SOLUTION%20KEY%20SAMPLE%20Midterm%20Fall%202008 - Carnegie...

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Carnegie Mellon University Tepper School of Business Production 70-371 Midterm Examination INSTRUCTIONS 1. This is a closed book, closed notes exam. 2. All work must be shown on the exam. The formula sheet will be collected. No credit will be given without supporting work. 3. Restrict your answers to the space provided. 4. Total number of points for this exam is 100. Relative value of each question is indicated in parentheses. 5. Please make sure that your booklet has 9 pages, including the cover page. Question Maximum Points Points Earned 1 35 2 10 3 10 4 20 5 25 TOTAL 100 Name:
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Name: _________________________ 1 1. Prior to the Hewlett-Packard takeover of Compaq Computer, Compaq Computer and Dell Computer were two of the dominant players in the computer industry. The following table provides a quick comparison of how these two companies did business. FEATURE OF COMPAQ COMPUTER DELL COMPUTER THE BUSINESS MODEL a) What are the major operational differences between Compaq and Dell? Hint Compare the two companies based on cost, product quality, delivery speed, delivery reliability, coping with changes in demand, flexibility, and new product introduction speed. (15 points) Cost Dell’s cost is lower because it incurs much lower inventory cost. Dell implements a just-in-time system; they order the components from supplier after the order is placed and the supplier supplies the necessary components very quickly to Dell. Further, Dell carries very little safety stock. Dell charges the customer’s credit card before the purchase of the material. This also helps Dell to incur lower inventory cost. This is why Dell is said to have a negative working capital (working capital is defined as the capital invested to have the system run). Another reason Dell’s cost is lower is that it carries a smaller product line. For Compact, sales cost is very high. Notice that Compaq computers are sold through resellers and warehouses. Company should build the warehouse and pay the people working at the warehouse. Notice that Dell avoids all of these costs. Another important issue is the obsolescence cost of inventory in the plant. This is an extremely important issue in this business, e.g., the cost of a component of a PC decreases very sharply. In addition to sitting on the floor of the plant, the components get obsolete while sitting in the warehouse and waiting on the shelf to be sold. When the product appears on the shelf, in this business the components might already be a month old. Notice that Compaq produces to stocks and the computers are mostly sold from the shelf. At the same time, Compaq needs to be competitive in terms of the Scope of the product line Full line from very high-end, fault-tolerant servers to inexpensive personal computers. Personal computers differentiated mainly by
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SOLUTION%20KEY%20SAMPLE%20Midterm%20Fall%202008 - Carnegie...

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