – 0.308(6 grams) = 43.152 grams

b. The range is in statistical control; however, the averages of samples 2, 4, and 5 are
out of statistical control, therefore, the process is out of control.
5. We initially assume the historical grand average is adequate for the central line of the
chart:
Student
Year 1 2 3 4 5 6 7 8 9 10 Average
1 63 57 92 87 70 61 75 58 63 71 69.7
2 90 77 59 88 48 83 63 94 72 70 74.4
3 67 81 93 55 71 71 86 98 60 90 77.2
4 62 67 78 61 89 93 71 59 93 84 75.7
5 85 88 77 69 58 90 97 72 64 60 76.0
6 60 57 79 83 64 94 86 64 92 74 75.3
7 94 85 56 77 89 72 71 61 92 97 79.4
8 97 86 83 88 65 87 76 84 81 71 81.8
9 94 90 76 88 65 93 86 87 94 63 83.6
10 88 91 71 89 97 79 93 87 69 85 84.9
x = 77.8
The average for the process, x = 77.8, and the standard deviation of the 100 historical
data points in Table 6.2 is 13.
σ 13
σx = = = 4.1
n 10
UCLx = x + zσ x = 77.8 + ( 2 × 4.1) = 86.0
LCLx = x − zσ x = 77.8 − ( 2 × 4.1) = 69.6
Although the process is in control, the last four observations are all above the average
and exhibit an ever-increasing trend. Mega-Byte should explore for causes of corruption,
such as instructor or performance measures, which give incentives for improved test
scores. It is possible that students are getting brighter or are becoming more highly
motivated. Perhaps admissions standards have been raised. It is possible that teaching
methods have improved. The point shown here is: the process must be stable while data
are collected for setting control limits.
6. Hospital administrator
a. p = Total absent/Total observations
= 49/15(64) = 0.051
σ p = p (1 − p ) n = 0.051(1 − 0.051) 64 = 0.0275
UCL p = p + zσ p = 0.051 + 2.58(0.0275) = 0.1219
LCL p = p − zσ p = 0.051 – 2.58(0.0275) = – 0.01995, adjusted to zero.
b. The data from the last two weeks fall within the control limits. Therefore we accept
the estimate of 5.1% absenteeism. You must now assess whether this amount of
absenteeism is normal for nurse’s aides.
7. Travel agency
Because we cannot estimate how many errors were not made, we use a c-chart.
a. c = 3
σ c = c = 3 = 1.732
UCLc = c + zσ c = 3 + 2 (1.732 ) = 6.464
LCLc = c − zσ c = 3 − 2 (1.732 ) = −0.464, adjusted to zero.
b. The number of defects, 6, is within the upper control limit. Consequently, nothing has
changed. However, 6 defects in an itinerary will not be acceptable to customers. The
average of 3 needs to be reduced.
8. Jim’s Outfitters Inc.

a. c =
(8 + 0 + 7 + 12 + 5 + 10 + 2 + 4 + 6 + 6 ) = 6
10
σ c = c = 6 = 2.45
UCLc = c + zσ c = 6 + ( 3 × 2.45 ) = 13.35
LCLc = c − zσ c = 6 − ( 3 × 2.45 ) = −1.35 (adjusted to zero).
b. The number of defectives is close to, but does not exceed, the upper control limit.
Therefore, the process is assumed to be in control.
9. Sunny Soda, Inc.

Observation
Sample 1 2 3 4 x R
1 12.00 11.97 12.10 12.08 12.0375 0.13
2 11.91 11.94 12.10 11.96 11.9775 0.19
3 11.89 12.02 11.97 11.99 11.9675 0.13
4 12.10 12.09 12.05 11.95 12.0475 0.15
5 12.08 11.92 12.12 12.05 12.0425 0.20
6 11.94 11.98 12.06 12.08 12.015 0.14
7 12.09 12.00 12.00 12.03 12.03 0.09
8 12.01 12.04 11.99 11.95 11.9975 0.09
9 12.00 11.96 11.97 12.03 11.99 0.07
10 11.92 11.94 12.09 12.00 11.9875 0.17
11 11.91 11.99 12.05 12.10 12.0125 0.19
12 12.01 12.00 12.06 11.97 12.01 0.09
13 11.98 11.99 12.06 12.03 12.015 0.08
14 12.02 12.00 12.05 11.95 12.005 0.10
15 12.00 12.05 12.01 11.97 12.0075 0.08
AVERAGE 12.0095 0.12666
x = 12.0095 ounces, n = 4, R = 0.12666 ounces

From Table 6.1,
A2 = 0.729 , D3 = 0.0 , D4 = 2.282
UCLR = D4 R = 2.282 ( 0.12666 ) = 0.28904 ounces
LCLR = D3 R = 0.0 ( 0.12666 ) = 0.0 ounces
UCLx = x + A2 R = 12.0095 + 0.729 ( 0.12666 ) = 12.1018 ounces
LCLx = x − A2 R = 12.0095 − 0.729 ( 0.12666 ) = 11.9171 ounces

a. The range and the process average for each sample are within statistical
control.
b. The standard deviation of the data is 0.05667.
⎡ x − Lower specification Upper specification − x ⎤
Cpk = minimum of ⎢ ; ⎥
⎢⎣ 3σ 3σ ⎥⎦
⎡12.0095 − 11.9000 12.1000 − 12.0095 ⎤

Cpk = minimum of ⎢ ; ⎥ = [ 0.644,0.532]
⎣⎢ 3 ( 0.05667 ) 3 ( 0.05667 ) ⎦⎥
= 0.532 , which is far below the target of 1.00.
This process is not capable. It will produce too many bottles outside of the
allowable tolerances. To show that process variability is the culprit, compute
the process capability ratio:
Upper specification − Lower specification
Cp =
6σ
12.1 − 11.9 0.200
= = = 0.7058
6 ( 0.05667 ) 0.28335
10. a. The control chart values based on the initial 15 observations are:
R-Chart: R = ( 6 + 11 + K + 13) 15 = 9.933days
Central line = R = 9.933

D3 R = LCLR = 0
D4 R = UCLR = ( 2.115 )( 9.933) = 21.0 days
X -Chart:
Central line X = (17 + 14 + K + 12 ) 15 = 13.066 days
LCLx = X − A2 ( R ) = 13.066 − 0.577 ( 9.933) = 7.33days
UCLx = X + A2 ( R ) = 13.066 + 0.577 ( 9.933) = 18.8days

The value of D3 , D4 , and A2 are obtained from Table 6.1 for n = 5.
The resulting control charts are shown with the initial 15 points. From the
control charts, it is evident that the process is in control.
Original 15 Samples (R-chart)

25
UCL
20
15
Range
10 Average
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sample Number
Original 15 Samples (x -chart)
20
UCL
15
Average
Average
10
LCL
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Sample Number
b. Plot of the 25 samples including the 10 additional samples, starting at sample 16.
The process is till in control.
Total Sample (R-chart)

25
UCL
20
15
Range
10
Average
0
1 3 5 7 9 11 13 15 17 19 21 23 25
Sam ple Num ber
Total Sample (x-chart)
25
UCL
20
15 Average
Average
10
LCL
0
1 3 5 7 9 11 13 15 17 19 21 23 25
Sample Number
c. Although the process is still in control, the mean is drifting upward. Drift in the
means must be corrected for. Variability is all right because R-chart is in control.
13.066 − 5.00
11. a. Lower Specification Calculation = 0.64
( 3)( 4.21)
25.00 − 13.066
Upper Specification Calculation = 0.94
( 3)( 4.21)
C pk = min ( 0.64, 0.94 ) = 0.64
25 − 5
Cp = = 0.79
6 ( 4.21)
b. Because C p and C pk have values less than 1, the process is not capable of meeting
specifications. Yes, valid because the process is under statistical control, as can be
shown by plotting the last 15 observations on control charts. Ask students to
demonstrate that the process is in statistical control.
c. The variability of the process must be greatly reduced. Also, the process should be
better centered between the specification limits.
12. Webster, p-chart

72
n = 144, p = = 0.025
20 (144 )
σ p = p (1 − p ) n = 0.025 ( 0.975 ) 144 = 0.013

UCLp = p + zσ p = 0.025 + 3 ( 0.013) = 0.064
LCL p = p − zσ p = 0.025 − 3 ( 0.013) = −0.014 , adjusted to zero
The highest proportion of defectives occurs in sample #10, but is still within the control
limits. p = 9/144 = 0.0625. The process is in control.
13. Process capability

a. To show that the process is in statistical control, we must show that both the range
and the average are in control. From Table 6.1 we have:
A2 = 1.023, n = 3, D3 = 0, D4 = 2.575
The sample averages and ranges are:
Sample x R
1 498 6
2 508 8
3 501 8
4 497 11
x = 501 R = 8.25
( )
UCLR = D4 R = 2.575 ( 8.25sec ) = 21.24sec
LCLR = D ( R ) = 0 ( 8.25sec ) = 0sec
3
All ranges fall within the control limits; therefore, we can say the variability is in
control.
( )
UCLx = x + A2 R = 501sec + 1.023 ( 8.25sec ) = 509.44sec
LCLx = x − A ( R ) = 501sec − 1.023 ( 8.25sec ) = 492.56sec

2
All averages fall within the control limits; therefore, we can say the process average
is in statistical control.
b. The standard deviation of the process output has been given as σ = 5.77 sec. We can
calculate the capability ratio and capability index as follows:
⎡ x − Lower specification Upper specification − x ⎤

C pk = min ⎢ , ⎥
⎢⎣ 3σ 3σ ⎥⎦
⎡ ⎤
= min ⎢ 501−482 ,518−501⎥
⎣ 3( 5.77 ) 3( 5.77 ) ⎦
= min [1.097, 0.982] = 0.982
Upper specification − Lower specification

Cp =
6σ
518 − 482 36
= = = 1.039
6 ( 5.77 ) 34.62
We conclude that the process is not capable because C pk is less than 1.0. Since the
process variability is good enough for three-sigma quality, the process is centered too
close to the upper specification of the product.
14. a. Control, limits for X − c h a r t

UCLx = 8.50 + 0.577(0.31) = 8.6789
LCLx = 8.50 − 0.577 ( 0.31) = 8.3211
Control limits for R-chart
UCLR = D4 R = ( 2.115 )( 0.31) = 0.6556
LCLR = D3 R = 0
b. σ = 0.13
⎧⎪ 8.75 − 8.5 8.5 − 8.25 ⎫⎪
C pk = min ⎨ , ⎬ = {0.64, 0.64} = 0.64
⎪⎩ ( 3)( 0.13) ( 3)( 0.13) ⎪⎭
No, the process is not capable of meeting specifications.
c. Percent nonconforming = P ( X ≤ 8.25 ) + P ( X ≥ 8.75 )

8.25 − 8.50
Z LSL = = 1.92
0.13
= P ( Z ≤ −1.92 ) + P ( Z ≥ 1.92 )
= 0.0274 + 0.0274
= 0.0548
or 5.48%
ADVANCED PROBLEMS
15. Canine Gourmet
The standard deviation of the packet population is 1.01 grams. The packaging process is
essentially a sampling process from that population, with a sample size of 8. The
standard deviation of the box population is:
8
σ 2 = ∑ (1.01)2
1
σ = (1.01) 8 = 2.857
To test for capability, we first compute the process capability index,
⎡ 8(43)-336 360 − 8(43) ⎤

pk = minimum of ⎢ ; ⎥
⎣ 3(2.857) 3(2.857) ⎦
= minimum of [ 0.933 ; 1.867 ]
= 0.933 , lower than the target of 1.33.
To make sure that process variability is not causing this problem, we use the process
capability ratio:
360 - 336
= = 1.40
6(2.857)
The variability is fine. The packet-filling process needs to be centered on the target
of 43.5 grams.
16. Omega Credit Card Service

From data in Table 6.5, assuming 3-sigma control limits
225
p= = 0.03 , σ p = 0.0108
30 ( 250 )
0.03 ( 0.97 )
UCL p = p + 3σ p = 0.03 + 3 = 0.0624
250
0.03 ( 0.97 )
LCL p = p − 3σ p = 0.03 − 3 = −0.0024 (adjusted to zero)
250
All samples fall within the control limits, but samples 11, 12, 13, 14, and 15 have an
upward run and samples 21, 22, 23, 24, and 25 have a downward run. Because runs of 5
or more usually indicate nonrandom behavior, we should investigate. We would like to
avoid whatever was done when samples 11–15 were taken and to repeat what was done
during samples 21–25.
17. Red Baron Airlines

a. Management uses past data to set the control limits:
195
p= = 0.0217
30 ( 300 )
0.0217 ( 0.9783)
UCL p = p + 3σ p = 0.0217 + 3 = 0.047
300
0.0217 ( 0.9783)
LCL p = p − 3σ p = 0.0217 − 3 = −0.004 (adjusted to zero)
300
Proportion Proportion
Sample Defective Sample Defective
1 0.010 16 0.017
2 0.027 17 0.013
3 0.017 18 0.030
4 0.037 19 0.043
5 0.023 20 0.013
6 0.007 21 0.040
7 0.040 22 0.033
8 0.030 23 0.020
9 0.003 24 0.007
10 0.027 25 0.003
11 0.010 26 0.027
12 0.017 27 0.013
13 0.023 28 0.017
14 0.030 29 0.027
15 0.040 30 0.007
The data indicate that all samples were within the control limits. Management should
determine what occurred during samples 11–15 (an upward run) and samples 21–25
(a downward run) to determine the cause of the nonrandom. behavior.
18. a. Sample means and ranges
Sample # R X-bar
1 7.4 163.5
2 9.1 161.3
3 4.1 164.4
4 7.4 164.0
5 9.2 161.8
6 1.2 163.9
7 7.2 161.2
8 7.3 161.5
9 7.4 162.0
10 7.4 160.5
11 6.8 161.4
12 6.1 161.9
13 6.4 161.3
14 6.1 162.2
15 6.8 162.5
16 6.1 162.3
17 7.2 162.8
18 9.8 161.1
19 5.8 162.5
20 6.1 163.0
21 5.2 163.1
22 10.9 164.2
23 10.8 164.4
24 0.5 165.7
25 2.5 165.0
R = 164.8 25 = 6.6 (Center line for R-chart)

UCLR = 2.115R = 2.115 ( 6.6 ) = 13.959
LCLR = 0
X = 4067.5 25 = 162.7 (Center line for X-bar chart)
UCLx = 162.7 + 0.577 ( 6.6 ) = 166.5
LCLx = 162.7 − 0.577 ( 6.6 ) = 158.9
Based on the R- and X-bar chart, the process appears to be in statistical control.
170 X-chart
168
UCL x
166
164
162
160
158 LCL x
156
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Sample #
16
UCLR R -c h a rt
14
12
10
2
LC L R
0
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
S a m p le #
⎪⎧170 − 162.7 162.7 − 162 ⎪⎫

b. C pk = min ⎨ , ⎬ = {0.860, 0.0824} = 0.0824
⎩⎪ ( 3)( 2.83) ( 3)( 2.83) ⎭⎪
USL − LSL 170 − 162 8 8
Cp = = = = = 0.47
( 6 )(σ ) ( 6 )(σ ) ( 6 )( 2.83) 17
Note: The standard deviation was calculated from the sample data in Table 6.7.
The process is not capabale.
⎧⎪170 − 163 163 − 162 ⎫⎪

c. C pk = min ⎨ , ⎬ = 0.33
⎪⎩ ( 3)(1) ( 3)(1) ⎪⎭
170 − 162 8
Cp = = = 1.33
( 6 )(1) 6
The process is still not centered well. The variance is good enough for four-sigma
quality.
d. If the process is centered at 166 grams,

⎪⎧170 − 166 166 − 162 ⎪⎫
C pk = min ⎨ , ⎬ = 1.33
⎪⎩ ( 3)(1) ( 3)(1) ⎪⎭
The process would be capable at the level of four-sigma if centered at 166 grams.
Chapter
7 Constraint Management
1. Examples of everyday bottlenecks include traffic lights, drive-thru windows at the bank
or fast food restaurants. On the highway merging lanes and speed zones. Maintaining
constant speeds, setting traffic lights to coordinate traffic patterns and only allow
highway construction after rush hour. Fast food restaurants have two windows, pull over
spots and new cash card options to reduce time at the window.
2. The primary economies of scale concern spreading the instructor’s salary over a larger
class and filling classrooms to capacity (and then some). Diseconomies occur when
additional help is required to review homework, administer tests, and coordinate
schedules of students and assistants. Growth eventually requires larger classrooms or
lecture halls. If we view the product as learning, there is a possibility that diminishing
returns on the amount of learning occur as class size increases. Symptoms of
diseconomies of scale setting in are decreased job satisfaction for instructors and
unmotivated, dissatisfied students. If close customer contact is needed for this kind of
service process, diseconomies of scale tend to set in earlier.
3. When demand for the drink is large enough, there are several ways that economies of
scale would benefit the boy. First, he can save on raw material costs. For example, one
32-ounce box of lemonade mix costs less than four 8-ounce boxes. Also, he could get a
price break by buying ice in bulk. Second, the cost of larger iceboxes can be spread over
more units (sales), keeping the cost per sale low. Text problem p. 279 also asked for
conditions that might lead to diseconomies of scale.
PROBLEMS
1. Bill’s Barbershop
a. B3-a = 10+8+15+20+9 = 62 minutes
B3-b = 10+8+10+20+9=57 minutes
b. B4
c. process cycle time is 20 min./60 = 3 customers/hr. (8 hrs) = 24 customers per day
2. Barbara’s Boutique
a. 3 [the bottleneck is step T4 at 18 minutes – 3.33 customers or 3]
b. Step T6 at 22 minutes limits Type B to 22/60 = 2.73 customers/hr.
3.33(.3) + 2.73(.7) = 2.90 customers on average
c. Type A customers may wait at step T4. Type B customers may wait at
step T6.
All customers may wait at Step T1 because the arrival rate of customers could exceed the
capacity
3. CKC
Station X is the bottleneck – 2600 minutes
Work Station Product A Product B Total Load
W 10*90=900 14*85=119 2090
0
X 10*90=900 20*85=170 2600
0
Y 15*90=135 11*85=935 2285
0
4. CKC
a. Traditional Method: Part B has the higher profit margin/unit
Product A Product B
Price 55.00 65.00
Raw and Purchased Parts 5.00 10.00
Labor 3.50 4.50
Profit Margin 46.50 50.5
Work Station Minutes at Mins. Left after Mins. Left after Can Only Make
Start Making 85 Bs Making 90 As 70 As
W 2400 1210 310
X 2400 700 700/10 = 70
Y 2400 1465
85 parts of B and 70 parts of A (Part B will use 1700 minutes at station X leaving 700 for
Part a.
Part Overhea Raw Mat’l Labor Purchase Total Revenues
d Parts Costs
A 70 x 2 =140 70 x 3 = 210 70 x $55 = 3850
B 85 x 5 = 425 85 x 5 = 425 85 x $65 = 5525
Totals 3500 565 3 x $6 x 635 5420 9375
40 hrs =
720
Revenue – costs = profit
9375 - 5420 = 3955
Constraint Management z CHAPTER 7 z 103
b. Bottleneck-based approach: Part A has the higher profit margin/unit at the bottleneck
Product A Product B
Margin 46.50 50.50
Time at bottleneck 10 min 20 min
Profit margin per minute 4.65 2.525
Work Station Minutes at Mins. Left after Mins. Left after Can Only Make
Start Making 80 As Making 85 Bs 75 Bs
W 2400 1500 310
X 2400 1500 1500/20 = 75
Y 2400 1465
Make 90 units of A (900 minutes used – leaves 1500 minutes) can make 75 units of B
Part Overhead Raw Mat’l Labor Purchase Total Revenues
Parts Costs
A 90 x 2 = 180 90 x 3 = 270 90 x $55 = 4950
B 75 x 5 = 375 75 x 5 = 375 75 x $65 = 4875
Totals 3500 555 3 x $6 x 40 hrs 640 5415 9825
= 720
9825 - 5415 = 4410
c. 4410- 3955 = $455 increase using TOC
12% increase
5. Dahlia Medical Center

Labor room capacity = 30 rooms × 3 days × 24 hours/day = 2160 hours
Labor room utilization = (60 babies × 24 hours/baby)/(2160 hours) = 66.67%
Combination labor-delivery room capacity = 15 rooms × 3 days × 24 hours/day
= 1080 hours
Combination labor-delivery room utilization (45 babies × 24 hours/baby)/(1080 hours)
= 100.00 %
Delivery room capacity = 3 rooms × 3 days × 24 hours/day = 216 hours
Delivery room utilization = (60 babies × 1 hour/baby)/(216 hours) = 27.78%
The combination labor-delivery rooms have the highest utilization.
6. Airline company
This year's capacity requirement, allowing for a 25-percent capacity cushion, is 93.3 (or 70 /
[1.0 − 0.25] ) customers per day. Three years from now, if demand increases by 20 percent,
the customer requirement will be about 112 (or 93.3 × 1.2) customers per day for this flight
segment.
7. Automobile brake supplier

a. The total machine hour requirements for all three demand forecasts:
Pessimistic Forecast Expected Forecast Optimistic Forecast

Process Setup Process Setup Process Setup
Component Time Time Time Time Time Time
Dp (D/Q)s Dp (D/Q)s Dp (D/Q)s
A 750 250.0 900 300.0 1,250 416.7
B 2,000 562.5 2,600 731.3 3,400 956.3
C 850 1,161.7 1,250 1,708.3 2,000 2,733.3
3,600 + 1,974.2 4,750 + 2,739.6 6,650 + 4,106.3
Demand 5,574.2 7,489.6 10,756.3
The number of hours (N) provided per machine is:

N = (2 shifts/day × 8 hours/shift × 5 days/week × 52 weeks/year)(1.0 – 0.2)
= 3,328 hours/machine
The capacity requirements for three forecasts are:
Pessimistic: M = 5,574.2/3328 = 1.67 or 2 machines
Expected: M = 7,489.6/3328 = 2.25 or 3 machines
Optimistic: M = 10,756.3/3328 = 3.23 or 4 machines
b. The current capacity is sufficient for the pessimistic and expected forecasts.
However, there is a gap of one machine for the optimistic forecast. The gap drops to
zero when the 20 percent increase from short-term options is included.
3 machines × 3,328 hours/machine × 1.2 = 11,981 hours.
This is greater than 10,756 hours required.
8. Up, Up and Away

The number of hours provided per machine is:
N = [ 2 shifts day × 8 hours shift × 200 days year ] (1 − 0.25 )
Summing up the machine
= 2, 400 hours machine
hour requirements for two products, we get:
M = ⎣⎡30, 000 ( 0.30 ) + ( 30, 000 20 )( 3) ⎦⎤ + ⎡⎣12, 000 (1.0 ) + (12, 000 70 )( 4 ) ⎤⎦
= 26,186 hours
The capacity requirement is:

M = R H = 26,186 2,400 = 10.91 or 11 machines
This analysis can also be done with the Capacity Requirements Solver of OM Explorer:
Processing Setup Lot Size Demand
Components (hr/unit) (hr/lot) (units/lot) Forecast
A 0.30 3.0 20 30,000
B 1.00 4.0 70 12,000
Productive hours from

one capacity unit for a year 2,400
Hours Required
Process Setup
A 9,000 4,500.0
B 12,000 685.7
21,000 5,185.7
Total hours required 26,185.7
Total capacity requirements (M) 10.91

Rounded 11
The capacity gap is (11 – 4.0) = 7 machines. Seven more machines must be purchased if
short-term options are not allowed.
9. The French Prints of Arabelle

The solution is based on the assumption that sales vary in direct proportion to floor area.
a. The last column in the table shows quarterly before-tax cash flows. The first year’s
$16,000 loss is followed by a $1,000 loss in the second year.
Sales 30% of Incremental Incremental Incremental

Year Quarter ($ per sf) Sales × Quarterly Salaries Revenue
1000 sf Rent Minus Costs
1 1 $ 90.00 $27,000 $27,500 $12,000 ($12,500)
2 $ 60.00 $18,000 $27,500 $ 8,000 ($17,500)
3 $110.00 $33,000 $27,500 $12,000 ($6,500)
4 $240.00 $72,000 $27,500 $24,000 $20,500
2 1 $ 99.00 $29,700 $27,500 $12,000 ($9,800)

2 $ 66.00 $19,800 $27,500 $ 8,000 ($15,700)
3 $121.00 $36,300 $27,500 $12,000 ($3,200)
4 $264.00 $79,200 $27,500 $24,000 $27,700
b. The third year looks better. However, the $15,500 gain just about covers the first
year’s loss. Considering the time value of money would further discourage this
expansion.
Sales 30% of Incremental Incremental Incremental
Year Quarter ($ per sf) Sales × Quarterly Salaries Revenue
1000 sf Rent Minus Costs
3 1 $108.90 $32,670 $27,500 $12,000 ($6,830)
2 $ 72.60 $21,780 $27,500 $ 8,000 ($13,720)
3 $133.10 $39,930 $27,500 $12,000 $430
4 $290.40 $87,120 $27,500 $24,000 $35,620
10. Astro World

a. The table shows incremental before-tax cash flows
Incremental Incremental Investment
Attendance Admis- Revenue and
Projected (with sion (with Operating
Year Attendance expansion) Price expansion) Costs Cash Flow
0 $800,000 ($800,000)
1 30,000 9,000 $30 $270,000 $100,000 $170,000
2 34,000 10,200 $30 $306,000 $100,000 $206,000
3 36,250 10,875 $35 $380,625 $100,000 $280,625
4 38,500 11,550 $35 $404,250 $100,000 $304,250
5 41,000 12,300 $35 $430,500 $100,000 $230,500
b. Payback occurs during the 4th year. At the end of 3 years, all but $143,375 of the
initial investment has been recovered. $143,375/304,250 = 0.47. Payback occurs at
about 3.47 years.
11. Kim Epson

Capacity of washing and drying station = (30 cars/hour) × (12 hours/day)
= 360 cars/day
Capacity of manual interior cleaning station = 200 cars/day
Incremental revenues (Friday, Saturday, and Sunday) from increasing capacity of interior
cleaning station to 300 cars will be:
4 [(280 – 200) + (300 – 200) + (250 – 200)] = 4(230) = $920/week

Payback period = $50,000/($920/week × 52 weeks) = 1.05 years
Yes, Kim should install additional equipment.
12. YPI Bottleneck

Station W is the bottleneck
Work Station A B C Total Load
W 12*60= 720 9*80= 720 20*60= 1200 2640
X 10*60= 600 0 10*60 = 600 1200
Y 0 15*80=120 5*60 = 300 1500
0
Z 12*60= 720 10*80=800 0 1520
13. YPI profits by traditional method:

A B C
Price 105 95 110
Raw and Purchased Parts 16 12 19
Labor 8.50 8.50 8.75
Profit Margin 80.50 74.50 82.25
Order would be C-A-B

60C (1200 minutes) 60 A (720 minutes) 24 B (480 minutes)
Part Overhead Raw Mat’l Labor Purchase Parts Total Revenues
Costs
A 60 x 11 = 660 60 x 5 = 300 60 x $105 = 6300
B 24 x 8 = 192 24 x 4 = 96 24 x $95 = 2280
C 60 x 14 = 840 60 x 5 = 300 60 x $110 = 6600
Totals 9000 1692 4 x 40 x 15 = 2400 696 13,788 15,180
15,180 – 13,788 = 1392 by traditional method
Bottleneck-based approach
A B C
Margin 80.50 74.50 82.25
Time at bottleneck 12 9 20
Profit margin per minute 6.71 8.28 4.11
Order would be B-A-C
80B (720 minutes) 60 A (720 minutes) 48 C (960 minutes)

Part Overhead Raw Mat’l Labor Purchase Parts Total Revenues
Costs
A 60 x 11 = 660 60 x 5 = 300 60 x $105 = 6300
B 80 x 8 = 640 80 x 4 = 320 80 x $95 = 7600
C 48 x 14 = 672 48 x 5 = 240 48 x $110 = 5280
Totals 9000 1972 4 x 40 x 15 = 2400 860 14,232 19,180
19,180 – 14,232 = 4948 by bottleneck-based method
Using the bottleneck approach profits would increase by $4948 – 1392 = $3556.00 per week.
14. River City

a. Alternative 1 (Al)
There must be an 80 million-gallon expansion now, which has a cash outflow of $50
million. There are no other cash flows over the horizon.
Alternative 2 (A2)
There must be a 40 million-gallon expansion now (160–120) and another 40 million-
gallon expansion (200–160) at the end of 10 years. These expansions require a $30
million cash outflow at the end of years 0 and 10.
Alternative 3 (A3)
There must be a 20 million-gallon expansion at the end of years 0, 5, 10, 15. Each
expansion is accompanied by an $18 million cash outflow.
b. We will use the present value factors in Supplement J, “Financial Analysis” on the
Student CD-ROM to find the present value of cash flows for each alternative.
Present Values (millions of dollars)

r = 12% r = 16%
Al $50 $50
A2 $30(1 + 0.3220) = $39.660 $30(1 + 0.2267) = $36.801
A3 $18(1 + 0.5674 + 0.3220 + 0.1827) = $37.298 $18(1 + 0.4761 + 0.2267 + 0.1079) = $32.593
At both extremes of the hurdle rate, Alternative 3 is the best.

c. The expansion probably requires a special bond issue, and it is probably safer to go
with an alternative that requires less of an outlay now (such as Alternative 2 or 3).
15. Dintell Corporation. Assuming a five-year life.

Decision tree:
(0.50) 40% share

$160 M
(0.50) 30% share
$120 M
Invest (0.60) $400 M market
(0.40) $200 M market
Don’t invest (0.50) 40% share

$80 M
(0.50) 30% share
$60 M
Expected Sales = {(0.6)[(0.5)($160 M) + (0.5)($120 M)]} + {(0.4)[(0.5)($80 M)

+ (0.5)($60 M)]} = $112,000,000 per year
Gross Profit = Sales – COGS = $112,000,000 – (70% × $112,000,000)
= $33,600,000
Initial information
Initial investment $50,000,000
Tax rate 0.40
Discount rate 0.12
MACRS depreciation 0.2000 0.3200 0.1920 0.1152 0.1142 0.0576
Present value factor 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066
Year
1 2 3 4 5 6
Expected sales $112,000,000 $112,000,000 $112,000,000 $112,000,000 $112,000,000 $0
Expenses: COGS = 70% $78,400,000 $78,400,000 $78,400,000 $78,400,000 $78,400,000 $0
Depreciation shelter $10,000,000 $16,000,000 $9,600,000 $5,760,000 $5,710,000 $2,880,000
Pretax income $23,600,000 $17,600,000 $24,000,000 $27,840,000 $27,890,000 ($2,880,000)
Taxes $9,440,000 $7,040,000 $9,600,000 $11,136,000 $11,156,000 ($1,152,000)
Net operating income $14,160,000 $10,560,000 $14,400,000 $16,704,000 $16,734,000 ($1,728,000)
Add back depreciation $10,000,000 $16,000,000 $9,600,000 $5,760,000 $5,710,000 $2,880,000
Total cash flow $24,160,000 $26,560,000 $24,000,000 $22,464,000 $22,444,000 $1,152,000
Net present value $21,571,429 $21,173,469 $17,082,726 $14,276,278 $12,735,328 $583,639
Sum of NPV $37,422,869
a. Dintell should make the investment. The NPV is positive. Even in the worst case, as
shown below (Sales = $60 M), the NPV remains positive.
Initial information
Tax rate 0.40
Discount rate 0.12
Year
1 2 3 4 5 6
Expected sales $60,000,000 $60,000,000 $60,000,000 $60,000,000 $60,000,000 $0
Expenses: COGS = 70% $42,000,000 $42,000,000 $42,000,000 $42,000,000 $42,000,000 $0
Expenses: investment
Depreciation shelter $10,000,000 $16,000,000 $9,600,000 $5,760,000 $5,710,000 $2,880,000
Pretax income $8,000,000 $2,000,000 $8,400,000 $12,240,000 $12,290,000 ($2,880,000)
Taxes $3,200.00 $800,000 $3,360,000 $4,896,000 $4,916,000 $1,152,000
Total cash flow $14,800,000 $17,200,000 $14,640,000 $13,104,000 $13,084,000 $1,152,000
Sum of NPV $3,682,164
b. The decision remains the same. Greater expected payoffs favor making the
investment.
c. A decrease in the discount rate will have no effect on the decision. The following
spreadsheet shows that even at a discount rate = 12% + 15% = 27%, the NPV remains
positive.
Initial information
Tax rate 0.40
Discount rate 0.27
Year
1 2 3 4 5 6
Expected sales $112,000,000 $112,000,000 $112,000,000 $112,000,000 $112,000,000 $0
Expenses: COGS = 70% $78,400,000 $78,400,000 $78,400,000 $78,400,000 $78,400,000 $0
Depreciation shelter $10,000,000 16,000,000 $9,600,000 $5,760,000 $5,710,000 $2,880,000
Pretax income $23,600,000 $17,600,000 $24,000,000 $27,840,000 $27,890,000 ($2,880,000)
Taxes $9,440,000 $7,040,000 $9,600,000 $11,136,000 $11,156,000 ($1,152,000)
Total cash flow $24,160,000 $26,560,000 $24,000,000 $22,464,000 $22,444,000 $1,152,000
Sum of NPV $12,910,479
d. If we consider an additional investment of $10,000,000 in the third year, depreciation

would greatly complicate the calculations, but would not change the answer. Perhaps
the easiest approach would be to generate another section of the spreadsheet showing
just the effect on total cash flow of depreciating $10,000,000 over the remaining three
years of life. Then use that information to adjust the total cash flow. The NPV will
remain positive.
Third year investment $10,000,000
Tax rate 0.40
Discount rate 0.12
MACRS depreciation 0.3333 0.4445 0.1481 0.0741
Year
1 2 3 4 5 6
Depreciation shelter $3,333,000 $4,445,000 $1,481,000 $741,000
Pretax income (loss) ($3,333,000) ($4,445,000) ($1,481,000) ($741,000)
Taxes $1,333,200 ($1,778,000) ($592,400) ($296,400)
Net operating income ($1,999,800) ($2,667,000) ($888,600) ($444,600)
Add back depreciation $3,333,000 $4,445,000 $1,481,000 $741,000
Adjustment to cash flow ($8,666,800) $1,778,000 $592,400 $296,400
Previous cash flow $24,160,000 $26,560,000 $24,000,000 $22,464,000 $22,444,000 $1,152,000
Total cash flow $24,160,000 $26,560,000 $15,333,200 $24,242,000 $23,036,400 $1 ,448,400
Sum of NPV $22,870,273

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Chapter

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b. Value of output is the same as in part a: $67,500 class

Step 3. To calculate multifactor productivity, divide value of output by value of input.

2. Suds and Duds Laundry

Number of Input Output Output/Input

3. Compact disc players

CASE: CHAD’S CREATIVE CONCEPTS *

5. Technology Management. To identify a market segment, we need to determine answers to questions

8. Russell’s Pharmacy probably should not move to Large Island.

CASE: BSB, INC.: Pizza Wars Come to Campus *

1. Software is an essential element for successful management of complex projects. It can

1. a. AON network diagram

b. The critical path is A–C–F–H–J with a completion time of 27 days.

c. Earliest Latest Earliest Latest Total On Critical

Results Gantt Chart

Solver - Project Management: Single Time Estimate A

3. a. The AON network is:

Start Finish Total Critical

4. Web Ventures Inc.

Activity Optimistic Most Likely Pessimistic te σ2

Path Total Expected Time

b. Critical path is B–D–F. Expected duration of the project is 15 weeks.

Start Finish Total Critical

Resulting Time Project

Total crash costs = $1450

9. a. The AON diagram is:

The critical path is B–D–E–G–H, and the project duration is 21 days.

b. Direct cost and time data for the activities:

A summary of the cost analysis follows. The recommended completion date is

Resulting Reduc- Project Costs Crash Total Total Total

c. The critical path is B–D–E–G–H for minimum cost schedule..

11. Gumball Foods

Activity Expected Time Variance

The AON diagram for the hiring project is:

The critical path is A–D–G, and the project duration is 29 days.

The total cost for this project is:

13. Sculptures International

b. The critical path is A–C–E, and the project duration is 10 days.

c. Activity Activity Slack

14. Reliable Garage

b. Critical Path is A–B–C–F–G–H, and the duration is 25 days.

c. Activity Activity Slack

16. a. Calculation of the activity statistics:

The AON diagram for the advertising campaign is shown below.

17. a. AON diagram

Project time 25 Project Budget $2,125

Project time 25 Project Budget $ 2,125

Project time 25 Project Budget $ 2,125

CASE: THE PERT STUDEBAKER *

1. Many operations at manufacturing facilities involve customer contact. Internal

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Cooling conveyor Bread Proofing conveyor

Manual Ingredients Warehouse Pastry,

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CASE: CUSTOM MOLDS, INC. *

Date NSC Date

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