Exam Two Prep Comments
As you read each of the topics below you need to be able to answer essay questions related to each topic. For
example, in chapter 5, capacity management, one topic is definition of capacity. For this topic one question
may be “define capacity and discuss the implications of having insufficient capacity or excess capacity. Give
examples to support your answer.
Also, you should be able to work all problems in the chapters covered except for chapter 7.
Chapter 5
Definition of capacity
Capacity is the amount of work that can be done in a specified time period. Capacity is a rate of doing
work, not the quantity of work done.
What effects available capacity?
Capacity available is the capacity of a system or resource to produce a quantity of output in a given
time period. It is affected by
 product specifications - if the product specifications change, the work content (work required to
make the product) will change
 product mix - each product has its own work content measured in the time it takes to make the
product. If the mix of products being produced changes, the total work content (time) for the mix
will change
 plant and equipment - This relates to the methods used to make the product. If the method is
changed—for example, a faster machine is used—the output will change. Similarly, if more
machines are added to the work center, the capacity will be altered.
 work effort – This relates to the speed or pace at which the work is done. If the workforce
changes pace, perhaps producing more in a given time, the capacity will be altered.

What is scheduling and what are the considerations in scheduling?
Scheduling calculating when orders must be started and completed on each work center so the final
due date is met.
Problems:
5.4
A work center consisting of 7 machines operated 16 hours a day for a 5-day week. Utilization is 80%,
and efficiency is 110%. What is the rated weekly capacity in standard hours?
Available Time = 7 X 16 X 5 = 560 hrs per week
utilization =
hrs worked
available hours
=
80%
=
efficiency =
standard hrs
hrs worked
=
110% =
hrs worked = standard hrs
efficiency
=
standard hrs
1.10
80%
=
standard hrs/1.1
560
.80 (560) = standard hrs/1.1
448 = standard hrs/1.1
1.1 (448) = standard hrs
A = 492.8 standard hrs
5.5
A work center consists of 3 machines working 8 hours a day for a 5-day week. If the utilization is 75%
and efficiency is 120%, what is the rate capacity of the work center?
3 X 8 X 15 = 120 machine hours
utilization = 75%
hrs. worked =
available hrs
.75 = standard hrs / 1.2
available hrs
efficiency = 120%
standard hrs
hrs. worked
.75 = standard hrs / 1.2
120
.75 (120) = standard hrs / 1.2
1.2 (90) = standard hrs
108 = standard hrs
5.9
A work center consisting of 3 machines operates 40 hours a week. ln a 4 week period, it actually
worked 355 hours and produced 475 standard hours of work. Calculate the utilization and efficiency of
the work center. What is the demonstrated week capacity of the work center?
Available Time = 3 X 40 X 4 = 480 hrs per week
5.12
utilization =
hrs worked
available hours
=
%
=
355
480
=
74%
efficiency =
standard hrs
hrs worked
=
%
=
475
355
=
133.8%
hrs worked = standard hrs
efficiency
=
355 hrs
=
475 = efficiency = 475 = 133.8%
efficiency%
How many standard hours are needed to run an order of 500 pieces if the setup time is 3.0 hours and
the runtime is 0.2 hours per piece? How many actual hours are needed at the work center if the
efficiency is 125% and the utilization is 85%?
total standard time
=
=
=
=
capacity required
= ( actual time ) ( efficiency ) ( utilization )
actual time
=
=
setup time
+
runtime
3.0
+
( 500 X 0.2 )
3.0
+
100
103.0 standard hours
capacity required
( efficiency ) ( utilization )
103
( 1.25 ) ( .85 )
=
103
1.0625
=
97 hrs
5.13
A work center has the following open and planned orders for week 4. Calculate the total standard time
required ( load ).
Order
Quantity
Released Orders 120
300
340
200
Planned Orders 560
300
780
500
Total Time ( standard time )
Released orders
120
340
Total Time
Total Time
Total Time
Planned orders
560
780
Total Time
Total Time
5.16
Setup Time
( hours )
1.00
2.50
3.00
2.00
Run Time
( hours / piece )
0.10
0.30
0.25
0.15
Total Time
( hours )
31.00
62.50
78.00
77.00
248.50
=
=
=
Setup Time
1.00
2.50
+
+
+
Run Time
( 300 X 0.10 ) =
( 200 X 0.30 ) =
31.00 st.hrs
62.50 st.hrs
=
=
3.00
2.00
+
+
( 300 X 0.25 ) =
( 300 X 0.15 ) =
78.00 st.hrs
77.00 st.hrs
Complete the following load report and suggest possible courses of action.
Week
Release Load
Planned Load
Total Load
Rated Capacity
( Over) / Under
18
150
0
150
150
0
19
155
0
155
150
(5)
20
100
80
180
150
( 30 )
21
70
80
150
150
0
Total
475
160
635
600
( 35 )
Chapter 6
Know the three types of manufacturing systems given in the text
1. Flow manufacturing
-concerned with the production of high-volume standard products
2. Intermittent manufacturing
-characterized by many variations in product design, process requirements, and order
quantities
3. Project manufacturing
-involves the creation of one unit or a small number of units
Know and be able to discuss the steps in manufacturing control.
What are the elements in lead time?
1. Queue time
-amount of time the job is waiting at a work center before operation begins
2. Setup time
-time required to prepare the work center for operation
3. Run time
-time needed to run the order through the operation
4. wait time
-amount of time the job is at the work center before being moved to the next work center
5. move time
-transit time between work centers
What is a bottleneck and what are its implications? How do you manage a bottleneck?
Bottleneck are overloaded workstations were the required capacity is greater than the available
capacity.
Managing bottlenecks:
1. establish a time buffer before each bottleneck
2. control the rate of material feeding the bottleneck
3. do everything to provide the needed bottleneck capacity
4. adjust loads
5. change the schedule
How do you manage constraints?
Constraints are managed by focusing on balancing the flow through the shop; time lost at a
bottleneck is time lost to the whole system but time lost at a nonconstraint is a mirage; and
transfer batches do not have to be the same size as process batches.
6.1
Shop order 7777 is for 600 of part 8900. From the routing file, it is found that operation 20 is done on
work center 300. The setup time is 3.5 hours, and run time is 0.233 hours per piece. What is the
required capacity on work center 300 for shop order 7777?
Work Time
=
=
=
=
Setup +
3.5 hrs +
3.5 hrs +
143.48 hrs
Run Time
( 0.233 hrs/parts X 600 parts )
139.98
6.2
An order for 100 of a product is processed on work centers A and B. The setup time on A is 50
minutes, and run time is 5 minutes per piece. The setup time on B is 60 minutes, and the run time is 5
minutes per piece. Wait time between A and B is 40 minutes. Wait time after operation B is 5 hours,
and the move time into stores is 3 hours. Queue at work center A is 25 hours and B is 35 hours.
Calculate the total manufacturing lead time for the order.
Operation
Setup Run Time Wait Time
Move Time Wait Time
Move Time Queue
A
50 min 5 min/p
5hrs=300min
40min
25hrs=1500min
B
60 min 5 min/p
5hrs=300min 3hrs=180min 35hrs=2100min
Work Time
A
B
6.3
=
=
Setup +
Run time
50 min + ( 100 X 5 ) =
=
60 min + ( 100 X 5 )
=
550 min
300 min
40 min
1500 min
560 min
300 min
180 min
1200 min
5530 / 60 = 92 hrs 17 min
In problem 6.2, what percent of the time is the order actually running?
A
B
Run Times
500
500
1000 / 5530 = 18.08 %
6.4
An order for 50 of a product is processed on work centers A and B. The setup time on A is 60 minutes,
and the run time is 4 minutes per piece. The setup time on B is 30 minutes, and the run time is 6
minutes per piece. Wait time between the two operations is 10 hours. The move time between A and
B is 60 minutes. Wait time after operation B is 8 hours, and the move time into stores is 2 hours.
Queue at work center A is 40 hours and at B is 35 hours. Calculate the total manufacturing lead time
for the order.
Operation
Setup Run Time Wait Time
Move Time Wait Time
Move Time Queue
A
60 min 5 min/p
10hrs=600min 60min
40hrs=2400min
B
30 min 6 min/p
8hrs=480min 2hrs=120min 35hrs=2100min
Work Time
A
B
=
=
Setup +
Run time
60 min + ( 100 X 5 ) =
=
30 min + ( 50 X 6 )
=
310 min
600 min
60 min
2400 min
330 min
480 min
120 min
2100 min
6400 / 60 = 107 hrs
6.5
In problem 6.2, what percent of the time is the order actually running?
A
B
6.8
Run Times
250
300
550 / 6400 = 8.59 %
An order for 100 of a product is processed on operation A and operation B. The setup time on A is 50
minutes, and the run time per piece is 9 minutes. The setup time on B is 30 minutes, and the run time
is 6 minutes per piece. It take 20 minutes to move a lot between A and B. Since this is a rush order, it
is given top priority ( president’s edict ) and is run as soon as it arrives at either workstation. It is
decided to overlap the two operations and to split the lot of 100 into two lots of 60 and 40. When the
first lot is finished on operation A, it is moved to operation B where it is setup and run. Meanwhile,
operation A completes the balance of the 100 units (40) and sends the units over to operation B.
These 40 units should arrive as operation B is completing the first batch of 60; thus operation B can
continue without interruption until all 100 are completed.
a.
complete the total manufacturing lead time for operation A and B without overlapping
b.
calculate the manufacturing lead time if the operations are overlapped. How much time is saved?
A – 100
Setup
Run Time
100 X 9
A  B Move
A – 100
Setup
Run Time
60 X 9
A  B Move
50 min
900 min
20 min
970 min
630 min
1600 min
50 min
540 min
20 min
610 min
630 min
1240 min
B – 100
Setup
Run Time
B – 100
Setup
Run Time
100 X 6
30 min
600 min
630 min
100 X 6
30 min
600 min
630 min
1600 min
-1240 min
360 min = 6 hrs Time Saved
Chapter 7
What is purchasing and what are the objectives?
Purchasing the process of buying.
It objectives are:
 obtaining goods and services of the required quantity and quality
 obtaining goods and services at the lowest cost
 ensuring the best possible service and prompt delivery by the supplier
 developing and maintaining good supplier relations and developing potential suppliers
 selecting products and suppliers that minimize the impact on the environment
Identify and discuss the purchasing cycle.
 receiving and analyzing purchase requisitions
 selecting suppliers
 determining the right price
 issuing purchase orders
 following up to ensure delivery dates are met
 receiving and accepting goods
 approving supplier’s invoice for payment
Identify and discuss factors in selecting a supplier.
Selecting a supplier is an important responsibility of the purchasing department. For routine
items or those that have not been purchased before, a list of approved suppliers is kept. If
the item has not been purchased before or there is no acceptable supplier on file, a search
must be made. If the order is of small value or for standard items, a supplier can probably
be found on the Internet, in a catalogue, trade journal, or directory.
No problems here, only essay questions
Chapter 9
What is inventory and why is it kept?
Inventory serves as a buffer between –
 Supply and demand
 Customer demand and finished goods
 Finished Goods and component availability
 Requirements for an operation and the output
from the preceding operation.
 Parts and materials to begin production and the
suppliers of materials.
What are the types of inventory?
 Anticipation Inventory – build up of stock in anticipation
of future demand
 Fluctuation Inventory – safety stock. Safety stock
is used because of imperfect information
 Lot Size Inventory –greater quantities of goods due to
purchasing requirements
 Transportation Inventory – Inventory used due to time
in transit
 Hedge Inventory – purchased when prices are low in
anticipation that prices will rise
 Maintenance, Repair and Operations – MRO inventory
is any stock of goods to keep the operations functioning
What makes up inventory costs?
 Previously discussed costs –
 Item cost – price paid for a purchased item and any other direct costs associated in




getting the item into the plant
Carrying cost – money invested in inventory is not available for other uses and as
such represent a lost opportunity cost
Ordering costs – costs associated with placing an order
Two new costs to consider are –
 Stockout costs (external cost)
 Capacity-associated costs – when output levels must be changed, there may be
costs for overtime, hiring, training, extra shifts, and layoffs. This can be avoided by
leveling production, that is, by producing items in slack periods for sale in peak
periods
What is the ABC method of inventory control and why is it useful?
 Classifying inventory according to some measure of importance, and allocating control
efforts accordingly
 A items (very important)
10 to 20 percent of the number of items in inventory and about 60 to 70 percent of the
annual dollar value
 B items (moderately important)
 C items (least important)
50 to 60 percent of the number of items in inventory but only about 10 to 15
percent of the annual dollar value
I = average inventory in transit
t = transit time in days
A = annual demand
9.1
If the transit time is 11 days and the annual demand for an item is 10,000 units, what is the average
annual inventory in transit?
I = tA
365
9.2
=
11 X 10,000
365
=
110,000
365
=
301.4 units
A company is using a carrier to deliver goods to a major customer. The annual demand is $2,500,000,
and the average transit time is 10 days. Another carrier promises to deliver in 7 days. What is the
reduction in transit inventory?
I = tA
365
9.4
I = tA
365
=
( 10 – 7 ) 2,500,000
365
=
$7,500,000
365
=
$20,547.90
A florist carries an average inventory of $12,000 in cut flowers. The flowers require special storage and
are highly perishable. The florist estimates capital costs at 10%, storage costs at 25%, and risk costs at
50%. What is the annual carrying cost?
10%
+
25%
+
50%
=
85%
X
$12,000
=
$10,200
9.7
A company manufactures and sells a seasonal product. Based on the sales forecast that follows,
calculate a level production plan, quarterly ending inventories, and average quarterly inventories.
Assume that the average quarterly inventory is the average of the starting and ending inventory for the
quarter. If inventory carrying costs are $3 per unit per quarter, what is the annual cost of carrying this
anticipation inventory? Opening and ending inventories are zero.
Sales
Production
End Inventory
0
Average inventory
Inventory Cost
9.15
Q1
1000
2000
Q2
2000
2000
Q3
3000
2000
Q4
2000
2000
1000
1000
0
0
Totals
8000
8000
6000
If the annual cost of goods sold is $30,000,000 and the average inventory is $10,000,000.
a. What is the inventory turns ratio?
Inventory turns =
annual cost of goods sold
=
average inventory in dollars
30,000,000
10,000,000
=
3
b. What would be the reduction in average inventory if , through better materials management,
inventory turns were increased to 10 times per year?
Average inventory =
annual cost of goods sold
=
30,000,000 =
$3,000,000
inventory turns
10
Reduction in inventory = average inventory in dollars 10,000,000
-
average inventory
3,000,000
=
$7,000,000
c. If the cost of carrying inventory is 25% of the average inventory, what is the annual salary?
Reduction in inventory =
$7,000,000
Sales
=
$7,000,000 X
0.25 =
$1,750,000
Chapter 10
10.6
A company is presently ordering on the basis of an EOQ. The demand is 10,000 units per year, unit
cost is $10, ordering cost is $30, and the cost of carrying inventory is 20%. The supplier offers a
discount of 3% on orders of 1000 units or more. What will be the saving (loss) of accepting the
discount?
A = 10,000
c = $10
s = $30
i = 20%
3% discount ≥ 1000 units
TC
=
carrying cost +
ordering costs
+
product costs
inventory costs
EOQ
=
TCEOQ =
√2As
ci
=
Q ci +
2 X 10,000 X $30
$10 X .20
As
+
Ac
=
547.7 =
548