ISyE 3104: Introduction to Supply Chain Modeling:
Manufacturing and Warehousing
Instructor : Spyros Reveliotis
Spring 2006
Solutions for Homework #2
ISYE 3104 Spring 2006
Homework 2 Solution
Problem set:
A.
Answer the following questions:
1.
Explain what is robust product design and why it is important.
A robust product design is a design such that the product quality is insensitive to
small variations in the production or assembly process. Since process variations are
inevitable in all types of production, robustness in product design helps ensure
produce quality. It also increases cost-effectiveness because there will be fewer reworks and scraps.
2.
What is a “House of Quality”, and what is the main information encoded in it?
House of Quality is a graphic yet systematic technique that facilitates (a) the
characterization of the relationship between customer desires and the functional
features / attributes for a newly developed product (or service), and eventually, (b) the
ranking of these attributes, and (c) the selection of a subset of them to be incorporated
in the product design. It communicates in a structured manner:
1) what the customer wants
2) how the good/service will satisfy customer wants, i.e., its functional
attributes
3) relationships between customer wants and the proposed product attributes
4) relationships, i.e., potential synergies and conflicts, among the suggested
attributes
5) importance ratings of customers wants, weights for relationships, and
resulting importance ratings for the considered attributes
6) benchmarking of the suggested design(s) through the rating of competing
products
It must also be noticed that as a technique for systematic qualitative comparison and
ranking and selection of a number of options that are to satisfy a number of posed
requirements, the “House of Quality” applies to much more general settings than
the particular application context discussed above.
3.
What are the advantages of standardization?
Advantages of standardization:
1) Operation and production planning will be simplified because there are
fewer types of components to produce.
2) Instead of producing a variety of components, producing fewer types of
standardized components in larger quantities leads to economies of scale.
3) The demand forecast for each standardized component will be more accurate
because it uses aggregated forecast data of its parent components. As a
result, it reduces of the risks of stockout and over-stocking.
4) It lowers the inventory cost because a lower level of safety stock is needed
to achieve the same level of protection against stockout.
5) Enables the implementation of the mass-customizing techniques that are
applied by contemporary companies in order to satisfy the market
requirements for higher product differentiation (see also the answer to
Question 5 below).
6) It facilitates better serviceability of the products.
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ISYE 3104 Spring 2006
Homework 2 Solution
7) It facilitates the production outsourcing practiced by many contemporary
companies in an effort to reduce their processing costs and focus on their
core competencies and value (remember the example of Dell).
4.
Does group technology promote standardization or not? Explain your answer.
Group technology is a procedure that encourages like components to be produced by
the same process in the same work area. Successful implementation promotes
standardization by providing a systematic way to review existing component designs
to ascertain if an existing component can be used in a new design.
5.
How do companies respond to customer request for more extensive
customization while promoting standardization for their products and processes?
To fulfill the request for more extensive customization, companies increase the
modularity in the product design, and practice build-to-order or
postponement. Increasing modularity means that the end products are built from
standard components, while different combinations of standard components give rise
to various customized products. At the same time, many companies nowadays
practice build-to-order. They offer some specified options (the modules) for
customers to customize their products, and the companies produce what the
customers order. Alternatively, postponement is the practice to delay any
customization to the product as long as possible in the supply chain. Companies
postpone the assembly of modules until they get the details of customization
requested.
6.
Discuss the importance of flexibility in modern production processes and explain
how this concept manifests itself in the operation of contemporary organizations.
In today’s rapidly changing markets, the companies must have the ability to change
their product mix and production volumes fast. This ability is founded to a large
extent upon the adoption of production technologies that (i) can be reconfigured /
switched easily in order to facilitate the production of new items, and also (ii) can be
easily expanded to support the production of larger volumes, through the addition of
new equipment. The former attribute of these technologies is known as product or
scope flexibility, while the latter is known as volume flexibility. A typical example of
technology presenting flexibility of scope is the numerically controlled (NC) machine,
which can be easily reprogrammed to perform different sets of operations. On the
other hand, volume flexibility requires that the adopted technology is modular itself,
i.e., it is fairly easy to add production capacity by adding new modules to the existing
equipment.
7.
In the break-even analysis presented in class for the “make or buy” problem,
there was a single “break-even-point”. Can you contemplate a situation where
there might be two break-even-points? Explain clearly your answer, providing
all the necessary quantitative analysis.
(As we discussed in class), a typical case is when you get quantity-based discounts by
your supplier. A case where the supplier quotes a partial discount scheme under
which any quantity up to a volume of q units will be purchased at a price of c 1, and
any excess quantity will be purchased at a price cd, and results into two different
break-even points, is depicted in the following figure.
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ISYE 3104 Spring 2006
Homework 2 Solution
A similar example can be constructed for the case of full-quantity discounts, i.e.,
when the reduced price applies to the entire purchased volume, as long as this volume
exceeds a certain threshold, q.
B.
Solve the following problems:
1) Let x be a life-span (in months) that can justify the in-house production. Then,
(20+35)*500x + 500,000 ≤ 80*500x => x  40
2)
a) It is not viable because the throughput of station 2 is only 165 units per day. It is not
sufficient to support the production of 200 units per day. This effect where in an
effort to expand the line capacity by adding capacity to the line bottleneck station,
another station becomes the new bottleneck, is know as the “shifting bottleneck”
effect, and the production manager must be aware of it.
b) A viable expansion plan is to purchase 1 addition machine for station 2, and 3
additional machines for station 3.
c) The cost of outsourcing is $50*150*260 = $1,950,000.
d) The cost of the alternative is $30*100*260 + $210,000*2 + $50*50*260 =
$1,850,000. This is lower than completely outsourcing by $100,000.
3)
a) Profit without the new equipment = $(1-0.5)*30,000 - $14,000 = $1,000. Profit with
the new equipment = $(1-0.6)*50,000 – ($14,000+$6,000) = $0. So, it is not
profitable for the company to purchase the new equipment. Notice that in the
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ISYE 3104 Spring 2006
Homework 2 Solution
computation of the different variable costs and revenues above, we have considered
the corresponding monthly demands.
b) Let $x be a unit price that would render profitable the addition of the new
equipment. Then (x-0.6)*50,000 – (14,000+6,000)  1,000 => x 1.02
The company has to sell it at the minimum of $1.02 in order to make the purchase
of the new equipment profitable.
4)
0.4
1M
1.6M
0.9
1M+1M = 2M
0.1
1M+1M+0.5*1M
+0.5M=3M
2.1M
0.6
Redesign
Make
1M
Purchase
2M
1M+0.5*1M+0.5M=2M
Purchase
1M
0.5*1M+0.5M=1M
a. The strategy is to buy the semiconductor and not to try to produce in-house at all.
(Notice that in the above decision tree, this result could have been inferred as soon
as all the terminal nodes had been priced, since the chosen strategy has a single
outcome and the value of this outcome is not worse than the value of any other
terminal node. The initial option of “Make” can have a value of 1M, in case of a
positive outcome, but its overall value is increased due to the effect of a potential
bad outcome.)
b. (Unfortunately ) since the optimal strategy turned out to be a single-outcome
strategy, this question is vacuous.
C.
CASE STUDY ON REGAL MARINE
1. How does the concept of product life cycle apply to Regal Marine products?
The concept of product life applies to Regal Marine because Regal is constantly under
pressure to introduce new products – and those products have life cycles of relatively
few years. As the article mentioned, it can be as short as three years before a boat is out
of style and its life cycle terminated. This is a long life cycle compared to a newspaper
or magazine, but if you are the production manager it seems rather short.
2. What strategy does Regal use to stay competitive?
Regal Marine uses a strategy of product differentiation, which constantly introduces
new products with new innovations and new styling to stay competitive in the luxury
performance boat market. This strategy is used by many companies these days, from
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ISYE 3104 Spring 2006
Homework 2 Solution
PC and CPU manufacturers to automobile manufacturers, to fashion designers, and it is
known as “versioning”. (By the way, as you might have already noticed, even
textbooks keep changing their edition almost every semester these days, in an effort to
prevent the development of an after-market.)
3. What kind of engineering savings is Regal achieving by using CAD technology
rather than traditional drafting techniques?
The cost and time saving at Regal Marine through use of CAD is typical of the use of
CAD everywhere. It allows a variety of designs and styles to be tested very
economically. The ratio of savings of engineering talent is about four to one. Most
importantly, it allows them to be creative economically and rapidly. It also facilitates
the more expedient and seamless communication between the other stakeholders of the
design process, e.g., the manufacturing, purchasing and quality departments. (c.f.
Question 4 below).
4. What are the likely benefits of the CAD design technology?
The payoff from CAD is not only evident in efficiency, creative designs, and styling,
but it also facilitates the production of the computer code necessary for operation the
numerical machines employed by Regal Marine, and it also enables the communication
of the various component specifications to the company suppliers. At the same time,
CAD also provides, as a by-product, very effective and comprehensive documentation
of all the design variables.
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