BUSMGT 724 / Global Operations Management Midterm

EMAIL ADDRESS @aucklanduni.ac.nz

(UPI)

READ THESE INSTRUCTIONS BEFORE COMMENCING:

1. Notes can be made on the first page of this answer booklet. The page is labelled
“NOTES ONLY These will not be marked"
2. This test is worth 30% of the final grade of this course
3. This test has a maximum of 50 marks and you have 75 minutes to answer.
4. This test consists of five questions. You must attempt ALL questions.
5. A summary of the questions and marks have been provided in the next page.
6. This is a closed book test. ONLY an A4 sheet with formulae/notes is allowed.
7. You may use a calculator with cleared memory, but computers are not allowed.
8. Standard normal table (Z-table) will be provided
9. Answer each question in the appropriate labelled section.
10. If you require additional answer pages, overflow pages are provided at the end of
this booklet.

DO NOT REMOVE ANY PAGES FROM THE ANSWER BOOKLET.

 Summary of Test Questions Marks

Q 1: Inventory of XYZ Corp 3

Q 2: Kristen’s lead time 8

Q 3: Operating room schedule 12

Q 4: Inventory Policy 15

Q 5: London Underground 12

Total marks for the test 50

NOTES ONLY: These will not be marked

QUESTION 1 [3 marks]
XYZ Corporation’s financial statements reveal that for their best selling
product, the “Cost of Goods Sold” over the last one year was $6 million,
and they turn their inventory 6 times a year. What is your estimate of
their average inventory of this best-selling product?

QUESTION 2 [8 marks]
Kristen and her roommate are doing well in their cookie business, but
they receive a common complaint from customers – the long lead time
between placing order and receiving deliveries. To address this problem,
Kristen has decided to bake some of the more popular variants of cookie
to stock (make-to-stock) and have them available. What are the
potential risks and benefits of this move, both from a strategic and
operational point of view? How would this alter the performance
objectives that Kristen had chosen to compete on? [Please write in full
sentences]
QUESTION 3 [12 marks]
“In 2002, the operating rooms at St. John’s Regional Health Center, an
acute-care hospital in Missouri, were at 100 percent capacity. When
emergency cases—which made up about 20 percent of the full load—
arose, the hospital was forced to bump long-scheduled surgeries. As a
result, according to one study, doctors often waited several hours to
perform two-hour procedures and sometimes operated at 2 a.m., and
staff members regularly worked unplanned overtime. The hospital was
constantly behind.
Administrators brought in an outside advisor, who came up with a rather
surprising solution: Leave one operating room unscheduled, (keeping it
available for emergency cases). To many, this seemed crazy. The facility
was already being squeezed, and now comes a recommendation to take
away even more capacity? Yet there was profound logic to this
recommendation..” - Source: Strategy+Business
Required: Using operations management principles, explain how this
recommendation could help improve the hospital’s performance. What
are the benefits and risks that you see with this plan? Justify your
answer. [Please write in full sentences]
QUESTION 4 [15 marks]
You have been newly appointed as an inventory manager and you are
investigating the existing inventory policies. You notice that for a certain
item, a fixed quantity order of 2000 is placed whenever the inventory
drops to 2200 units. You have learnt that this item costs $400 per unit,
average weekly demand of the item is 1000 units, standard deviation of
weekly demand is 200 units, annual inventory holding cost is 20% of item
cost, fixed ordering cost is $300, and lead time is 2 weeks. [Assume 52
weeks in a year]
a) What is the cycle service-level (in-stock probability) that this policy is
fulfilling? [5 marks]
b) What changes would you make to this policy to ensure that overall
inventory related costs are minimised while fulfilling 95% cycle service-
level? (Assume you are still using a fixed-quantity order policy) [5 marks]
c) If you were to use a fixed-period ordering system, with orders
placed once every 4 weeks, then what would be the target inventory
level that would fulfil 95% service level? [5 marks]
Part A [5 marks]
 Part B [5 marks]

Part C [5 marks]
QUESTION 5 [12 marks]
In 2016, there was a three-week long experiment conducted at
Holborn Tube station (underground commuter train) in London.
Between 8:30 and 9:30 a.m., passengers taking the escalator were
asked to stand on the escalator, and not walk up the steps of the
escalator. (The passengers mostly complied, though some were
unhappy). Results of the experiment were somewhat counter-
intuitive. The same escalator that carried 12,745 passengers
between 8:30 a.m. and 9:30 a.m. during a normal weekday, for
example, carried 16,220 passengers during the same hour during
the experiment, when the escalator was designated standing only. -
Source: The Guardian, 16-Jan-2016
a) How would you explain this apparent anomaly that the capacity
of an escalator increases when all passengers are standing and not
walking? [6 marks]
b) Under what situations would “standing only” escalators be
helpful? Would you recommend “standing only” rules for escalators
at all times and at all stations? Please provide reasons. [6 marks]
Please write in full sentences.

Part A [6 marks]
Part B [6 marks]
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