Matching Supply with Demand: An Introduction to Operations Management
4e
 
Solutions to Chapter Problems
 
Chapter 2
The Process View of the Organization
 
 
Q2.1 Dell
The following steps refer directly to Exhibit 2.1.
#1: For 2001, we find in Dell’s 10-k: Inventory=$400 (in million)
#2: For 2001, we find in Dell’s 10-k: COGS=$ 26,442 (in million)
#3: Inventory turns=  = 66.105 turns per year
#4: Per unit Inventory cost == 0.605% per year
 
Q2.2. Airline
      We use Little’s law to compute the flow time, since we know both the flow rate as well as the inventory level:
Flow Time = Inventory / Flow Rate = 35 passengers / 255 passengers per hour = 0.137 hours
      = 8.24 minutes
 
Q2.3 Inventory Cost

1. Sales = $60,000,000 per year / $2000 per unit = 30,000 units sold per year

      Inventory = $20,000,000 / $1000 per unit = 20,000 units in inventory
 
      Flow Time = Inventory / Flow Rate = 20,000 / 30,000 per year = 2/3 year = 8 months
      Turns = 1 / Flow Time = 1 / (2/3 year) = 1.5 turns per year
                                                                               
      Note: we can also get this number directly by writing: Inventory turns=COGS/ Inventory


(b) Cost of Inventory: 25% per year / 1.5 turns=16.66%. For a $1000 product, this would make an absolute inventory cost of $166.66.
 
Q2.4. Apparel Retailing

(a) Revenue of $100M implies COGS of $50M (because of the 100% markup). Turns = COGS/Inventory = $50M/$5M = 10. 
(b) The inventory cost, given 10 turns, is 40%/10 = 4%.  For a 30$ item, the inventory cost is 0.4 x $30 = $1.20 per unit.


Q2.5. La Villa

1. Flow Rate = Inventory / Flow Time = 1200 skiers / 10 days = 120 skiers per day

 

2. Last year: on any given day, 10% (1 of 10) of skiers are on their first day of skiing

This year: on any given day, 20% (1 of 5) of skiers are on their first day of skiing
 
Average amount spent in local restaurants (per skier)
Last year = 0.1 * $50 + 0.9 * $30 = $32
This year = 0.2 * $50 + 0.8 * $30 = $34
% change = ($34 - $32) / $32 = 6.25% increase
 
 

Q2.6. Highway

We look at 1 mile of highway as our process. Since the speed is 60 miles per hour, it takes a car 1 minute to travel through the process (flow time).
There are 24 cars on ¼ of a mile, i.e. there are 96 cars on the 1 mile stretch (inventory).
Inventory=Flow Rate * Flow Time: 96 cars=Flow Rate * 1 minute
Thus, the Flow Rate is 96 cars per minute, corresponding to 96*60=5760 cars per hour.
 
 

Q2.7. Strohrmann Baking

The bread needs to be in the oven for 12 minutes (flow time). We want to produce at a flow rate of 4000 breads per hour, or 4000/60=66.66 breads per minute.
 
Inventory=Flow Rate * Flow Time: Inventory=66.66 breads per minute* 12 minutes
Thus, Inventory=800 breads, which is the required size of the oven.
 
Q2.8. Mt Kinley Consulting
 
We have the following information available from the question:
 

Level	Inventory (number of consultants at that level)	Flow Time (time spent at that level)
Associate	200	4 years
Manager	60	6 years
Partner	20	10 years