HECParis

OperationsManagement
Prof.SvenjaSommer

FinalExam

NAME,FirstName(inBLOCKletters):______________________________________

Signature:_________________________________

Instructions:

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

Thisisaclosedbookexam;onlythedistributedformulasheetisallowed.
Computersandcellphonesarenotallowed,calculatorsareallowed.
ExamDuration=2hrs
Thereare5questionsfor100pointsintotal.
Pointsforeachquestionareinparentheses()nexttothequestion.
Answerallquestionsinthespaceprovided,usingthebackofpagesifnecessary.
Forfullcreditshowyourcalculations.

Question

Points

_________outof40

_________outof25

_________outof10

_________outof10

_________outof15

TOTAL

_________outof100

1/9

Question1(40points):
Shortanswerquestions(10pointseach).

(a) WhycanShouldice(aCanadianclinicperformingonlyherniaoperations)beconsideredafocused
factoryandwhatadvantagesmightitobtainfrombeingafocusedfactoryascomparedtoa
generalhospital?Doyouseeanydrawbacksorrisksassociatedwithit?

(b) IncreaseddemandvolatilityintheUShascausedmanymanufacturerstoconsidermoving
productionbacktotheUS.Whymightincreaseddemandvolatilitymakedomesticproduction
moreattractive?

2/9

(c) Aproductionplantforindustriallyproducedbreadfaceshugeswingsindemand.Someweeks
thetotaldemandfromitscustomers,thelocalsupermarkets,is5timestheorderquantity
receivedinotherweeks.Tomeetthesedemandpeaks,theplantmanagerisfacingpressure
fromhiscustomerstoexpandhiscapacity;however,capacityexpansionsareverycostly,sinceit
isahighlyautomatedproductionline.Theplantmanagerisprettysurethattheendcustomer
demandisstableovertime,andheseeksyourhelpinimprovingthesituation.What
phenomenonishefacingandwhatrecommendationswouldyoumaketohim?

(d) Anewtechnologyallowsbookstobeprintedintenminutes.BOOKYhasdecidedtopurchase
machinesforeachofitsstores.Assumethatthecostofprintingabookinthestoreissomewhat
higherthanthatofbuyingitreadyfromthepublisher.WhichbooksshouldBOOKYcarryinstock
andwhichbooksshouldBOOKYprintondemand?Doyourecommendthistechnologyforbest
sellersorforslowsellingbooks(assumingthecostofeachbookisthesame)?Explain.

3/9

Question2:Chairproduction(25points)
Thefollowingrepresentsaprocessusedtoassembleachairwithanupholsteredseat.StationsA,B,
andCmaketheseat;stationsJandKassemblethechairframe;stationXiswherethetwo
subassembliesarebroughttogether;andsomefinaltasksarecompletedinstationsYandZ.One
workerisassignedtoeachofthestations,exceptinstationXwheretwoworkers(X1andX2)
performthesametaskinparallel.Generally,thereisnoinventorykeptanywhereinthesystem,
althoughthereisroomforsomeunitsbetweeneachofthestations(notdrawnexceptbefore
stationX)thatmightbeusedforinventorystorage,wheneverneeded.(Thatis,thereisnoplanned
inventorybuffer,butitcanhappenthatthereisinventoryinthesystem.)

A
B
C
X-1

Z
Y

X-2
J
K

Thefollowingamountofworkinsecondsisrequiredateachstation.(Youmaynoticethedifference
forthetwoworkersinstationX.Thisdifferenceisduetoadifferenceinexperienceandisexpected
tostaylikethisforthenearfuture.)
A 42

C 35
J 32
X1 60
Y 45
B 33

K 30
X2 75
Z 20

a. Whatisthepossibledailyoutputofthisprocessifoneshiftwith7hoursofprocessingtimeis
availableeachday?(10points)

b. Whatistheminimumthroughputtimeoftheprocessinseconds?Explain.(5points)

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c. Thecompanyconsidershiringanadditionalworkertoincreasethecapacityoftheprocess.You
havetohirethisworkerforthefullshift.Atwhichstationwouldyouaddtheworker,ifyou
decidedtodoso?(Why?)Isitworthit,ifthisworkercosts200perday,hasthesame
processingtimeastheotherworkeratthechosenstationandtheprofitmarginforthechairis
currently8perunit?(Assumealladditionallyproducedunitscanbesold.)Showcalculationsto
justifyyouranswer.(10points)

5/9

Question3(10points)
PharmaDevdevelopsandmarketsnewtechnologicalproductstobeusedinhealthcare.The
developmentofanewproductoperatesasfollows.
Whenanewtechnologymeetstherequisitemarketpotential,anewpatentisfiled.Patentsare
grantedforaperiodof12years,startingfromthedateofissue.Oncethepatentisissued,thenew
technologyisdevelopedatitsdevelopmentcenter,andisthenlaunchedtothemarket.
Onaverage,PharmaDevwinsanewpatentevery5monthswithacoefficientofvariationforarrivals
of1.Theaveragedevelopmentprocesslasts4monthswithacoefficientofvariationforthe
developmentprocessof2.

(a) Howmanymonthsofpatentlifeareleftforanaverageproductlaunchedtothemarket?[7p]?

(b) Onaveragehowmanypatentedproductsareundergoingdevelopmentorwaitingtobe
developed?[3points]

6/9

Question4(10points)
TomRichandJoeMiserhaveanechecking/savingsaccountattheeJouyBank.BothTomandJoe
had5000intheiraccountatthestartofthecalendaryear2012.Bothhaveprojectedcashusageof
50perweekataconstantrate.eJouyBankchargesa0.75ATMwithdrawalfeeforeveryATM
transaction,whichisbilledtotheaccountattheendofthecalendaryear.Inreturn,theaccount
offersagreatannualinterestrateof6%,whichisbasedontheaverageannualbalance,and
depositedintheaccountattheendoftheyear.Forthepurposeofsimplifyingyourcalculations,
assume50weeksperyear.

(a)Tomhasafatwalletandhencewithdraws$500wheneverherunsoutofcash,whileJoe
withdrawscasheveryMondayonhiswaytolunch.Whowillhaveahigheraccountbalanceatthe
endofcalendaryear?(5points)

(b)TomandJoeobviouslyhavenotenrolledforOperationsManagement.Whatwillbeyouradvice
toTomandJoeontheirrespectiveCashwithdrawalstrategies?(Thatis,howmuchcashshouldTom
withdrawandhowfrequentshouldJoegototheATM.)(5points)

7/9

Question5(15points)
Yourcompanybuildsfullycustomizedoneofakindcruiseshipsforecotourismcruiseoperatorsthat
visitdestinationssuchastheGalapagosIslands,theAntarctic,etc.Everytimeacustomer(acruise
company) orders a ship, you have to quote a delivery date, but you struggle with the uncertainty
involved.Becauseeachindividualshipishighlycustomized,youcannotpredictinadvanceprecisely
howlongitwilltaketodesignandbuildeachship.Currently,acustomerfromAmazonRiverCruises
Inc.requestedyoutosubmitaquoteQ(thedecisionvariable)foraship.TheactualdeliverytimeDis
uncertainandwillfollowanormaldistribution,withameanof12monthsandastd.dev.of3months.
The customer assumes that you will deliver the ship precisely on the delivery date you quote; for
instance,ifyousayQ=12;i.e.,theshipwillbedeliveredin12months,thecustomerwillimmediately
beginsellingcruisesonthatshipstartingprecisely12monthsfromnow.Thecustomerhasnousefor
theshippriortotheagreeddeliverydate,soifyoucompletetheshipbeforethequoteddeliverydate,
youorthecustomerwillhavetoberthitsomewhereuntiltheoriginallyagreedupondeliverydate.
ThatwillcostEur12,000perday.Ifyoudelivertheshiptoolate,thecustomerhastopostponetaking
theshipintoservice,whichmeanscancelingcruisesthathavealreadybeensold.Youwillhavetopay
thecustomerapenaltyofEUR24,000foreachdaybywhichyouexceedtheoriginallyagreedupon
deliverydate.
(a)Whatdeliverydate(inmonthsfromtoday)shouldyouofferAmazonRiverCruisesInc.?(7p)

(b)Assumethatthecostsassociatedwithearlyorlatedeliveryaresimilarforalltheshipsyoubuildin
thefollowingsense:thepenaltyforeachdayyouarelateisalwaystwiceashighasthecostsinvolved
witheachdayyoudeliveryearly.Forexample,inthecaseofyourcurrentorder,thelatepenaltyis
EUR24,000perday,whichisdoublethecostsofbeingtooearly(i.e.,EUR12,000).Forsomeother
order,thosefigurescouldbeforinstanceEUR50,000andEUR25,000respectively.Inrecentyears,
youhavedeliveredapproximately70%ofordersontime(i.e.,notbeinglate).
YourCEOisnothappywiththe70%ontimedeliveryperformanceandwantstobringthatto90%.
Howshouldyoumodifyyouroffer(fromparta)forthecurrentrequestfromAmazonRiverCruises
Inc.?(4p)

8/9

(c) Whatvalue(inEUR)isyourCEOimplicitlyattachingtotheintangiblecostsofbeinglatesoas
tojustifyanontimedeliverytargetof90%?(4p)

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