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Exam 25 January 2016, Final Exam Questions and Answers

15-16

Operations and Logistics Management (Rijksuniversiteit Groningen)

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University of Groningen, Faculty of Economics and Business

Operations & Logistics Management

Exam
January 25th 2015, 09.00-12.00h
Name: ____________________________

Student Number: _____________________________

Signature: _____________________________

Please read this before you start:

During the course of the exam you are required to show your university registration card (or
an official identity card, e.g. passport etc.) to the invigilators if you are requested to do so.
This is a three hour exam. Between the start of the exam and 09:30, you may not leave the
examination room. Before leaving, you must hand in your exam.
You may only use a faculty- approved type of calculator (see website for approved types).
With the exception of your calculator, all electronic equipment must be switched off and
must remain stowed away during the full length of the exam.
When making calculations, do not round intermediate answers. For example, if you make
calculations for waiting line models, do not round the values of and before you complete
the final calculations.
Always provide sufficient argumentation for your answers.
You must formulate all of your answers in English.
Your answers must be formulated within the textboxes. Your formulations must be
comprehensible. (Parts of) answers formulated outside the text boxes will not be assessed.
An appendix containing some important formulae can be found at the end of the exam.
You are not allowed to consult any book or note during the exam and no books or notes are
in any form allowed on your desk.
Use of a dictionary is NOT allowed during the exam.
There are five questions including a bonus question. The maximum total number of points to
be earned (including possible bonus points) is 100.
Question Max. Mark Question Max. Mark
1 25 5 10
2 35
3 10
4 20
Question 2 g (bonus) 5
Total 100

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Please note that Questions 1 (25 points) and 2 (35 point) consist of large texts
that may contain a lot of redundant information but also essential information.
You must be able to distinguish information necessary in order to answer the
questions from redundant or superfluous information.

Also note that neither the examiner nor the invigilators will answers questions
with regards to the questions of this exam. If you think that information is
missing you may make assumptions about this information, but only if the
information is indeed missing.

If you have doubts about the (questions of) the exam, you are requested to
formulate these in the text box provided at the end of this exam form.

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Question 1 (Max. 25 points)

Setting off fireworks on new years eve to celebrate the end of the year is a tradition that caught
on in the 1970s. Annually the Dutch population spends about 70 million euros on 65.000 metric
tons of legal fireworks1. In some research it is estimated that an equal amount is spent on illegal
fireworks. Since the Enschede fireworks disaster, the production, storage, distribution and retail
of fireworks is strictly controlled. All facilities that are located in residential areas may only store
fireworks for a short period of time and may only store limited amounts of fireworks. A retailer
of fireworks may sell no more than 25 kgs per client and may not store over 500 kgs of fireworks
in a shop at any given time. The rest of the stored firework items must be stored in a dedicated
storage facility that requires the approval of the authorities and requires special permits when
designed to store over 10.000 kgs. All storage facilities must be equipped with a sprinkler
installation. This makes the such storage facilities expensive, especially considering the limited
use (per year only a few days). Since they are normally used only three days per year, these
storage facilities are often constructed in the days before December 28th. and taken apart after
January 1st. to make way for the regular commercial activities of the retailer. Because of the high
cost and the extensive regulations, retailers normally do not have storage facilities in excess of
10.000 kgs. Larger quantities of fireworks (over 10.000 kgs) must be stored in special bunkers
that, because of more lenient regulations, are typically located outside residential areas. Storage
of quantities over 10.000 kgs must be reported to the municipal authorities at least 4 weeks
before the fireworks are actually stored. Quantities over 200.000 kgs require an extensive safety
investigation. In the Netherlands there are about 1500 firework retailers.

Firework retailers are only allowed to sell fireworks that fully comply with all laws and
regulations. Because they cannot test fireworks themselves, these retailers must for that rely on
their wholesalers. The wholesalers must in turn (and to the extent that they are not importers
themselves) rely on the importers for the information and approval. The conformance to
legislation and authenticity of the fireworks is frequently and thoroughly inspected by dedicated
inspectors. For all parties in the supply chain, it is of the utmost importance that that all
fireworks imported, stored, distributed and sold, are in agreement with laws and regulations. For
the end consumers this is important because these individuals must be able to rely on the safety
of the fireworks. For the retailers, distributers, wholesalers and importers it is important because
any shipment or lot of fireworks that is inspected and does not meet requirements is confiscated
and must be stored and destroyed at the cost for the party in possession of the goods at the time
of inspection. So any party caught in possession of illegal fireworks not only loses the value of
the goods but also incurs the substantial costs of handling and destroying the goods after the

1
NRC: http://www.nrcq.nl/2014/12/31/vuurwerk-onomics

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goods being impounded. In addition for the person responsible for the illegal fireworks a
conviction will result in a criminal record.

In the first weeks of the year, fireworks importers collect information about the popularity of
different firework items and decide what items to continue in the portfolio and what to remove
from it. Also fireworks exhibitions and shows are visited to see if any new commercially
interesting items are introduced. Samples and specifications of any interesting items that could
potentially be added to the portfolio are requested as well as price quotations. In the first three
months of the year the requested samples are shipped to the Netherlands by the producers. The
samples are then tested in the Netherlands by certifying bodies and either approved or rejected. If
rejected, the importer will consider modifications of the item. If minor modifications will
improve the item sufficiently (for example a different fuse of a wider base, less powder,
additional labels with instructions, etc.), the producer is informed and a modified sample is
requested. Samples are then usually sent by courier so that they can be tested before the importer
finalizes the portfolio for the upcoming new years eve.

After the importer has ensured conformance of the items to the latest Dutch regulations, which
can change by the year, the importer composes its fireworks portfolio and around May, orders
are placed at the producers. These orders are based on the popularity of the items sold,
expectations about the demand for new items, the items still in stock from last year and of course
the price per item and the projected sales price (bear in mind that sometimes items are more
popular than anticipated. Since items cannot easily be restocked and will not result in back-
orders, stock-outs do not indicate how popular items are and thus the figures numbers are not
always an adequate indicator for popularity.

At the same time, the portfolio is communicated to wholesalers and retailers. These parties are
requested to place their orders before August 1st.

In September, containers with the ordered fireworks start arriving at the Dutch ports. These
containers each containing up to 25 tons of fireworks are transported to the dedicated bunkers
and samples are taken from the shipments. These samples are sent to testing institutes to get final
approval.

In December, distributers start supplying the retailers from the bunkers of the importers and
wholesalers. After Christmas, most retailers have their storage facilities filled to their legal
maximum capacity and are ready for the first day that fireworks may be sold to consumers (from
December 28th. until December 31st.). As most storage facilities of the retailers only hold 10
metric tons of fireworks, restocking takes place during these three days. Fireworks are
transported from small bunkers outside residential areas operated by the retailers themselves or
by wholesalers, and from the large bunkers owned or rented by the importers and some large
wholesalers. Between December 28th. and December 31st. an average retailer sells about 40 tons
of fireworks worth around 45.000 euros. After January 1st. temporary in-shop storage facilities

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are dismantled and unsold fireworks are transported to permanent storage facilities. Some
retailers make arrangements with their wholesalers or importers that allow them to return all
unsold items without extra costs (the value of the items being credited).

a. List all relevant parties in the fireworks supply chain mentioned in the text (max. 2
points)

Customers/client (max 25 kg of fireworks per purchase)

Retailers

Distributers,

Importers

Producers

Certifying bodies

Inspectors/government

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 b. Draw a figure to describe the supply chain of legal fireworks for The Netherlands(from

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producer to end-consumer). Indicate clearly all flows of materials and all flows of

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Government
Regulations
Norms and standards
Legislation
Certifying Bodies Norms and standards
Importer
Certification of fireworks
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Information about new products Inspection

Information about left-overs Information about popularity
Order information
information. (max. 10 points)

retailer
In stock shop
About Less
Producer Customer leaving shop with
Producer 40.000 Than
Producer less than 25 kg
10.000
Bunker Importer Bunker Wholesaler Retailer bunker retailer shop
Left-overs
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c. List and briefly describe 3 relevant types of costs of logistics for both a fireworks
retailer and a fireworks importer. (max. 5 points)

Retailer:

1. Constructing and dismantling temporary in shop bunker

2. Transporting fireworks from +10 tons bunker to in-shop bunker
3. Disposing of left-overs (returning to wholesaler/importer or destroying left-overs)
4. Internal transports (form in-shop bunker to shop)

Importer

1. Shipping costs
2. Warehouse costs
3. Costs of obsolescence of fireworks (yearly changes of legislation may render fireworks
illegal)
4. Shipping samples, maintaining contact with producers
5. Cost of communication with producers, wholesalers etc.

d. Discuss the desirability of reverse logistics and the complications of these reverse
logistics in this particular context. (max. 8 points)

Most storage facilities at the retailers are temporary. Fireworks at the retail level can thus not be
stored and must be disposed of (destroyed or sent back).

The limited timeframe may be an issue since retailers want to dismantle their instore bunkers
a.s.a.p. and must transport the fireworks to their outside bunkers or to the bunkers of the
wholesalers or importers within a few days from Jan. 1st.

Also the dilemma will be to either destroy the left-over (because of high storage costs and
possibility of changes in legislation) or to transport the goods to a bunker and store them for almost
a year at considerable costs.

Any other relevant issues

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Question 2 (Max. 35 points + max 5 bonus points)

Alloymotive is an OEM (Original Equipment Manufacturer) of alloy wheels for a number of
prestigious car manufacturers. Alloymotive also produces alloy wheels for the aftermarket. Alloy
wheels have the distinct technical advantage of lightness, resulting in a better ride, higher fuel-
efficiency and closer tire-to-road contact but Alloymotives products are generally selected for
their appearance. Being an OEM, Alloymotive must produce sufficient volumes rationally while
maintaining excellent quality and appealing aesthetics. Although alloy wheels can also be made
by the more expensive forging process or by (CNC) milling, Alloymotives wheels are made in a
patented aluminum-casting process in which molten aluminum is not poured into a mold from
the top, but rather pushed into the mold from below. This this type of injection casting reduces
the risk of inclusion of gas and impurities that might weaken the final product. Furthermore, it
turned out that an additional advantage of this process was the predictability of the process and
the ease by which it could be automated.

Alloymotives production process has seven main operation: aluminum preparation, casting, heat-
treatment, machining, testing, surface treatment and inspection & packaging:

Alloy Preparation: The alloy preparation process begins by melting ingots of pure
aluminum. For that purpose a furnace is filled with 500 kgs of aluminum ingots after which
the furnace is heated to 740 degrees centigrade. It takes 25 minutes for the ingots to melt and
the fluid to reach the desired temperature. After these 25 minutes, the contents of the furnace
are transferred to a degassing mixer. By ventilating the liquid aluminum with argon,
hydrogen is removed. Since hydrogen results embrittlement of the product and thus in poor
casting quality, this is a crucial process step that is often skipped by producers of cheap
aftermarket wheels. Degassing requires 2 minutes. After degassing, powdered additives or
sticks of master alloys such as silicon, magnesium and titanium are introduced into the
liquid to compose the correct alloy. Then a flux is added to the liquid alloy. This flux is
mixed into the alloy, but after mixing the flux rises to floats on top of the liquid. It serves two
purposes: preventing the liquid aluminum from coming into contact with oxygen in the
ambient air and absorbing contaminants (usually oxides) in the aluminum. Adding the
addition of master alloys and the flux, mixing is started. The alloy is mixed for 4 minutes.
Adding the master alloys takes 2 minutes while adding the flux takes merely one minute.
After the mixing process, the flux is skimmed from the surface and the purified alloy is ready
for casting. Skimming takes another minute.
Casting: Casting is done in steel wheel-molds. Whereas traditional magnesium wheels were
cast in green sand, modern wheels are cast in steel molds. Steel molds are expensive and
contrary to sand molds do not allow for quick modifications of the products to be cast. But
since the steel wheel molds are re-usable, these molds allow for rationalized mass production
of wheels. Furthermore, the steel molds allow for a highly predictable production process
with excellent control of the products surface properties. A wheel mold consists of six parts
that together form the mold. A lower mold that forms the inside of the wheel, the four side-
mold parts that form the bed in which the tire will later settle, and the top-mold that forms the
outside of the wheel (the outer face) and that determines the appearance of the wheel. The
cost of a steel mold is high. It takes about one month to produce a mold. But a mold may last

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up to a thousand wheels and when it starts producing too many defective wheels it can
usually be refurbished after which it is ready to produce another run of up to a thousand
wheels. Casting one wheel requires 10 minutes. For each run of ten wheels, 100 kg of liquid
aluminum at the time is poured from the mixer into the casing machine. Pouring the alloy
into the machine does not interfere with the casting process. Per wheel 10 kg of aluminum
are pushed upwards into the mold. An excess amount of aluminum is used that flushes the
mold of impurities and that forms so-called riser that compensate for the shrinking of the
aluminum during the process of solidification. After remaining in the mold for 8 minutes the
aluminum has solidified cooled sufficiently. The mold is then opened and the wheel is taken
out. The mold is inspected and prepared for making another wheel. The pressurized injection
casting process itself requires just on minute. Removing the ready cast wheel requires
another minute. After being released from the mold, the wheel is immediately immersed into
a basin of warm water where it remains for tree minutes. In those three minutes, the
temperature of the wheel is reduced to 30 degrees centigrade.
Heat treatment: After cooling to 30 degrees, the wheels can be handled by hand. The
wheels are taken from the basin, put on carts and sent to the heat treatment department. There
they are collected until a lot of 20 wheels is formed. This lot is placed on a dedicated cart and
the cart holding 20 wheels is wheeled onto a heat-treatment line that consists of a series of
ovens and quenching basins and that provides the desired heat treatment characteristics. (The
company has several heat treatment lines for different types of wheels). Heat treatment
involves a complex, pre-programmed sequences of heating and cooling that is especially
developed to release stresses built up during the solidification phase of the casting process
and to increase the strength of the wheel. First the wheels are heated to 510 degrees
centigrade (annealing). This takes one hour. Then cart with the wheels is taken out of the
oven and submerged into cold water for 30 seconds for quenching. To relieve the wheels of
stresses introduced by the heating an quenching process, the wheels are reheated to about 150
degrees in another oven. The wheels remain in this oven for 9 hours. Heat treatment requires
12 hours in total (from the moment the carts enter the first oven until the same cart leaves the
re-heating oven). On average, the wheels remain on the cart for 100 minutes before being
wheeled onto the heat treatment line. They also rest on average for 100 minutes on the same
cart before taken of to be machined.
Machining: When arriving from the heat treatment department, The castings are still rough,
risers are still attached and the dimensions, need to be precisely machined. Also the holes for
the wheel bolts must be drilled as well as a hole for the valve. Therefore, the wheels are
manually placed on a vertical CNC lathe and the wheels are automatically machined to the
required dimensions. All machined dimensions need to be within half a millimeter of the
specified size, but the 3 sigma control limit of the lathe is 0.05 mm. The machining cycle
(including the mounting of the wheel on the lathe and the removal of the wheel requires two
and a half minutes. When the wheel is released from the lathe it is put on a cart. When 20
wheels are on a cart, this cart is transported to the deburring station where the visible outside
of the wheel is manually deburred (sharp edges rounded) with a sharp blade. Deburring
requires some skill, but a trained worker can deburr one typical wheel in one minute without
damaging the wheel.
Testing: The processes of injection casting and machining are well controlled and the
nominal dimensions (the design) include a large safety margin, so there is no need to
individually test all wheels with X-raying and/or ultrasound inspections. Nevertheless, the

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wheels are checked for air-tightness (all modern wheels are used with tubeless tires, small
leaks in the casting would result in a flat tire). This test is performed by sandwiching the
wheel between two rubber-clad steel plates and admitting air while submerging the wheel in
water. A visual inspection that takes one minute per wheel reveals whether the wheel is air-
tight (no bubbles) or must be discarded. Wheels that pass the inspection are allowed to dry
and collected to be transported to the coating department. For that they are again put on carts
that hold 20 wheels each. The wheels can dry while being positioned on the cart, but to avoid
moisture from the testing department entering the coating department, all wheels must
remain in the testing area for at least one hour after testing.
Coating: In the coating department, the wheels are taken from the carts and put on special
jigs that are then entered into a fully automated coating line in which the wheels are coated
one-by-one. The jigs allow the wheels to be spun while being coated. First a layer of
protective basecoat is applied. After that, the final color coat is applied. The coating process
is wet in wet, indicating that the protective basecoat does not need to dry or solidify before
the color coat is applied. The coating line can handle 4 wheels per minute and the whole
coating process takes 20 minutes. At the end of the coating line the wheels are dry and ready
for a final inspection and packaging. Transport from the coating department to the packaging
department is done by the ubiquitous carts that hold 20 wheels.
Final Inspection and Packaging: The packaging department doubles as a quality inspection
department. The wheels that are taken from the carts by which they are brought in from the
coating department are visually inspected by a worker before they are put in a protective
plastic bag and packed individually into cardboard boxes. Wheels with small but not unusual
flaws are marked (normally the quality flaw are coating imperfections that are inherent to the
process), collected on a standard cart and sent to the quality department. Alternatively, the
coating department is notified immediately when serious irregular flaws or defects are noted
(which can be caused by for instance blocked nozzles in the spraying equipment). No
imperfect wheel is allowed to be put into a protective bag. Also, every hour a wheel is
randomly selected (it then becomes a so-called SQC-wheel), marked with a yellow SQC-
label and sent to quality department. Every randomly selected SQC-wheel is extensively
tested for dimensions, strength, coating quality and thickness, airtightness etc.. etc. After
testing the SQC-wheels are scrapped. Testing of an SQC wheel requires 4 hours. Standard
visual inspection and packaging requires 2 minutes per wheel.
Warehouse: After packaging the wheels are sent to the warehouse where the OEM wheels
remain for an average of one week.

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 a. Make a sketch depicting the operations and the material flows, indicate the batch sizes

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at each stage (including internal transport), the process type at each stage and the time
required to execute the respective operation(s). Also depict each intermediate stocking

Capacity Capacity
Capacity
1200 kg/ 6000 kg/ Casting Capacity
Machine
furnace*hour Alloy Preparation
Not a constraint
mixer*hour 250 60 kg/ Cooling
Aluminum 120 wheels/ 600 wheels/ 50 Casting Machine
machine*hour
point with its required stock capacity. Use standard symbols. (Max. 10 points)

ingots furnace*hour Batch is 500 kgsmixer*hour kgs 6 wheelsMachine

/
50

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250 Casting
kgs machine*hour
50
500 kgs Batch = 1wheels
Batch = 10
Raw materials Warehouse alloy kgs
On average 250 kgs On average 50 kgs in the
In the mixers casting machines 3 Minutes per wheel
3 minutes per 10 kgs
Capacity 25 minutes 10 minutes 10 minutes per wheel
Capacity
60 wheels/ 500 kgs 500 kgs 10 minutes per 10 kgs Capacity
24 wheels/
man*hour Not a constraint
machine*hour Capacity
Not a constraint although carts 20
Not a constraint remain in oven
Deburring (several lathes) (several wheels
20 Vertical Lathe 20 for up to 9 hours
Heat treatment
treatment lines)
Deburring wheels wheels Cart
20 Vertical Lathe 20 100 min
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Batch = 20
Batch = 1 wheels
Cart Vertical Lathe wheels
Cart On Cart
Cart Vertical Lathe Cart
100 min
1 minute per wheel Batch = 1 On Cart 720 minutes Capacity
Batch 20 30 wheels/
man*hour
20
20wheels 2,5 minutes per wheel Packaging
20 Capacity
wheels Capacity
wheels
Cart 60 wheels/ Batch = 1
testbed*hour 240 wheels per
Cart
Cart hour
Testing Coating 20
20 wheels
Testing
Batch = 1 20
wheels Batch = 1 20
wheels wheels
Cart
2 min per wheel
Cart 20
wheels
Cart Cart
Cart
1 minute per wheel 20 minutes per wheel
Finished goods
Warehouse
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b. What is the average throughput time of a wheel? Clearly show your calculation! ( (Max. 5
points)

If all times in inventory and all processing times are known, throughput time can be calculated by
simply adding the inventory and process times. In this case, inventory times are not known since no
buffers/stock sizes are provided.

Another observation : A batch of 500 kg of aluminum, in 25 minutes is turned 5 batches ((in effect 5
minutes per batch of 100 kg. to be fed into the casting machines) and these batches are each turned
into 10 wheels. Because this term (5 minutes)* is relatively small in comparison to the time spent in
for instance heat treatment (12 hrs), and given the need to make assumptions about times in
intermediate inventory this is of no consequence for the calculation of the total throughput time.

Alloy Prep: 35 min*

Casting: 10 min

Heat treatment 720 min

Machining: 2,5 min.

Testing: 1 minute

Coating: 20 min.

Insp. & Pack: 2 min.

Total: 790 min. = about 13-14 hours not counting intermediate stocks

Including waiting before and after heat treatment add 200 minutes

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c. Assuming that the coating line has a fixed capacity and the line needs to run with a high
degree of utilisation, how many casting machines would you expect to see in this factory?
(Max. 5 points)

Capacity of coating is 240 wheels/hour.

Capacity of the casting machines is 6 wheels/hour so from a simple calculation it follows that for the
coating line to become the bottleneck, at least 240/6 = 40 machines are required.

Note: This may seem excessive. In practice, the hot part of the factory (alloy preparation, casting)
will work 24/7 whereas the coating line may work (on a day shift) as little 8 hours a day with change-
overs and maintenance performed outside this period.

d. If the dimensions of a wheel do not fall within the tolerances indicated by the design, a
wheel must be rejected. Please discuss the suitability of the automated vertical CNC-
lathes for the process of making wheels to specifications. (Max. 5 points)

Required (Specification limits): +/- 0,5 mm

3 control limits: +/- 0,05 mm

The control limits are a factor 10 smaller than the specification limits. This indicates that the vertical
lathes are more than up to the job and possibly even over-engineered.

Information: The reason why the tight control limits are nevertheless maintained could be in the
type of tool-bits used (generally CBN). Small deviations from normal (in excess of 3) could be
indications for catastrophic failure of the tool bits to be expected soon. Hence the tight control limits
are maintained despite being overly tight for the specifications.

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e. Considering the information provided about the vertical CNC-lathes, when would the
operators stop these lathes because of suspicion of problems with the lathe? In your
answer use the concepts Upper and Lower Control limits and Upper and Lower
Specification Limits and quantify these if possible (Max. 5 points)

3 control limits: +/- 0,05 mm

Whenever data from sampling indicate non-normal , non-random behavior. This will be when
samples exceed the 3 control limits.

Apparently, the sigma of the machining process is 0,05/3= 0,0167 mm

The interventions in the machining process are not determined by the specification limits.

Information: Note that the control limits are so tight when compared to the specification limits, that
the machining process allows for a lot of drift. (the process may run off-center quite substantially,
without jeopardizing the quality of the products). In this type of processes (handling products that
may vary in temperature a lot and thus cause quite a lot of drift) this may be a welcome aspect.

f. Could this production benefit from the introduction of a KanBan system? Whatever
your answer, provide relevant argumentation! (Max. 5 points)

KanBan is especially helpful in making a process pull-controlled or turning a push-system into a pull
system and thus to reduce (intermediate) stock levels. OEM is generally quite predictable and from
the text it follows that the product remain in final stock for 1 week on average (which is not
excessive). It is questionable whether the introduction of KanBan would improve the system
dramatically. However, it could be that this process has large intermediate stocks and that KanBan
would reduce those.

Not one single correct answer. Your argumentation would determine the number of points scored.

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g. Bonus question: Assuming a four-shift production system in which the factory operates
24/7 and the coating line forms the bottleneck, what would the required capacity of the
warehouse be? Show your calculations! (max. 5 points).

Coating line operating 24/7 @ 4 wheels/minute: 5760 wheels per day, 40320 wheels per week.

Normal throughput would be 40320 wheels per week and these wheels remain in stock for 1 week
on average: Warehouse must be able to accommodate a weeks production = 40320 wheels

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Question 3 (Max. 10 points)

Suppose that you are the owner of the small shop that sells healthy fruit and vegetable drinks. You
employ a number of students to staff your shop, but in the current situation there is at any time just one
employee who takes the orders and prepares and sells the drinks. You may assume that the arrival of
customers at the shop is Poisson-distributed and that the average inter-arrival time is 4 minutes 10
seconds (Poisson distributed arrivals). Customers can choose from a great variety of drinks and they can
even compose drinks to their own taste, but on average it take an employee 2 minutes 30 seconds to take
an order, prepare the drink and serve the customer. You may assume that this service time is negative
exponentially distributed. The shop is popular and no renegading or balking is observed.

a. In this ORIGINAL SITUATION, How long will customers wait on average from the
moment they enter the shop until they can actually start enjoying their drink? Show
your calculations! (Max. 3 points)

Essentially the same question as last years Q3, but with different numbers

M/M/1 system

wait on average from the moment they enter the shop until they can actually start enjoying their
drink implies Ws. (time in system)

Ws= 1/(-)

= 3600/250 = 14.4

= 3600/150 = 24

Ws= 1/(24-14.4)=1/9.6 = 0,1041 hr = 6,25 min.

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As an owner, you would like to improve the service provided and you are considering to employ two
employees in the shop at the same time. Since the shop is large enough this is feasible, however, since
they would then be using the same machines and be in each others way some of the time, you must
assume that the productivity of the employees drops 25 percent.

b. What will the waiting time on average be in the CONSIDERED SITUATION in which two
employees are employed, but in which there is still only one service point (single queue)? Again,
show your calculations!. (Max. 2 points)

Again, same question (Q3) different numbers.

Arrival distribution remains the same = 3600/250 = 14.4, but = is changed. Without the effect on
productivity, capacity would double and the time needed to serve a customer would halve (from 150
seconds to 75 seconds) taking the drop in productivity into account, serving time would decrease to
100 seconds

= 0,75*3600/150 = 48 * 0,75 = 36

= 14.4

= 36

Again M/M/1

Ws= 1/(36-14.4)=1/21.6 = 0,1041 hr = 2,78 min.

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A lecturer who is not a great fan health foods proposes to only sell pre-prepared drinks as this would
possibly increase profits. In this PROPOSED SITUATION, customers can then no longer compose
their own drinks and can only choose from those available. After doing some field research, you assume
that it will then require exactly one minute to serve a customer. You also know that a number of
customers only want drinks made to their own special recipe and you hence assume that you will lose 20%
of your customers. Assume that in all situations every drink sells for 4. The fruit and vegetables to
prepare a drink cost 1 per drink while an employee costs 20 per hour. Cost of service is assumed to be
covered by the wages of the employees, but the loss of goodwill due to customers waiting in queue are
estimated to be 0.30 per minute.

c. Which of the two options, "ORIGINAL", or "PROPOSED" is economically most

healthy? Support your answer with exact calculations of expected profits for both
situations. (Max. 5 points)

And, again, the same question with different numbers

The change (improvement) concerns changing from an M/M/1 system to an M/D/1 system.

The consequence for the inter-arrival times (because of decreased customer demand of 20% ) is
1.2 * 250 sec = 300 sec.

= 3600/300 = 12

Service time is reduced to 1 minute, hence, becomes 60

In the old situation, with = 14.4 and = 24, Wq is / ( - ) = 14.4/24(24-

14.4)=14.4/(24*9.6)= 0,0625 hr = 3,75 min.

In the new situation, with = 12 and = 60 in an M/D/1 system Wq is /2 ( - ) =

12/(120*48) = 0,0021 hrs = 0,125 min.

Profit Original Situation: Gross profit per drink = 3,- Per hour: * 3,- = 14.4 * 3,- = 43,20.
Costs: employee 20 per hour; waiting costs 0.30 per minute per customer so, per hour, with
14.4 customers arriving per hour all waiting for (on average) 3,75 min: 16,2 is a total of 36,20
and thus a net profit of 43,20 - 36,20 = 7,- per hour

Profit in Proposed situation: gross profit per drink: = 3,- Per hour: * 3,- = 12 * 3,- = 36,-.
Costs: employee 20 per hour; waiting costs 0.30 per minute per customer so, per hour, with
12 customers arriving per hour all waiting for (on average) 0,125 min: 0,45 is a total of 20,45
and thus a net profit of 36,00 - 20,45 = 15,55 per hour

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Question 4 (Max. 20 points)

a. The concept of 6 was discussed in chapter 10. Make clear what the essence of the
6 approach is. Use both the concepts of Control and Specification in your answer
(Max. 5 points)

Making sure that the process is so capable that the chance of producing outside of specifications is
very small. The essence of a six sigma process is thus not in controlling the process but in having a
process with very small sigma relative to the specification limits.

Control limits that are well within the specification limits are an indication of high process
capability. In case of 6 capability, the control limits are maintained at 3 while the specification
limits because of the properties of the process and the product requirements (specifications)-
happen to be at 6 from the nominal specification. That is twice that of the control limits which
explains the capability of 2.

b. The triple bottom line consists out of three core elements. Mention and discuss the
relevance of these three elements. (Max. 5 points)
Social responsibility, Environmental responsibility, Economic responsibility: People, Planet, Profit.

Reference to Domain Consensus: the exchange relationship that the organization maintains with
its environment: The organizations takes from the environment (resources, materials) and returns
to the environment and the balance must be positive.

Reference to constraints: organizations must be 1) economically profitable, must 2) not drain the
environment from resources or pollute the environment (rob the environment) and must care
about individuals and society.

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c. Discuss why delays in information may result in the so-called Bullwhip effect. (Max.
5points)

Examples may be used to clarify how delays in information in the ordering process may result the so-
called bull-whip effect, but the essence is that as long as the delay in information lasts (technically
the dead-time) the process of that moment is not controlled (the process is controlled on the basis
of old and possibly obsolete information). Old information may warrant extra ordering whereas the
current information could result in the opposite.

For your information: if the delays are sufficiently large they can result in oscillations of the system
whose magnitude are only limited by the constraints of the system.

d. Discuss why the purchase of a cheaper product can result in higher Total Cost of
Ownership. In your answer use all three components of the Total Cost of Ownership. (Max 5
points)

Purchasing cost are but one factor in the total cost of ownership (the other two being the cost of
disposal (cost of post-ownership) and ownerships costs (or the cost of actually having something).
Low purchasing costs can be the result of buying something that requires very high maintenance
costs. (As an example, some companies can be purchased at the symbolic price of 1,- providing that
the company is maintained without firing employees). A low buying price can also be caused by
excessive costs of getting rid of the item in the future.

Essential: mentioning the three components of the total cost of ownership (3 points)

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Question 5 (Max. 10 points)

Jars of strawberry jam are filled in a filling station of a jam-production line. Regulations state that the
long term average of the amount of jam in the jars must at least be 450 grams and that the actual weight
may vary between 445 and 455 grams. Before the jars are packed in boxes, some jars are randomly taken
and the net weight of their contents measured.

a. What are the values of the USL and LSL? (Max. 1 point)

445 = Lower Specification Limit

455 = Upper Specification Limit

By means of frequent sampling of jars of strawberry jam, an X-bar chart has been constructed. The
average net-weight was determined to be 452 grams. Upper- and Lower Control limits were set at + and -
6 grams from the process centerline

b. Determine the Process Capability Index for this strawberry jam filling station (show
your calculation) and use this index to determine what management should do in short
and in long term. (Max. 3 points)

Control limits are set at 3 and the process centerline is found to be at 452 grams ( = 2 grams)

CPK = Process Capability is min{(USL-Xbar)/ 3 ; (Xbar-LSL)/ 3 } = min{455-452)/6 ; (452-

445)/6} = min{3/6 ; 7/6) = 0,5 (which is quite lousy)

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c. What would be your conclusions about the consequnces of the established average
weight in the jars? (Max. 3 points)

The weight is on average 2 grams too high, so the company is losing money (although a little bit).

Furthermore, the drift/shift of the average away from the nominal value of 450 grams decreases
the process capability (as shown in Q5b)

d. What recommendations do you have for the operators of the line with regard to 1) the average
net weight and 2) the of the process? (Max. 3 points)

Adjust the average weight. This will improve process capability and profit per jar.

Operators are not in a position to do something about the of the process as this is inherent to the
particular process. Improving process could require changing the product, improving the
machines etc. Strategic or tactical interventions but no tasks for operators on the operational level

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Observations about the exam. Please use this box in case you believe one or
more questions are flawed.

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Appendix: a few formulas

Calculating WIP:
L = W
n

WIP = X
i 1
i i

M/M/1 formulas

LS

1
WS

2
Lq
( )

Wq
( )

k 1

Pn k

M/D/1 formulas
(2 )
LS
2( )

2
WS
2( )

2
Lq
2( )

Wq
2( )

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Statistical Quality Control

X-bar Chart: UCL X X A2 R

LCL X X A2 R

R-Chart: UCLR D4 R
LCLR D3 R

p(1 p )
P-chart: UCL p 3
n
p(1 p )
LCL p 3
n

USL LSL
Process capability: Cp
6s

USL X X LSL
C pk min ;
3s 3s

Sample size (n) A2 D3 D4

2 1.880 0 3.267
3 1.023 0 2.575
4 0.729 0 2.282
5 0.577 0 2.115
6 0.483 0 2.004
7 0.419 0.076 1.924
8 0.373 0.136 1.864
9 0.337 0.184 1.816
10 0.308 0.223 1.777
12 0.266 0.284 1.716
14 0.235 0.329 1.671
16 0.212 0.364 1.636
18 0.194 0.392 1.608
20 0.180 0.414 1.586
22 0.167 0.434 1.566
24 0.157 0.452 1.548

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