7: CHAPTER PROCESS STRATEGY
TRUE/FALSE
1.
Dell's approach to personal computer manufacturing is to use a product focus, which
gives the company its low-cost competitive advantage.
False (Global company profile, easy)
2.
A firm's process strategy is its approach to transforming resources into goods and services.
True (Introduction, easy)
3.
Intermittent processes are organized around processes.
True (Four process strategies, easy)
4.
In process-focused facilities, equipment utilization is low.
True (Four process strategies, moderate)
5.
The typical full-service restaurant uses a product-focused process.
False (Four process strategies, moderate)
6.
Harley-Davidson, because it has so many possible combinations of products, utilizes the
process strategy of mass customization.
False (Four process strategies, moderate)
7.
A value-stream map includes both (1) inventory quantities, and (2) symbols for
customers and suppliers.
True (Process analysis and design, moderate)
8.
The assembly line is a classic example of a repetitive process.
True (Four process strategies, easy)
9.
One essential ingredient of mass customization is modular design.
True (Four process strategies, moderate)
10.
The tool that calculates which process has the lowest cost at any specified production
volume is a crossover chart.
True (Four process strategies, moderate)
11.
The term focused processes refers to the quest for increased efficiency, whether in
goods or services, that results from specialization.
True (Four process strategies, moderate)
12.
Service blueprinting is a process analysis technique that focuses on the customer and the
provider's interaction with the customer.
True (Process analysis and design, moderate)
13.
Activity times should not be included in a service blueprint.
False (Process analysis and design, moderate)
156
1 4.
A process map with the addition of a time axis becomes a process chart.
False (Process analysis and design, moderate)
15.
Time-function mapping is a flow diagram with time added to the horizontal axis.
True (Process analysis and design, moderate)
16.
Process maps use distance, but not time, to show the movement of material, product,
or people through a process.
False (Process analysis and design, moderate)
17.
Professional services typically require low levels of labor intensity.
False (Service process design, moderate)
18.
An example of the postponement strategy for improving service productivity is
having the customer wait until you have sufficient time to serve the customer.
False (Service process design, moderate)
19. Process control is the use of information technology to monitor and control a physical
process.
True (Production technology, easy) {AACSB: Use of IT}
20.
One use of camera-and-computer-based vision systems is to replace humans doing
tedious and error-prone visual inspection activities.
True (Production technology, easy) {AACSB: Use of IT}
21. Automated storage and retrieval systems are commonly used in distribution facilities of
retailers.
True (Production technology, moderate) {AACSB: Use of IT}
22.
Flexible manufacturing systems, because of easily changed control programs, are able to
perform such tasks as manufacturing one-of-a-kind parts economically.
True (Production technology, moderate) {AACSB: Use of IT}
23.
Production technology has had a major impact on services, but as yet there has been little
reduction in service labor requirements.
False (Technology in services, moderate) {AACSB: Use of IT}
24.
Optical checkout scanners and ATMs are examples of technology's impact on services.
True (Technology in services, moderate) {AACSB: Use of IT}
25.
Successful process redesign focuses on departmental areas where small, continuous
improvements can be made.
False (Process redesign, moderate)
26.
Processes can be environmentally friendly and socially responsible while still
contributing to profitable strategies.
True (Ethics and environmentally friendly processes, easy) {AACSB: Ethical
Reasoning}
27.
In selecting new equipment and technology, decision-makers look for flexibilitythe
ability to respond with little penalty in time, cost, or customer value.
True (Selection of equipment and technology, moderate)
157
MULTIPLE CHOICE
28.
Which of the following statements regarding Dell Computer is false?
a. Dell is a practitioner of the mass customization process.
b. Dell builds its computers overseas in order to gain a low-cost
advantage. c. Dell keeps very little inventory of finished goods.
d. Dell utilizes a global supply chain, but assembles its computers in
the U.S. e.
Dell's research focuses on manufacturing issues, not
computer part design. b (Global company profile, moderate)
29.
An organization's process strategy
a. will have long-run impact on efficiency and flexibility of
production b. is the same as its transformation strategy
c. must meet various constraints, including cost
d. is concerned with how resources are transformed into goods and
services e.
All of the above are true.
e (Introduction, moderate)
30.
A job shop is an example of a(n)
a. repetitive process
b. continuous
process c.
line
process
d. intermittent
process e.
specialized
process
d (Four process strategies, moderate)
31.
Three types of processes are
a. goods, services, and hybrids
b. manual, automated, and service
c. process focus, repetitive focus, and product
focus d. modular, continuous, and
technological
e. input, transformation, and output
c (Four process strategies, moderate)
32.
Which of the following industries is likely to have low equipment utilization?
a. auto
manufacturing b.
commercial baking
c. television
manufacturing d.
chemical processing
e. restaurants
e (Four process strategies, moderate)
33.
A product-focused process is commonly used to
produce a.
high-volume, high-variety products
b. low-volume, high-variety products
c. high-volume, low-variety products
d. low-variety products at either high- or lowvolume e.
high-volume products of either
high- or low-variety c (Four process strategies,
moderate)
158
3 4.
Which one of the following products is most likely made in a job shop environment?
a. a daily
newspaper b.
paper forms
c. television
sets d.
cigarettes
e. canned vegetables
b (Four process strategies, moderate)
35.
Which of the following products is likely to be assembled on a repetitive process line?
a. automobiles
b. personal
computers c.
dishwashers
d. television sets
e. all of the above
e (Four process strategies, moderate)
36.
An assembly line is an example
of a a. product-focused process
b. process-focused
process c.
repetitive
process
d. line process
e. specialized process
c (Four process strategies, moderate)
37.
Standard Register
a. has dozens of U.S. plants in its Forms Division
b. groups people and machines into departments that perform specific
activities c.
utilizes a product strategy to keep production volume high
d. obtains its low-cost advantage by not spending money on CAD systems
e. obtains its low-cost advantage by specializing in a relatively small number of
products
b (Four process strategies, moderate)
38.
Which of the following transformations generally has the highest equipment utilization?
a. process-focused
process b. repetitive
process
c. product-focused
process d. specialized
process
e. modular process
c (Four process strategies, moderate)
39.
Harley Davidson
a. utilizes job shops to make each of its
modules b. uses product focused
manufacturing
c. uses a large number of modules to build a small number of different bikes
d. uses work cells to feed its assembly
line e. All of the above are true.
d (Four process strategies, moderate)
159
4 0.
Which of the following is false regarding repetitive processes?
a. They use modules.
b. They allow easy switching from one product to the
other. c.
They are the classic assembly lines.
d. They have more structure and less flexibility than a job shop
layout. e.
They include the assembly of basically all
automobiles.
b (Four process strategies, moderate)
41.
When done correctly, mass customization
a. increases pressure on supply chain performance
b. helps eliminate the guesswork that comes with sales
forecasting c. drives down inventories
d. increases pressure on
scheduling e. all of the above
e (Four process strategies, moderate)
42.
Which of the following phrases best describes product focus?
a. low volume, high variety
b. finished goods are usually made to order
c. processes are designed to perform a wide variety of
activities d. high fixed costs, low variable costs
e. raw material inventories are low relative to the value of the product
d (Four process strategies, difficult)
43.
Which of the following phrases best describes process focus?
a. low volume, high variety
b. finished goods are usually made to a forecast and
stored c.
operators are modestly skilled
d. high fixed costs, low variable costs
e. raw material inventories are high relative to the value of the product
a (Four process strategies, difficult)
44.
Which of the following characteristics best describes repetitive focus?
a. It uses sophisticated scheduling to accommodate custom
orders. b. Its output is a standardized product produced from
modules.
c. It is too expensive when volumes are low or flexibility is required.
d. It is widely used for the manufacture of steel.
e. Its costs are often known only after a job is done.
b (Four process strategies, difficult)
45.
Utilization in process-oriented facilities is frequently low because
a. the postponement strategy for improving service productivity is
being used b. scheduling in process-oriented facilities is not very
complex
c. with high fixed costs, utilization is not very
important d. excess capacity for peak demands is
desirable
e. low raw material inventories cause machines to be idled
d (Four process strategies, moderate)
160
4 6.
A quasi-custom product
a. gets its apparent customization from the combinations available from a small
number of modules
b. is often the output of repetitive focus
facilities c.
is a valid description of a fast
food sandwich
d. is only possible when the focus strategy of service productivity improvement is in use
e. All but d are true.
e (Four process strategies, moderate)
47. Process A has fixed costs of $1000 and variable costs of $5 per unit. Process B has fixed
costs of
$500 and variable costs of $15 per unit. The crossover point between process A and
process B is a. 50 units
b. 200
units c.
$2,500
d. $5,000
e. $9,500
a (Four process strategies, moderate) {AACSB: Analytic Skills}
48.
Process X has fixed costs of $10,000 and variable costs of $2.40 per unit. Process Y has
fixed costs of $9,000 and variable costs of $2.25 per unit. Which of the following
statements is true?
a. The crossover point is approximately 6667 units.
b. It is impossible for one process to have both of its costs lower than those of another
process. c.
Process Y is cheaper than process X at all volumes; there is no crossover
point.
d. Process X should be selected for very large production volumes.
e. Process X is more profitable than process Y and should be selected.
c (Four process strategies, moderate) {AACSB: Analytic Skills}
49.
The crossover point is that production quantity where
a. variable costs of one process equal the variable costs of another
process b. fixed costs of a process are equal to its variable costs
c. total costs equal total revenues for a process
d. total costs for one process equal total costs for another
process e.
the process no longer loses money
d (Four process strategies, moderate)
50.
Product Focused processes
a. allow more customization, but are not very efficient
b. are desirable because resource needs increase slowly with the complexity of a
process c.
are processes that are specialized for relatively few products or
customer groups
d. apply only to service firms, not to manufacturers
e. are profitable because customers demand flexibility, not specialization
c (Process analysis and design, moderate)
161
5 1.
Value Stream Mapping
a. is a variation on time function
mapping
b. examines the supply chain to determine where value is
added c.
extends time function mapping back to the
supplier
d. starts with the customer and works
backwards e. All of the above are true.
e (Process analysis and design,
moderate)
52.
One fundamental difference between a process chart and a process map is that
a. the process chart uses a time dimension while a process map is not timeoriented
b. the process chart includes the supply chain, while the process map stays within an
organization c. the process chart is more like a table, while the process map is more like a
schematic diagram
d. the process chart focuses on the customer and on the provider's interaction with the
customer, while the process map does not deal directly with the customer
e. None of these is true, because a process chart and a process map are the
same thing.
c (Process analysis and design,
moderate)
53.
Service blueprinting
a. provides the basis to negotiate prices with
suppliers b. mimics the way people communicate
c. determines the best time for each step in the
process
d. focuses on the provider's interaction with the
customer e.
can only be successful with twodimensional processes
d (Service process and design, moderate)
Communication}
54.
A drawing of the movement of material, product, or
people is a a. flow diagram
b.
process
chart
c. service
blueprint d.
process map
e. none of the
above
a (Process analysis and design,
moderate)
55.
Strategies for improving productivity in services
are
a. separation, self-service, automation, and
scheduling
{AACSB:
b. lean production, strategy-driven investments, automation, and
process focus c.
reduce inventory, reduce waste, reduce inspection,
and reduce rework
d. high interaction, mass customization, service factory, and justin-time e.
none of the above
a (Service process design,
moderate)
56.
In mass service and professional service, the operations manager should
focus on a.
automation
b.
equipment
maintenance
c.
sophisticated
scheduling d.
human
resources
e. all of the
above
d (Service
moderate)
process
design,
162
5 7.
In mass service and service factory quadrants of the service process matrix, the operations
manager could focus on all of the following except
a. automation
b. standardization
c. tight quality control
d. removing some
services e.
customization
e (Service process design, moderate)
58.
Which of the following is true regarding opportunities to improve service processes?
a. Automation can do little to improve service processes, because services are so
personal. b. Layout is of little consequence, since services seldom use an assembly
line.
c. If a work force is strongly committed, it need not be cross-trained and
flexible. d. All of the above are true.
e. None of the above is true.
e (Service process design, moderate)
59.
Which of the following are typical of process control systems?
a. They have sensors.
b. The digitized data are analyzed by computer, which generates
feedback. c. Their sensors take measurements on a periodic basis.
d. The sensors' measurements are
digitized. e. all of the above
e (Production technology, moderate) {AACSB: Use of IT}
60.
Which of the following is true regarding vision systems?
a. They are consistently
accurate. b. They are modest
in cost.
c. They do not become
bored. d. All of the above
are true.
e. None of the above is true.
d (Production technology, moderate) {AACSB: Use of IT}
61.
The use of information technology to monitor and control a physical process is
known as a. process control
b. computer-aided design
c. information numeric
control d. numeric control
e. none of the above
a (Production technology, moderate) {AACSB: Use of IT}
62.
Which of the following technologies would enable a cashier to scan the entire
contents of a shopping cart in seconds?
a. ASRS
b. AGV
c. CAD/CAM
d. RFID
e. FMS
d (Production technology, moderate) {AACSB: Use of IT}
163
6 3.
"Automatic placement and withdrawal of parts and products into and from designated
places in a warehouse" describes
a. AGV
b. CAD/CAM
c. CIM
d. ASRS
e. FMS
d (Production technology, moderate) {AACSB: Use of IT}
64.
Computer-integrated manufacturing (CIM) includes manufacturing systems that have
a. computer-aided design, a flexible manufacturing system, inventory control,
warehousing and shipping integrated
b. transaction processing, management information systems, and decision support
systems integrated
c. automated guided vehicles, robots, and process control
d. robots, automated guided vehicles, and transfer
equipment e. all of the above
a (Production technology, moderate) {AACSB: Use of IT}
65.
Which one of the following technologies is used only for material handling, not actual
production or assembly?
a. robots
b. CNC
c. CAD
d.
AG V s e .
FMS
d (Production technology, moderate) {AACSB: Use of IT}
66.
A system using an automated work cell controlled by electronic signals from a common
centralized computer facility is called a(n)
a. adaptive control
system b. robotics
c. flexible manufacturing system
d. automatic guided vehicle (AGV)
system e.
manufacturing cell
c (Production technology, moderate) {AACSB: Use of IT}
67.
"Operators simply load new programs, as necessary, to produce different products"
describes a.
CAD
b. automated guided vehicles
c. flexible manufacturing
systems d. vision systems
e. process control
c (Production technology, moderate) {AACSB: Use of IT}
164
68.
Which of the following is not one of the essential ingredients for mass customization?
a. high machine utilizations
b. personnel and facility
flexibility c. reliance on
modular design
d. rapid throughput
e. very effective scheduling
a (Four process strategies, moderate)
69.
Advances in technology
a. have impacted the manufacturing sector
only b. have had only limited impact on
services
c. have failed to change the level of customer interaction with an organization
d. have had dramatic impact on customer interaction with services and with
products e.
have dramatically changed health care, but have not changed
retailing
d (Technology in services, moderate)
70.
Process redesign
a. is the fundamental rethinking of business
processes b. can focus on any process
c. tries to bring about dramatic improvements in
performance d. focuses on activities that cross
functional lines
e. all of the above
e (Process reengineering, moderate)
71.
Ethical and environmentally friendly processes include which of the following?
a. emission
controls b.
recycling
c. efficient use of resources
d. reduction of waste byproducts e.
all of the above
e (Technology in services, moderate) {AACSB: Ethical Reasoning}
72.
Making environmentally sound products through efficient
processes a. is unprofitable, as long as recyclable materials
prices are soft
b. is known as lean
manufacturing c.
can still
be profitable
d. is easier for repetitive processes than for product-focused
processes e. none of the above
c (Ethical and environmentally friendly processes, moderate) {AACSB: Ethical
Reasoning}
73.
Flexibility can be achieved
with a. movable equipment
b. inexpensive equipment
c. sophisticated electronic
equipment d. modular equipment
e. all of the above
e (Selection of equipment and technology, moderate)
165
74. Which of the following statements regarding ethical and environmentally friendly
processes Operations is
true?
a. managers can be environmentally sensitive, but they must avoid
following a low cost strategy.
b. Processes can be environmentally friendly or socially responsible, but not both.
c. Operations managers can be environmentally sensitive and still follow a low cost
strategy. d. Using energy-efficient lighting saves so little that it should not be labeled
environmentally
friendly.
e. The only business strategy consistent with ethical and environmentally sensitive
management is the differentiation strategy.
c (Ethical and environmentally friendly processes, moderate) {AACSB: Ethical
Reasoning}
75.
Which of the following is true regarding the concept of flexibility?
a. It is the ability to change production rates with little penalty in time, cost, or
customer value. b. It can be accomplished with sophisticated electronic equipment.
c. It may involve modular, movable, even cheap
equipment. d. All of the above are true.
e. None of the above is true.
d (Selection of equipment and technology, moderate)
FILL-IN-THE-BLANK
76.
An organization's approach to transforming resources into goods and services is called its
.
process strategy (Introduction, moderate)
77.
The process strategy that is organized around processes to facilitate low-volume,
high-variety processes is called a(n)
.
process focus (Four process strategies, moderate)
78.
is a process strategy that uses a product-oriented production process
that uses modules.
Repetitive focus (Four process strategies, moderate)
79.
is a rapid, low-cost production process that caters to constantly changing
unique customer desires.
Mass customization (Four process strategies, moderate)
80.
represent an organization's attempt to gain increased efficiency
through specialization, which can include, for example, concentrating on certain
classes of customers. Focused processes (Four process strategies, moderate)
81.
A(n)
uses symbols to analyze the movement of people or material.
process chart (Process analysis and design, easy)
82.
A special form of time-function mapping, which goes beyond the organization into its
supply chain, is
.
value stream mapping (Process analysis and design, moderate)
166
8 3.
is a process analysis technique that focuses on the customer and the
producer's interaction with the customer.
Service blueprinting (Process analysis and design, easy)
84.
The strategy for improving service productivity that customizes at delivery, rather
than at production, is
.
postponement (Service process design, moderate)
85.
involves the ability to respond with little penalty in time, cost, or customer
value.
Flexibility (Selection of equipment and technology, moderate)
86.
is the use of information technology to control a physical process.
Process control (Production technology, moderate) {AACSB: Use of IT}
87.
is a computer-controlled warehouse that provides for the automatic
placement of parts into and from designated places within the warehouse.
Automated storage and retrieval system or ASRS (Production technology, moderate)
{AACSB: Use of IT}
88.
A(n)
uses an automated work cell controlled by electronic signals from a
common centralized computer facility.
flexible manufacturing system or FMS (Production technology, moderate) {AACSB:
Use of
IT}
89.
is the fundamental rethinking and radical redesign of business
processes to bring about dramatic improvements in performance.
Process reengineering (Process redesign, moderate)
SHORT ANSWERS
90.
What is Dell Computer's source of competitive advantage? In a short paragraph, explain
some of the steps Dell has taken to develop this advantage.
Dell's competitive advantage is in its process strategy, which is mass customization.
Dell
spends most of its research budget on efficient installation and configuration of
PCs, rather than on new computer parts. Dell builds PCs only when ordered. Dell
utilizes various methods to keep inventory low. Dell utilizes the Internet to enhance
productivity (Global company profile, moderate)
91.
Why is Harley-Davidson identified as a repetitive manufacturer, not a mass customizer?
Harley-Davidson manufactures a variety of motorcycles on an assembly line. They are
not a product-focused process. While Harley-Davidson's motorcycles display lots of
variety, they are not as individualized as Dell's personal computers. The variety
comes from choices in predefined modules, and there is apparently no place for a
customer to get customization that would go beyond what is available in these
modules. (Four process strategies, moderate)
167
92. What is the link between focused processes and specialization? What kinds of focus are
possible?
Focused processes are a means of obtaining increased productivity through forms of
specialization. Focus can take several forms, including concentrating on specific
classes of customers, working only with products in selected product families,
specializing in a specific service, or working with a narrow range of technology.
(Four process strategies, moderate)
93.
Describe Value Stream Mapping. Explain how it is different from process mapping.
Value Stream Mapping is a variation on time-function mapping or process mapping.
The most fundamental difference between them is that Value Stream Mapping is not
confined to the organization itself. In particular, in its analysis of where value is
added, it extends the analysis to the organization's supply chain. (Process analysis
and design, moderate)
94.
How are modules useful in manufacturing processes?
Modules are parts or components of a product previously prepared. By using
modules, the product can be quickly assembled. Using a different combination of
modules allows for quasi-customization. (Four process strategies, moderate)
95.
What is mass customization?
Mass customization is rapid, low-cost production of goods and services that
fulfill increasingly unique customer desires. It brings us the variety of products
traditionally provided by the process focus, with low costs associated with
standardized high volume production (the product focus). (Four process
strategies, moderate)
96.
Name the four basic process strategies; describe them in a complete sentence or two each.
The four process strategies are process focus, product focus, repetitive focus, and
mass customization. Process is a job shop--high variety and low volume; repetitive is
an assembly line--relatively standardized products with options from modules;
product is for high volume, low variety, such as oil refining, flour milling; mass
customization is for high volume, high variety. (Four process strategies, moderate)
97.
Why is equipment utilization in process-focused service industries often low?
Equipment utilization is low because excess capacity to meet peak demand loads
is often desirable, and scheduling is typically difficult. (Four process strategies,
moderate)
98.
Compare an intermittent process to a continuous process on the basis of variety,
volume, equipment utilization, and inventory.
Intermittent has high variety, low volume, low utilization, general purpose equipment.
Since most output is made to order, there is little inventory of raw materials or
finished goods. Continuous has low variety, high volume, high utilization, and
specialized equipment. Just-in- time practices keep inventory very low. (Four process
strategies, moderate)
99.
The textbook described four basic process models, and hinted that there are others.
Construct an example of a hybrid process. Can this process be applied in any wellknown organization? How common do you think hybrid processes are?
Most students will graft elements of process onto elements of product or repetitive.
Examples
may include food service, where "process" may typify most operations, but salad bars
add an element of "repetitive." In health care, hybrids of process and repetitive can
readily be
found. (Four process strategies, moderate) {AACSB: Reflective Thinking}
168
100. In an affluent society, how do we produce a wide number of options for products at low
cost?
In an affluent society we produce a wide variety of options for products at low cost,
primarily by use of modular components assembled in repetitive facilities, but
automation is allowing more overlap of different types of production processes. (Four
process strategies, moderate)
101. Name the tools of process analysis and design. Describe them in a sentence or two each.
Four tools of process analysis and design include flow diagrams, time-function
mapping, process charts, and service blueprinting. Flow diagrams are a schematic or
drawing of the movement of material, product, or people. Time-function mapping is
a flow diagram, with the addition of time on the horizontal axis. Process charts use
symbols, time, and distance to provide an objective and structured way to analyze
and record the activities that make up a process. Service blueprinting focuses on the
customer and the provider's interaction with the customer. (Process analysis and
design, moderate)
102. Provide an example of the focus strategy for improving service productivity.
The focus strategy refers to restricting the offerings. Examples will vary, but a
restaurant with a limited menu would be one example. (Service process design,
moderate)
103. Provide an example of the postponement strategy for improving service productivity.
The postponement strategy refers to customizing the product at delivery, not at
production. Examples will vary, but a home builder might leave some tasks
unfinished until the house is sold, so that the buyer can make those final decisions.
Carpeting, paint colors, cabinet doors, and some appliance choices might be good
examples. (Service process design, moderate)
104. Identify the typical elements in a process control system.
Sensors collect data; analog devices read data on a periodic basis; measurements are
digitized and transmitted to a computer; data are analyzed; and output occurs in the
form of signals, diagrams, charts, messages, etc. (Production technology, moderate)
{AACSB: Use of IT}
105. Identify the advances being made in technology to enhance production.
Technology used to enhance production include numerical control, process control,
vision systems, robots, automated storage and retrieval systems, automated guided
vehicles, flexible manufacturing systems, and computer integrated manufacturing.
(Production technology, moderate) {AACSB: Use of IT}
169
106. Identify the techniques for improving service productivity. For any two techniques,
describe in a short paragraph, and include an example.
The seven techniques are separation, self-service, postponement, focus, modules,
automation, scheduling, and training.
Separation: structuring the service such that the customer must go where the
service is offered (a medical facility)
Self-service: let customers perform their own comparisons (supermarket shopping)
Postponement: customizing at time of delivery or in the final stages of the process
(dealer installed versus factory installed options on automobiles, boats, etc.;
Wendy's Hamburgers)
Focus: restricting the product offerings, options, or degree of customization
allowed
(limited number of factory installed options on a new
automobile)
Modules: services selected from modular choices (health insurance programs)
Automation: identifying services that may lend themselves to automation
(automatic teller machines)
Scheduling: precise personnel scheduling (keep close watch on how many
checkout lanes are needed)
Training: clarifying options, teaching problem avoidance (maintenance
personnel, counselors) (Service process design, difficult)
107. Explain, in your own words, what a flexible manufacturing system is. List the benefits
of flexible manufacturing systems.
An FMS is a system using an automated work cell controlled by electronic signals
from a common centralized computer facility. Benefits of an FMS include
improved capital utilization, low direct labor cost, reduced inventory, and
consistent quality. (Production technology, moderate) {AACSB: Use of IT}
108. Describe some major challenges to implementing a successful build-to-order system?
Product design must be imaginative and fast. Process design must be rapid,
flexible, and able to accommodate changes in design and technology. Inventory
management requires tight control. Tight schedules that track orders and material
from design through delivery can be effectively implemented only with dedicated
personnel. Responsive partners in the supply chain yield effective collaboration.
(Four process strategies, moderate)
109. Identify five examples of technology's impact on services. Specifically, identify one of
these that has led to labor cost reductions. Discuss briefly. Can you add an item, not
identified in the textbook, to this list?
Textbook identifies about three dozen examples. Students may add examples like
PointCast (or other "push" information technologies), Amazon.com (fully electronic
Internet-based shopping), or examples from entertainment (video gaming, network
gaming). (Technology in services, moderate) {AACSB: Use of IT}
110. Why do modern operations managers look for flexibility in their equipment?
Flexibility in equipment provides managers the ability to respond to changes in
demand with little penalty in time, cost, or customer value. (Selection of equipment
and technology, moderate)
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111. How are environmental issues linked to the process choice? Won't being an
environmentally conscious firm drive up costs and take away any competitive advantage?
Discuss, with examples to support your position.
Environmental issues are directly on point in the process decision. The process
choice selects equipment that has emissions, creates waste in work or in packaging,
etc. Not all environmentally conscious activities are cost-adding. But even if they
were, cost is not the only thing affected. Customers may be attracted to products
that are made from recycled materials, or that are more recyclable. This translates
into revenue enhancement, not an element of cost. The competitive advantage
centers on the customer, not the cost. (Environmentally friendly processes,
moderate) {AACSB: Ethical Reasoning}
PROBLEMS
112. A product is currently made in a process-focused shop, where fixed costs are $9,000 per
year and variable cost is $50 per unit. The firm is considering a fundamental shift in
process, to repetitive manufacture. The new process would have fixed costs of $90,000,
and variable costs of $5. What is the crossover point for these processes? For what range of
outputs is each process appropriate?
The crossover is at 1800 units annually. For volumes under 1800, the process focus is
cheaper; for volumes over 1800 units, the repetitive focus is cheaper. (Four process
choices, moderate) {AACSB: Analytic Skills}
113. Big John's Manufacturing currently produces its lead product on a machine that has a
variable cost of $0.32 per unit, and fixed costs of $75,000. Big John is considering
purchasing a new machine that will drop the variable cost to $.28 per unit, but has a fixed
cost of $150,000. What is the cross- over point between the two machines?
1,875,000 units (Four process choices, moderate) {AACSB: Analytic Skills}
114. The local convenience store makes personal pan pizzas. Currently, their process makes
complete pizzas, fully cooked, for the customer. This process has a fixed cost of $20,000,
and a variable cost of $1.75 per pizza. The owner is considering a different process that
can make pizzas in two ways: completely cooked (as before), or partially cooked and then
flash frozen, for the customer to finish at home. This alternate process has a fixed cost of
$24,000, but a lower variable cost (because
much less energy is used in baking) of $1.25 per pizza.
a. What is the crossover point between the existing process and the proposed process?
b. If the owner expects to sell 9,000 pizzas, should he get the new oven?
(a) the crossover is 8,000 units (b) for production quantities of 8,000 or larger, the
new, more flexible process has lower cost. (Four process choices, moderate)
{AACSB: Analytic Skills}
115. A firm is about to undertake the manufacture of a product, and is weighing the process
configuration options. There are two intermittent processes under consideration, as well as
a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month,
and variable costs of $10 per unit. The larger intermittent process has fixed costs of
$12,000 and variable costs of $2 per unit. A repetitive focus plant has fixed costs of
$50,000 and variable costs of $1 per unit. a. At what output does the large intermittent
process become cheaper than the small one?
b. At what output does the repetitive process become cheaper than the larger intermittent
process?
(a) at 1125 units, the large job shop becomes cheaper than the small job shop; (b)
at 38,000 units, the repetitive shop is cheaper than the larger job shop. (Four
process choices, moderate) {AACSB: Analytic Skills}
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116. An organization is considering three process configuration options. There are two different
intermittent processes, as well as a repetitive focus. The smaller intermittent process has
fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger intermittent
process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive
focus plant has fixed
costs of $50,000 and variable costs of $1 per unit.
a. If the company produced 20,000 units, what would be its cost under each of the three
choices?
b. Which process offers the lowest cost to produce 40,000 units? What is that cost?
(a) at 20,000 units, the costs are small intermittent = $203,000; large intermittent =
$52,000; and repetitive = $70,000 (b) at 40,000 units, repetitive process is cheapest,
at $90,000 (small intermittent = $403,000, and large intermittent = $92,000). (Four
process choices, moderate)
{AACSB: Analytic Skills}
117. A product is currently made in a process-focused shop, where fixed costs are $8,000 per
year and variable cost is $40 per unit. The firm currently sells 200 units of the product at
$200 per unit. A manager is considering a repetitive focus to lower costs (and lower
prices, thus raising demand). The costs of this proposed shop are fixed costs = $24,000
per year and variable costs = $10 per unit. If a price of $80 will allow 400 units to be
sold, what profit (or loss) can this proposed new process expect? Do you anticipate that
the manager will want to change the process? Explain. Old: TR = $40,000, TC =
$16,000, therefore Profit = $24,000.
New: TR = $80 x 400 = $32,000, TC = $24,000 + $10 x 400 = $28,000, for a profit of
$4,000. Most will say NO; the larger repetitive process is less profitable than the
smaller process- focused shop. (Four process choices, moderate) {AACSB:
Analytic Skills}
118. Mary is considering purchasing a machine from two suppliers. Supplier As machine has an
annual fixed cost of $10,000 and a unit variable cost of $2.10. Supplier Bs machine has
an annual fixed cost of $16,000 and a unit variable cost of $3.00. How large should
Marys annual demand be in order to make Supplier Bs machine the best choice?
The answer is that there is no demand for which Supplier Bs machine will be best.
The crossover point is -6667 units. (Four process choices, moderate) {AACSB:
Analytic Skills}
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