Supply Chain Midterm Exam

Multiple-choice Questions Section

1. Positioning strategy and layout (i.e., product-focus vs. process-focus) are linked closely to factors such as product volume, product range and flow pattern. Which of the following patterns reflects the most consistency across each of the elements?

a. low volume / high variety / product-focus (line-flow)

b. high volume / low variety / product-focus (line-flow)

c. low volume / low variety / process-focus (“spaghetti” or jumbled flow)

d. high volume / high variety / process-focus (“spaghetti” or jumbled flow)

2. Which of the following statements regarding inventory is true?

I. Maintaining inventory supports a firm’s ability to compete on delivery speed.

II. All else the same, reducing inventory levels reduces a firm’s return on assets.

III. Reducing ordering costs will lower the economic order quantity (EOQ).

IV. Reducing lead times is an effective way to reduce the re-order point (ROP).

V. Firms that substitute their cost of capital rate as their inventory carrying cost rate often overestimate their inventory holding expenses.

a. I, II, and III

b. I, III, and IV c. I, III, and V

d. I, II, and V e. II, IV, and V f. I, II and IV

3. Generally speaking, which of the following statements are true?

I. Improving process quality increases the variation in process outputs.

II. The two primary objectives of operations are to support the value proposition to customers and improve quality.

III. DJC, from the American Connector case, maintained a low number of SKUs to support a low-cost strategy.

IV. A single collection of assets in operations cannot effectively support a wide range of competitive priorities.

V. Dell maintains multiple supply chains because they sell into multiple customer segments.

a. I, III, and V b. II, III and V c. I, II and IV

d. II, IV and V e. II, III and IV f. III, IV and V

4. Which of the following statements are true?

I. Tools to improve process quality are ineffective in health care because human patients are involved, rather than products such as automobiles.

II. Reducing/lowering setup times is important in supporting product flexibility because flexibility requires more setups.

III. A Make-to-Stock strategy is best for companies with a large number of SKUs.

IV. One metric to evaluate the performance of a process is productivity (e.g., efficiency) which is determined by dividing Outputs by Inputs (P = O/I).

V. The hospitals in “Fixing health care from the inside” (Spear, HBR, 2005) achieved success through incremental changes and organizational learning.

a. I, II, and V b. I, III, and V c. II, III and IV

d. II, III and V e. I, IV and V f. II, IV, and V

5. Which one of the following statements regarding process type/layout is true in most cases?

a. A process-focus layout (e.g., job shop) is likely to have lower-skilled labor than a product-focus layout.

b. When emphasis is given to product flexibility and breadth, a product-focus layout is more appropriate.

c. A product-focus layout is most appropriate for products with long life cycles.

d. When more emphasis is placed on low unit costs, a process-focus is best.

Short Answer Section

NOTE: Be sure to address what the questions are asking! Responses to questions 6-8 should be about one paragraph and 9-10 should be one to two paragraphs. Please double-spaced your responses. [Note that a “paragraph” need not be a full page in length—3 to 4 good sentences will work. If you want to write more you can, although full credit can be earned with the suggested number of 3-4 sentence paragraphs.]

Choose one to answer from questions 6-8, the answer should be one paragraph. [Note that a “paragraph” need not be a full page in length—3 to 4 good sentences will work.]

6. Describe how improving process quality (in other words, improving the reliability of processes and reducing variability) supports each of the following competitive priorities: a) low unit costs, b) delivery speed, and c) product flexibility.

7. Suppose that, through extensive market research, we have a clear sense of the performance quality and specifications desired by our customers. We are capable of designing our product or service to meet them. In addition, our production processes are mostly automated, and conformance quality can be systematically achieved through process design and process setting. Why is a focus on continuous improvement still important in quality management?

8. In class, we’ve read or discussed a) the concepts of ‘corralling variability’ and ‘hospital-within-a-hospital’ (from “Fixing Health Care on the Front Lines,” Bohmer, HBR, 2010); b) layout issues regarding supporting custom and standard products at American Connector; and c) Dell and their decision to create multiple supply chains (“One size does not fit all,” SMR, 2011). What is the common theme across these ideas in these three articles?

Choose one to answer from questions 9 and 10.
Note: These questions require
more depth
than the previous written section (responses should be about three paragraphs in length, where each paragraph can be 3-4 good sentences).

9. Using the

Running Inventory Like A Deere

and

How Johnson & Johnson overhauled its baby care supply chain

articles:
A) Identify and briefly describe three (3) similarities in the way they reduced inventory and costs in their supply chain (note: that they both reduced inventory and costs is NOT one of the similarities you should mention).
B) Identify and briefly describe two (2) differences in their approaches.

10. Regarding improving health care, the article by Bohmer

(“Fixing Health Care on the Front Lines,” HBR, 2010)

introduces the “hospital-within-a-hospital” model and the segregation of treatments and approaches for common diseases and complicated medical conditions. Using the course roadmap, our in-class analysis of the American Connector case,

“The Checklist”

article by Dr. Gawande, the

“Supply Chain Strategies”

or

“When One Size Does Not Fit All”

articles, the OMR readings, or any other source you want to use, identify, describe and defend three points/factors supporting Dr. Bohmer’s suggestion. Use at least two sources.

11. Abilene Auto Parts, a retailer of general maintenance and after-market automotive products, desires to re-build their brand around service and availability. Traditionally, they have committed to having parts in stock for their customers 80% of the time. Use the date below to determine:

(a) Their current economic order quantity (using EOQ) [1-point]

(b) Their current re-order point (ROP) using the 80% service level [1-point]
To support the re-branding effort, the VP of marketing at Abilene has asked you to determine the incremental costs of increasing the cycle-service level to 95%. Given the information below regarding replacement headlight bulbs, determine:

(c) The difference in TOTAL annual cost of the replacing the 80% policy with one calling for a 95% service level (i.e., the incremental costs asked for by the VP of marketing) [1-point]

(d) The CEO does not want this initiative to increase costs, so the VP of operations would like to know if supply chain improvements can adequately lower costs in support of the branding initiative. If, through these improvements, the average lead time could be reduced to 5 days, the standard deviation of lead time reduced to 1 day, and ordering costs to $35, by how much would this offset (or not) the difference in annual costs of a shift to a 95% service level (calculated in part c)? [3-points]
In other words, is the new scenario (95% service level, 5-day lead time, standard deviation of lead time of 1, and $35 ordering cost) more or less expensive than the baseline case (with an 80% service level)? By how much is it more or less expensive? (Note: you must provide the correct value for full credit on part d.)

Baseline Information:

average daily demand = 10 units/day (store operates 360 days/year)

standard deviation of demand = 3 units/day

average lead time = 6 days

standard deviation of lead time = 2 days

item cost to AAP = $25/unit

annual holding cost = 30% of cost of product

ordering cost = $50/order

cycle-service level = 80%

NOTE: to receive partial credit for the multiple choice questions (1-5), you are strongly encouraged to indicate your thinking/assumptions. For question 11, you must submit (show) your work for partial credit.