Chapter 1 Operations and Productivity Section 1 What is Operations Management? 4) Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs? True or False 8) Operations management is applicable: A) Mostly to the service sector. B) To services exclusively. C) Mostly to the manufacturing sector. D) to all firms, whether manufacturing or service. E) To the manufacturing sector exclusively. Section 2 Organizing to Produce Goods and Services 1) Which of the following are the primary functions of all organizations? A) production/operations, marketing, and human resources B) marketing, human resources, and finance/accounting C) sales, quality control, and production/operations D) marketing, production/operations, and finance/accounting E) research and development, finance/accounting, and purchasing Section 3 The Supply Chain 3) What is a global network of organizations and activities that supply a firm with goods and services? A) supply tree B) provider network C) supply chain D) vendor network E) vendor tree 5) A(n) ________ is a global network of organizations and activities that supply a firm with goods and services. Section 4 Why Study OM? 2) Reasons to study operations management include: A) studying how people organize themselves for productive enterprise. B) knowing how goods and services are consumed. C) understanding what human resource managers do. D) learning about a costly part of the enterprise. E) A and D Section 5 What Operations Managers Do 4) What are the five elements in the management process? A) plan, direct, update, lead, and supervise B) accounting, finance, marketing, operations, and management C) organize, plan, control, staff, and manage D) plan, organize, staff, lead, and control E) plan, lead, organize, manage, and control 8) The 10 strategic operations management decisions include: A) layout strategy. B) maintenance. C) process and capacity design. D) managing quality. E) all of the above. 11) Which of the following are among the 10 strategic operations management decisions? I. design of goods and services II. managing quality III. layout strategy IV. marketing V. pricing of goods and services A) I, II, V B) I, II, IV C) II, III, V D) I, II, III Section 7 Operations for Goods and Services 6) Which is NOT true regarding differences between goods and services? A) Tangible goods are generally produced and consumed simultaneously; services are not. B) Most goods are common to many customers; services are often unique to the final customer. C) Services tend to have a more inconsistent product definition than goods. D) Services tend to have higher customer interaction than goods. E) None, i.e., all of the above are true. 10) Which of the following attributes is most typical of a service? A) production and consumption occur simultaneously B) tangible C) mass production D) consistency E) easy to automate Section 8 The Productivity Challenge 5) A foundry produces circular utility access hatches (manhole covers). If 120 covers are produced in a 10-hour shift, the productivity of the line is: A) 1.2 covers/hr. B) 2 covers/hr. C) 12 covers/hr. D) 1200 covers/hr. E) 120 covers/hr. 8) Gibson Valves produces cast bronze valves on an assembly line, currently producing 1600 valves each 8-hour shift. If the productivity is increased by 10%, it would then be: A) 180 valves/hr. B) 200 valves/hr. C) 220 valves/hr. D) 880 valves/hr. E) 1760 valves/hr. 26) A cleaning company uses $10 of chemicals, $40 of labor, and $5 of misc. expenses for each house it cleans. After some quality complaints, the company has decided to increase its use of chemicals by 50%. By what percentage has multifactor productivity fallen? A) 0% B) 8.3% C) 25% D) 50% E) 16.7% 39) The Dulac Box plant produces wooden packing boxes to be used in the local seafood industry. Current operations allow the company to make 500 boxes per day, in two 8-hour shifts (250 boxes per shift). The company has introduced some moderate changes in equipment, and conducted appropriate job training, so that production levels have risen to 300 boxes per shift. Labor costs average $10 per hour for each of the 5 full-time workers on each shift. Capital costs were previously $3,000 per day, and rose to $3,200 per day with the equipment modifications. Energy costs were unchanged by the modifications, at $400 per day. What is the firm's multifactor productivity before and after the changes? Section 9 New Challenges in Operations Management 2) Which of the following is NOT among the ethical and social challenges facing operations managers? A) honoring stakeholder commitments B) training, retaining, and motivating employees C) efficiently developing and producing safe high-quality green products D) increasing executive pay E) providing a safe workplace 3) A business's stakeholders, whose conflicting perspectives cause ethical and social dilemmas, include: A) lenders. B) suppliers. C) owners. D) employees. E) all of the above. Chapter 2 Operations Strategy in a Global Environment Section 1 A Global View of Operations and Supply Chains 18) Which of the following represents a reason for globalizing operations? A) to improve the supply chain B) to improve operations C) to expand a product's life cycle D) to attract and retain global talent E) all of the above 19) Which of the following does NOT represent a valid reason for globalizing operations? A) reduce costs B) improve the supply chain C) reduce responsiveness D) attract and retain global talent E) understand markets 20) The purpose of NAFTA is to: A) substitute cheap labor in Mexico for expensive labor in the United States. B) curb illegal immigration from Mexico to the United States. C) phase out all trade and tariff barriers between North America and South America. D) phase out all trade and tariff barriers between the United States, Canada, and Mexico. E) provide fair and equitable tariff rates for trade between the United States, Canada, and Mexico. Section 2 Developing Missions and Strategies 4) The fundamental purpose of an organization's mission statement is to: A) create a good human relations climate in the organization. B) define the organization's purpose in society. C) define the operational structure of the organization. D) generate good public relations for the organization. E) define the functional areas required by the organization. 5) Which of the following statements is true? A) Corporate mission is shaped by functional strategies. B) Corporate strategy is shaped by functional strategies. C) Functional strategies are shaped by corporate strategy. D) External conditions are shaped by corporate mission. E) Functional area missions are merged to become the organizational mission. 7) A strategy is a(n): A) set of opportunities in the marketplace. B) broad statement of purpose. C) simulation used to test various product line options. D) plan for cost reduction. E) action plan to achieve the mission. Section 3 Achieving Competitive Advantage Through Operations 4) A firm can effectively use its operations function to yield competitive advantage through all of the following EXCEPT: A) customization of the product. B) setting equipment utilization goals below the industry average. C) speed of delivery. D) constant innovation of new products. E) maintaining a variety of product options. 5) The ability of an organization to produce goods or services that have some uniqueness in their characteristics is: A) mass production. B) time-based competition. C) competing on productivity. D) competing on quality. E) competing on differentiation. 8) The ability of an organization to produce services that, by utilizing the consumer's five senses, have some uniqueness in their characteristics is: A) sensory response. B) time-based competition. C) differentiation. D) flexible response. E) experience differentiation. 11) Which of the following is the best example of competing on low-cost leadership? A) A firm produces its product with less raw material waste than its competitors do. B) A firm offers more reliable products than its competitors do. C) A firm's products are introduced into the market faster than its competitors' products are. D) A firm's research and development department generates many ideas for new products. E) A firm advertises more than its competitors do. Section 4 Issues in Operations Strategy 1) Before establishing and implementing strategy, a resources view would ensure that which of the following resources are available? A) financial B) physical C) human D) technological E) all of the above for the organization 2) Porter's Five Forces Model is used to evaluate competition based on which 5 aspects? A) research and development, cost, legal regulations, suppliers, customers B) immediate rivals, potential entrants, customers, suppliers, and substitute products C) potential entrants, customers, suppliers, legal regulations, and cost D) immediate rivals, potential entrants, cost, substitute products, and legal regulations E) cost, legal regulations, advertising effectiveness, potential entrants, and immediate rivals 8) Standardization is an appropriate strategy in which stage of the product life cycle? A) introduction B) growth C) maturity D) decline E) retirement 9) Cost minimization is an appropriate strategy in which stage of the product life cycle? A) introduction B) growth C) adolescence D) decline E) retirement Section 5 Strategy Development and Implementation 5) An SWOT analysis determines: A) internal strengths and weaknesses and internal opportunities and threats. B) internal strengths and weaknesses and external opportunities and threats. C) external strengths and weaknesses and internal opportunities and threats. D) external strengths and weaknesses and external opportunities and threats. E) internal strengths and opportunities and external weaknesses and threats. 8) Starbucks is one of the best known coffeehouse chains in the world. Each store sells a variety of innovative products to complement the array of coffee choices available. However, 75% of current stores are located in the United States and the expensive nature of the coffee leaves Starbucks vulnerable to changes in consumer spending behavior (such as recessions). Recently Starbucks has begun initiatives to sell its specialty coffee beans for home use, presenting a chance for a large increase in revenue and diversification. However, Starbucks faces fierce competition seeking a piece of its lucrative market share and the threat of consumer behavior changes, given its reputation rides on a singular product. Perform an SWOT analysis for Starbucks. Section 6 Strategic Planning, Core Competencies, and Outsourcing 7) What is the practice of transferring a firm's activities that have traditionally been internal to external suppliers? A) nearshoring B) farshoring C) offshoring D) outsourcing E) backsourcing 10) What theory implies that you should allow another firm to perform work activities for your company if that company can do it more productively than you can? A) theory of competitive advantage B) theory of core competencies C) theory of comparative advantage D) theory of outsourcing E) theory of offshoring 12) Which of the following is not an advantage of outsourcing? A) cost savings B) gaining outside expertise C) improving operations and service D) outsourcing core competencies E) accessing outside technology 23) A company is choosing an outside firm to provide its payroll services. It has chosen four comparative categories of interest: client reviews, financial condition, IT capabilities, and government stability. These categories have been assigned weights of 30%, 10%, 20%, and 40%, respectively. Three potential providers were scored on each of those factors (see table below) using a scale of 1-10, with a score of 1 meaning worst possible and 10 meaning best possible. Using the factor-rating method, which provider should be chosen? Client reviews Financial condition IT capabilities Government stability Provider A Provider B Provider C 2 6 10 8 4 2 5 8 2 3 1 2 Section 7 Global Operations Strategy Options 5) Which of the international operations strategies involves low cost reductions and low local responsiveness? A) international strategy B) global strategy C) transnational strategy D) multidomestic strategy E) worldwide strategy 7) Which of the international operations strategies uses the existing domestic model globally? A) international strategy B) global strategy C) transnational strategy D) multidomestic strategy E) worldwide strategy Module B Linear Programming 4) What is linear programming? Section 3 Formulating Linear Programming Problems 3) In a linear programming formulation, a statement such as "maximize contribution" becomes a(n): A) constraint. B) slack variable. C) objective function. D) violation of linearity. E) decision variable. 4) If cars sell for $500 profit and trucks sell for $300 profit, which of the following represents the objective function? A) Maximize profit = 500C + 300T B) Minimize profit = 500C + 300T C) Maximize profit = 500C - 300T D) Minimize profit = 300T - 500C E) Maximize profit = 800(T + C) 5) A linear programming problem contains a restriction that reads "the quantity of X must be at least three times as large as the quantity of Y Which of the following ." inequalities is the proper formulation of this constraint? A) 3X Y B) X 3Y C) X + Y 3 D) X - 3Y 0 E) 3X Y Section 4 Graphical Solution to a Linear Programming Problem 11) Which of the following combinations of constraints has no feasible region? A) X + Y 15 and X - Y 10 B) X + Y 5 and X 10 C) X 10 and Y 20 D) X + Y 100 and X + Y 50 E) X -5 19) What combination of x and y will yield the optimum for this problem? Minimize $3x + $15y, subject to (1) 2x + 4y 12 and (2) 5x + 2y 10 and (3) x, y 0. A) x = 2, y = 0 B) x = 0, y = 3 C) x = 0, y = 0 D) x = 1, y = 5 E) x = 0, y = 5 24) A linear programming problem has three constraints, plus nonnegativity constraints on X and Y The constraints are: 2X + 10Y 100; 4X + 6Y 120; 6X + 3Y . 90. What is the largest quantity of X that can be made without violating any of these constraints? A) 50 B) 30 C) 20 D) 15 E) 10 Section 6 Solving Minimization Problems 3) The Queen City Nursery manufactures bags of potting soil from compost and topsoil. Each cubic foot of compost costs 12 cents and contains 4 pounds of sand, 3 pounds of clay, and 5 pounds of humus. Each cubic foot of topsoil costs 20 cents and contains 3 pounds of sand, 6 pounds of clay, and 12 pounds of humus. Each bag of potting soil must contain at least 12 pounds of sand, at least 12 pounds of clay, and at least 10 pounds of humus. Formulate the problem as a linear program. Plot the constraints and identify the feasible region. Graphically or with corner points find the best combination of compost and topsoil that meets the stated conditions at the lowest cost per bag. Identify the lowest cost possible. Answer: Let C = cubic feet of compost used per bag of potting soil Let T = cubic feet of topsoil used per bag of potting soil Minimize cost = $0.12C + $0.20T Subject to 4C + 3T 12 3C + 6T 12 5C + 12T 10 C, T 0 The panel below contains the graphical and corner-point solutions. The minimum cost per bag is $0.45, and is achieved by using 2.4 cubic feet of compost and 0.8 cubic feet of topsoil. Solve the minimization problem by find the combination of compost and topsoil that will yield minimum cost? Module A Decision-Making Tools Section 3 Decision Tables 2) What is a tabular presentation that shows the outcome for each decision alternative under the various possible states of nature called? A) isoquant table B) payback period matrix C) payoff table D) feasible region E) decision tree Section 4 Types of Decision-Making Environments 10) What decision criterion would be used by an optimistic decision maker solving a problem under conditions of uncertainty? A) expected monetary value B) equally likely C) maximax D) maximin E) minimin 13) There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $50,000, $25,000, and - $10,000 under these states of nature, respectively, what is the EMV of the factory? A) $50,000 B) $25,000 C) $28,333.33 D) $21,666.67 E) $65,000 14) A plant manager wants to know how much he should be willing to pay for perfect market research. Currently there are two states of nature facing his decision to expand or do nothing. Under favorable market conditions the manager would make $100,000 for the large plant and $5,000 for the small plant. Under unfavorable market conditions the large plant would lose $50,000 and the small plant would make $0. If the two states of nature are equally likely, how much should he pay for perfect information? A) $0 B) $25,000 C) $50,000 D) $100,000 E) $145,000 16) What is the difference between the expected payoff under perfect information and the maximum expected payoff under risk? A) expected monetary value B) economic order quantity C) expected value of perfect information D) PERT E) expected monetary payoff 18) The expected value of perfect information (EVPI) is the: A) payoff for a decision made under perfect information. B) payoff under minimum risk. C) average expected payoff. D) difference between the payoff under perfect information and the payoff under risk. E) greater of EVwPI and Maximum EMV. 19) A decision maker using the maximax criterion on the problem below would choose Alternative ________ because the maximum of the row maximums is ________. Alternative Alternative Alternative Alternative A B C D 1 50 30 70 -100 States of Nature 2 55 50 80 -10 3 60 80 70 140 A) A; 60 B) B; 80 C) C; 70 D) D; -100 E) D; 140 21) For the following decision table, the highest value for the equally likely criterion is ________; this occurs with alternative ________. Alternatives Option 1 Option 2 Option 3 States of Nature S1 S2 $10,000 $30,000 $5,000 $45,000 $-4,000 $60,000 A) $20,000; Option 1 B) $25,000; Option 2 C) $28,000; Option 3 D) $32,000; Option 3 E) $60,000; Option 3 22) What is the EMV for Option 1 in the following decision table? Alternatives p Option 1 Option 2 A) 15,000 B) 17,000 C) 17,500 D) 18,500 E) 20,000 States of Nature S1 S2 .3 .7 15,000 20,000 10,000 30,000 25) What is the EMV for Option 1 in the following decision table? Alternatives p Option 1 Option 2 Option 3 States of Nature S1 S2 .4 .6 10,000 30,000 5,000 45,000 -4,000 60,000 A) 10,000 B) 18,000 C) 20,000 D) 22,000 E) 30,000 30) What is the expected value with perfect information in the following decision table? Alternatives p Option 1 Option 2 States of Nature S1 S2 .6 .4 200 300 50 350 A) 50 B) 200 C) 260 D) 300 E) 350 31) What is the expected value of perfect information of the following decision table? Alternatives p Option 1 Option 2 States of Nature S1 S2 .6 .4 200 300 50 350 A) 0 B) 20 C) 50 D) 150 E) 200 43) An operations manager's staff has compiled the information below for four manufacturing alternatives (A, B, C, and D) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The four states of nature represent four levels of consumer acceptance of the firm's products. Values in the table are net present value of future profits in millions of dollars. Alternative A 1 50 States of Nature 2 3 55 60 4 65 Alternative B Alternative C Alternative D 30 70 -100 50 80 -10 80 70 150 130 65 220 a. Assuming a maximax strategy, which alternative would be chosen? b. If maximin were used, which would be chosen? c. If the states of nature were equally likely, which alternative should be chosen? 48) Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort. The sale of Sno-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $110 per day in fair weather, $20 per day in foul weather. At home, he will profit $70 in fair weather, $50 in foul weather. Assume that on any particular day, the weather service suggests a 60% chance of fair weather. a. Construct Earl's payoff table. b. What decision is recommended by the expected monetary value criterion? c. What is the EVPI? 52) The EMV of a decision with three states of nature is $33,000. If the profit/value under the states of nature A, B, and C is $10,000, $20,000, and $50,000, respectively, and states B and C have equal probabilities, determine the likelihood of state of nature A. Section 5 Decision Trees 5) A decision tree is a(n): A) algebraic representation of alternatives and states of nature. B) behavioral representation of alternatives and states of nature. C) matrix representation of alternatives and states of nature. D) graphical representation of alternatives and states of nature. E) tabular representation of alternatives and states of nature. 12) A toy manufacturer makes stuffed kittens and puppies that have relatively lifelike motions. There are three different mechanisms which can be installed in these "pets." These toys will sell for the same price regardless of the mechanism installed, but each mechanism has its own variable cost and setup cost. Profit, therefore, is dependent upon the choice of mechanism and upon the level of demand. The manufacturer has in hand a forecast of demand that suggests a 0.2 probability of light demand, a 0.45 probability of moderate demand, and a probability of 0.35 of heavy demand. Payoffs for each mechanism-demand combination appear in the table below. Demand Wind-up action Pneumatic action Electronic action Light $250,000 $90,000 -$100,000 Moderate 400,000 440,000 400,000 Heavy 650,000 740,000 780,000 Construct the appropriate decision tree to analyze this problem. Use standard symbols for the tree. Analyze the tree to select the optimal decision for the manufacturer. 15) Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort. The sale of Sno-Cones is highly dependent upon his location and upon the weather. At the resort, he will profit $120 per day in fair weather, $10 per day in bad weather. At home, he will profit $70 in fair weather, $55 in bad weather. Assume that on any particular day, the weather service suggests a 40% chance of foul weather. a. Construct Earl's decision tree. b. What decision is recommended by the expected value criterion? 16) Bratt's Bed and Breakfast, in a small historic New England town, must decide how to subdivide (remodel) the large old home that will become an inn. There are three alternatives: Option A would modernize all baths and combine rooms, leaving the inn with four suites, each suitable for two to four adults. Option B would modernize only the second floor; the results would be six suites, four for two to four adults, and two for two adults only. Option C (the status quo option) leaves all walls intact. In this case, there are eight rooms available, but only two are suitable for four adults, and four rooms will not have private baths. Below are the details of profit and demand patterns that will accompany each option. Which option has the highest expected value? A (Modernize all) B (Modernize 2nd) C (Status Quo) Annual profit under various demand patterns Capacity p Average p $90,000 .5 $25,000 .5 $80,000 $60,000 .4 .3 $70,000 $55,000 .6 .7 17) A do-it-yourself homeowner is installing a new toilet. While installing the toilet he must decide on what kind of connecting pipe he will install to the water supply. There are two available options, one that has a shut-off valve in case of a leak and a cheaper one without the shut-off valve. Suppose that the shut-off valve pipe costs an extra ten dollars and that the homeowner must buy one of the two. a. Draw a decision tree for this scenario, labeling the cost of a leak as X and the chance of a leak as P. b. If the chance of a leak causing household damage is 1%, at what $ amount of household damage is the owner neutral on which pipe to buy? c. If the cost of a leak would be $10,000 what is the maximum % chance to leak at which the homeowner would prefer to buy the cheaper pipe? d. If the cost of a leak is $1,000 and the chance to flood .1% which pipe should the homeowner buy