Operations Management

MSC 337 Operations Management

Spring 2011 – Problem Set 6

 

Team Nr ___ Team Leader _________________ Team Member ________________

 

 

Instructions:  This Problem Set is open-book and open-notes.  All work must be entirely done by you and your partner. You may not receive help from any other person nor may you give help to any other person. This Problem Set has been posted on Blackboard on April 11th and will be due on April 14th.  You and your partner will turn in a single completed paper that you have agreed upon.  Make sure to place both of your names on the paper, the number of your team and the word “FINAL”.  Leave each of the four questions that are in italics just as they were when you downloaded the problem set.  Enter your answers immediately below each question, using Times New Roman, regular, 12 point font.  Do ALL of your work on this document.  Submit your completed Problem Set in the File Exchange folder for your own group.  I will retrieve it from this folder. If you are late in submitting the completed Problem Set, your team will be assessed a significant point penalty.

 

Each of the four questions is worth a maximum of 25 points for a total of 100 point

Lesson Eleven – A. State three reasons why it might be a good idea for a company to pursue vertical integration and three reasons why it might not. [Hint:  an appropriate length would be 150 to 200 words]

 

There are several advantages to the incorporation of vertical integration. These include the fact that the company incurs very low transaction costs. The cuts in the transaction costs are because of inter transactions between subsidiary companies. This is mainly because they tend to share a central management and a central communication system. Another advantage is that the products and services offered are of very high quality. This comes about by the dual quality control systems of the subsidiary companies. There is also the advantage of being able to monopolize the market.

However, there are certain disadvantages that include the fact that the subsidiary companies incur higher monetary and organizational costs. This is due to the presence of giant organizational structures. Another disadvantage is that the company is faced by capacity balancing issues. An additional drawback is that the company experiences decreased flexibility due to previous upstream or downstream investments.

 

Lesson Eleven – B   Read the case study titled “Dell’s Value Chain” at the end of Chapter 11 in your text. Give a one or two sentence answer to each of the following five discussion questions at the end of the case.

 

  1. How has Dell use its direct sales and build-to-order model to develop an exceptional supply chain?

 

The company has enabled its consumers to plan their own design patterns and place orders directly with the company. This is done through telephone or internet.

 

  1. How has Dell exploited the direct sales model to improve operations performance?

 

The company improves its performance by virtually marketing and selling its own products via telephone and internet. The company also sources its parts and services from other companies.

 

  1. What are the main disadvantages of Dell’s direct sales model?

 

The support side is adversely affected as dell has to meet all related support costs, from handling information requests before the sale to taking and tracking orders to handling service inquiries after the sale.

 

  1. How does Dell compete with a retailer who already has a stock?

 

The direct sales model ensures that the company sells its products at very low prices that other sellers cannot meet.

 

  1. How does Dell’s supply chain deal with the Bullwhip Effect?

 

Lesson Twelve – A   Harrison Electronics Parts Supply company makes microprocessor circuitry for a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 250 units, and this is constant throughout the year.  The carrying cost is estimated to be $1 per unit per year and the ordering cost is $20 per order.

 

  1. To minimize cost, how many units should be ordered each time an order is placed?

 

100 units

 

  1. How many orders per year are needed with the optimal policy?

 

Three orders

 

  1. What is the average inventory?

 

125 units

 

  1. Suppose that the ordering cost is not $20, and Harrison has been ordering 150 units each time an order is placed. For this order policy (of Q = 150) to be optimal, determine what the ordering cost would have to be.

 

$45

 

Lesson Twelve – B. The Mount Vernon Industrial Plumbing Supply Company is considering using ABC analysis to focus attention on its most critical inventory items.  A random sample of 20 items out of the more than 1000 items the company stocks has been taken, and the dollar usages have been calculated as shown for these items. 

 

Item Dollar Usage Item Dollar Usage
A $12,200 L $16,400
B 11450 M 1,340
C 39,400 N 10,800
D 26,100 P 12340
E 2,100 Q 740
F 300 R 140
G 48,000 S 1,400
H 810 T 7,600
J 1000 U 4,950
K 290 V 190

 

  1. Rank the items and assign them to an A, B, or C class. 

 

Class A=GCDLPAB

Class B=NTU

Class C=EMSJHQFKVR

 

  1. Show the percentage in each class assuming that an 80-15-5 target has been established. 

 

A=80%

B=15%

C=5%

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