72 terms

BA 360 Exam 1


Terms in this set (...)

A firm cleans chemical tank cars in the Bay St. Louis area. With standard equipment, the firm typically cleaned 70
chemical tank cars per month. They utilized 12 gallons of solvent, and two employees worked 20 days per month,
8 hours a day. The company decided to switch to a larger cleaning machine. With the larger machine, they cleaned
60 tank cars in only L2 days per month. They utilized 10 gallons of solvent, and the two employees worked 8 hours a day. Which of the following ranges include the labor productivity change?

- Less than 35%
- Between 35% and 40%
- Between 40% and 45%
- Between 45% and 50%
- More than 50%
Between 40% and 45%
Which strategy best describes Starbucks' strategy for competitive advantage and which attribute best describes
how customers evaluate Starbucks' goods and services?

- Differentation strategy and experience attribute
- Differentiation strategy and search attribute
- Response strategy and credence attribute
- Cost leadership strategy and search attribute
- Cost strategy and credence attribute
differentation strategy and experience attribute
Which of the following statements about challenges in operations management is FALSE?

- Job specialization is giving way to empowered employees.
- Local or national focus is giving way to global focus.
- Sustainable production is giving way to a low*cost focus.
- Rapid product development is partly the result of shorter product cycles.
- The goal of mass customization is to produce customized products, whenever and wherever needed.
Sustainable production is giving way to a low*cost focus.
Given the position of the 3D printer in the growth stage of its product life cycle, which of the following OM Strategy/lssues should the makers of 3D printers be LEAST concerned with at the current time?

- forecasting
- cost cutting
- Increasing capacity
- product and process reliability
- enhancing distribution
cost cutting
The owner of Leisure Boutique in a local mall wants to forecast November demand for one of her best-selling products based
on the following historical data: April (100), May (140), June (110), July {150}, August (120), September (160). The owner notices that sales figures alternate every month {i.e. there are two seasons-Low and High). Which of the following ranges includes the seasonal factor for the SEASON that November will be in?

- higher than 1.14
- 1.00-1.14
- 0.86-0.93
- 0.83-0.86
- 0.93-1.00
higher than 1.14

the answer is 1.154
A manager is using the linear trend line below to forecast quarterly demand for a product. Y=60,000-180x, where x=1 at Q3 of year 1 (i.e. time series data started on Q3 of Year 1.) The quarterly seasonal indices are Q1= .6, Q2 = .9, Q3=1.3, and Q4=1.2. Which of the following ranges includes the seasonally adjusted demand forecast for the second quarter of year 4?

- 42000-53000
- less than 33000
- 53000-63000
- More than 63000
- 33000-43000
- 42000-53000
Demands for the last four months were: Month: Jan {60k), Feb (80k), March (100k), April (110k). Forecast the demand in May using exponential smoothing method with alpha=0.25 Which of the following ranges includes the sales forecast for May? (Assume F1 = A1)

- more than 79.5k
- less than 73.5k
- 77.5k-79.5k
- 73.5k-75.5k
- 75.5k-77.5k
more than 79.5k
Definition of Operations
processes that transform resources into services and goods
Definition of Supply Chain
processes that move information and goods to and from the firm
What is operations and Supply Chain Management?
Operations management refers to the design, execution and improvement of the system that create and deliver the firm's primary products and services
-functional field of business
-clear line management responsibilities

Supply chain management refers to managing processes that move information, material, and money through the upstream and downstream partners of the supply chains
Customer benefit packages
(CBP) is a clearly defined set of tangible (goods - content) and intangible (service-content) features that the customer recognizes, pays for, uses, or experiences

A CBP is some combination of goods and services configured in a certain way to provide value to customers

A CBP consists of a primary good or service, coupled with peripheral goods and/or services
What is a Primary good or service
the "core" offering that attracts customers and responds to their basic needs.
-for example, the primary service of a personal checking account is the capability to do convenient financial transactions.

Ex: an airline flight, a personal digital assistance (PDA) device, a checking account, a briefcase, a football game, tax preparation advice, and so on
What is a Peripheral goods or services
those that are not essential to the primary good or service, but enhance it
-examples of peripheral goods or services for a personal checking account: on-line access and bill payment, debit card, designer checks, paper or electronic account statement, etc
What drives OSCM performance?
Improved labor quality accounts for 10%, Capital Investment 38%, Business and technological innovation and management 52%
Various Types of Transformation
Physical - manufacturing
Locational - transportation
Exchange - retailing
Storage - warehousing
Physiological - health care
Informational - telecommunications

and others...
Current Challenges/Trends in Operations and Supply Management
- Global focus
- Supply-chain partnering
- Rapid product development
- Mass customization
- Lean/Just-in-time performance
- Empowered employees
- Sustainability (i.e. the triple bottom lines - economic, social, and environmental)
Performance Measurement Categories
- Financial
- Customer and market
- Safety
- Quality
- Time
- Flexibility
- Innovation and learning
- Productivity
- Value of a Loyal Customer
What is Productivity
productivity is a common measure of how well an organization is using its resources
How do we increase productivity
to increase productivity, we want to make the outputs / inputs ratio as large as practical
How do you calculate the change in productivity
= P2 -P1
How do you calculate the % change in productivity
change in P / P1
Multifactor productivity measurement
take multiple factors in our input and they share the overall productivity
Partial productivity measurement
measuring productivity using single inputs
Productivity example:

An industrial plant needs to make 100,000 parts per month to meet demand. Each month contains 20 working days, each of which allows for 3 separate 8 hour shifts

a) If a worker can produce 10 parts/hours, how many workers are needed on each shift?

b)If material costs are $10/part, capital costs are $100,000 and labor costs are $10/hour, what is the multifactor productivity of the plant from part (a)?
a) Solve:
100k parts per month / 10 parts per hour = 10,000 labor hours per month

10,000 hours per month / 8 hour shift * 3 shift + 20 working days = 20.83 -> 21 workers

answer = 21 workers

b) Solve:
Total labor hours = 21 (8) (3) (20) = 10,080 hours

Multifactor productivity = 100k parts / $10 (100k) + $100k + $10 (10080) = 100k / 1200800 = 0.083 parts/input

If each part is sold for $800, then multifactor productivity = $800 (100k) / $1,200,800 = 66.62

Answer = 66.62
Productivity example

The Data shown below apply to the first two quarters of the current year. Using total-dollar measures of input and output, calculate the multifactor productivity and partial productivity for labor and materials.

First Quarter Second Quarter
Unit Selling $ $20 $21
Total units sold 10,000 8,500
Labor cost $90,000 $75,000
Material cost $77,500 $69,750
Other cost $20,000 $19,000
Multifactor Quarter 1 = $20 (10k) / 90k + 77.5 k + 20 k = 1.081

Multifactor Quarter 2 = $21 (8.5k) / $75k + 69.75k + 19k = 1.074

Labor Materials
Q1 200k/90k = 2.22 200k/75k = 2.667
Q2 178.5k/77.5k = 2.303 178.5k/69.75k = 2.559
(tria.)P = P2-P1 2.303-2.22 = 0.083
2.559 -2.667 = -0.108
(tri.)P% = (tri.)P / P1 0.083 / 2.22 % = 3.74%
-.108/2.667 * 100% = -4.05%
What is interlinking
The quantitative modeling of cause-and-effect relationships between external and internal performance criteria
How do you calculate the value of a loyal customer (VLC)

P = the revenue per unit

CM = contribution margin to profit and overhead expressed as a fraction (i.e., 0.45, 0.5, and so on)

RF = repurchase frequency = 1/(years or fraction of years between purchases)

BLC = buyer's average life cycle, computed as 1/defection rate, expressed as a fraction

(Defection rate = 1 - retention rate
VLC example

What is the avg value of a loyal customer (VLC) in a target market segment if the average purchase price is $70 per visit, the frequency of repurchase is every month, the contribution margin is 20%, and the avg customer defection rate is 25%

If a continuous improvement goal is set of a 20% defection rate next year and 15% two years from now, what are the revised VLCs over their avg buying life?
CM = 20
RF = 1 / 1/12 = 12
P = 70
BLC= 1/.25 = 4

Defection rate = 25%

VLC = (70) (.20) (12) (4) = $672

Defection rate = 20%
VLC= (70) (.20) (12) (5) = $840

840 - 672 / 672 = 25 %^
What is a mission statement
tell an organization where it is going
What is a strategy
it tells the organization how to get there
Strategies for Competitive Advantage
1) Differentiation - better, or at least different
-innovative design
-broad product line
-after-sales service

2) Cost leadership - cheaper
-low overhead
-effective capacity

3) Response - faster, more responsive
What are search attributes
re those that a customer can determine prior to purchasing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hardness and smell

Goods such as supermarket food, furniture, clothing, automobiles, and houses are high in search attributes
Experience Attributes
are those that can only be discerned after purchase or during consumption or use.

Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer satisfaction
Credence attributes
are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption.

Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software
High in search attributes
High in experience attributes
Restaurant meals
Child care
Tv repair
High in credence attributes
legal services
Tooth root canal
Auto repair
Medical diagnosis
Estate planning
Reasons to Globalize
Improve the supply chain
Reduced costs (labor, taxes, tariffs, etc)
Improve operations
Understand markets
Improve products
Attract and retain global talent
Foreign locations with lower wage rates can .....
lower direct and indirect costs
trade agreements can ______ tariffs
International operations can improve ......
response time and customer service
Advantages of Outsourcing
Cost savings
Gaining outside expertise
Improving operations and service
Maintaining a focus on core competencies
Accessing outside technology
Disadvantages of Outsourcing
Increased logistics and inventory costs
Loss of control (quality, delivery, etc)
Potential creation of future competition
Negative impact on employees
Risks may not manifest themselves for years
Risk Mitigation Strategies
Identify the sources of potential disruptions
Assess the potential impact of the risk
Develop plans to mitigate the risk

Example: natural disaster-> contingency planning
Types of Forecasts
Economic Forecasts: address business cycle - inflation rate, money supply, housing starts, etc.

Technological Forecasts: Predict rate of technological process, impacts development of new products

Demand Forecasts: Predict sales of existing products and services
What is Demand Forecast?
-process of predicting a future demand
-underlying basis of all business decision
Which is more accurate, product family and aggregated forecasts or individual product forecasts?
product family and aggregated forecasts
Short term forecasts tend to be _______ accurate than longer-term forecasts

ex: weather
Short-range forecasting
Up to 1 years, generally less than 3 months

Purchasing, job scheduling, workforce levels, job assignments, production levels
Medium-range forecast
3 months to 3 years

Sales and production planning, budgeting
Long-range forecast
3+ years

New product planning, facility location, research and development
Distinguishing Differences between medium/long range forecasts and short-term forecasting
Medium/long range forecasts deal with more comprehensive issues and support management decisions regarding planning and products, plants and processes

Short-term forecasting usually employs different methodologies than longer-term forecasting
What are the two classifications of Sales Forecasting
-Statistical Methods (time series model, regression method)
-Judgmental Methods (Delphi method, surveys)
Time-Series Forecasting
Set of evenly spaced numerical data
-Obtained by observing response variable at regular time periods

Forecast based only on past values, no other variables important
-Assumes that factors influencing past and present will continue influence in future
Naive Approach
Assumes demand in next period is the same as demand in most recent period
Sometimes cost effective and efficient
Can be good starting point
Moving Average (MA) Method
-MA is a series of arithmetic means
-Used if little or no trend
-Used often for smoothing
Provides overall impression of data over time
-Weighted moving average method can be used when some trend might be present
Older data usually less important
-Weights based on experience and intuition
Weighted Moving Average Calculation
(sigma) WiAi

Wi = the weight for period i, between 0 and 100 percent
Exponential Smoothing Method
Most used of all forecasting techniques
Integral part of all computerized forecasting programs
Widely used in retail and service
Widely accepted because...
1) Exponential models are surprisingly accurate
2) Formulating an exponential model is relatively easy
3) The user can understand how the model works
4) Little computation is require to use the model
5) Computer storage requirements are small
6) Tests for accuracy are easy to compute
Exponential Smoothing Calculation
Ft= (alpha)At-1 + (1-a)Ft-1
= Ft-1 + (alpha)(At-1 - Ft-1)
Ft = forecasting period
At-1 = actual demand of previous period
Ft-1 = forecast of previous period
alpha = smoothing constant, weighting factor
Common Types of Trends
Linear Trend (we are focusing on this one)
S-Curve Trend
Asymptopic Trend
Exponential Trend
Least squares regression analysis
a method for building a statistical model that defines a relationship between a single dependent variable and one or more independent variable, all of which are numerical.

Y = a + bX

The best values of a and b are calculated using the method of least squares
Causal relationship forecasting
using independent variables other than time to predict future demand

The independent variable must be a leading indicator
Must find those occurrences that are really the causes
Y = a + bx
Correlation Coefficient
a measure of the strength of the linear relationship between independent and dependent variables

varies between -1.00 and 1.00
Coefficient of Determination (R^2)
The percentage of the variation in the dependent variable that results from the independent variable

Varies between 0 and 1
Multiple Regression
Study relationship of demand to two or more independent variables....where

Y = B0 + B1 x1 + B2 x2.... + Bk xk


B0 = intercept
B1,..., Bk = parameters for independent variables
X1,...., xk = independent variables
Calculate MAD
Mean Absolute Deviation Error (MAD)

MAD = (sigma) Iactual - forecastI / n

Add up all the errors for the weeks and than divide it by the # of weeks
Calculate MSE
mean square error (MSE)

MSE = (sigma) (actual - forecast)^2 / n

Add up all the error^2 and divide it by # of weeks
Calculate MAPE
Mean Absolute percentage error (MAPE)

MAPE = (sigma) (((actual - forecast) / Actual) x 100 ) / n

Add up all IEI/sales and divide it by # of weeks
Calculate Tracking Signal
= ((sigma) E) / MAD

Add up all errors of the weeks and divide it by the MAD for each week
Focus Forecasting
Sophisticated forecasting models are not always better than simple ones
There is no single technique that should be used for all products or services
Uses historical data to test multiple forecasting models for individual items
Forecasting model with the lowest error used to forecast the next demand
Reasons for out of control forecasts
Change in trend
Appearance of cycle
Weather changes
Promotions, etc
What happens If forecasts are continually high or low
the forecast has a bias error