Course title

Semester
Assignment
Due Date
Total Marks

:
:
:
:
:

Operations and Service Management

Fall 2011 MBA Term 4
One
Friday, September 23, 2011
5+5+18+7+10+5 = 55

1. You wish to compete in the super premium ice cream market. The task is to determine
the wants of the super premium market and the attributes/hows to be met by their
firm. Use the house of quality concept.
Market research has revealed that customers feel four factors are significant in making
a buying decision. A rich taste is most important followed by smooth texture, distinct
flavor, and a sweet taste. From a production standpoint, important factors are the
sugar content, the amount of butterfat, low air content, and natural flavors. Assign
customer importance ratings from conducting a small survey in your own classroom or
in other semesters. High relationship = 5, medium = 3 and low = 1.
Conclude on your findings from this House of Quality tool.

High butterfat

Smooth Texture

Distinct flavor

Sweet taste

19

Natural flavor

Sugar content

Rich Taste

Low air content

Ratings

One possible solution for this problem is:

1
5

23

13

Looking at the house of quality tool, we can see that high butterfat level and sugar
content score the highest. So the company should focus on these two product attributes
in order to satisfy customer needs. Therefore most importance should be given to these
two factors to get a competitive edge.
2. Michaels Engineering, Inc. manufactures components for the ever-changing notebook
computer business. He is considering moving from a small custom design facility to an
operation capable of much more rapid design of components. This means that Michael
must consider upgrading his CAD equipment. Option 1 is to purchase two new desktop
CAD systems at $100,000 each. Option 2 is to purchase an integrated system and the
related server at $500,000. Michaels sales manager has estimated that if the market
for notebook computers continues to expand, sales over the life of either system will

be $1,000,000. He places the odds of this happening at 40%. He thinks the likelihood
of the market having already peaked to be 60% and future sales to be only
$700,000. What do you suggest Michael do and what is the EMV of this decision?
ANS:

The EMV for the desktop systems is $620,000 vs. $320,000 for the integrated system.
Therefore, Michael should purchase the desktop systems.
3. Westover Electrical, Inc., is a medium-size manufacturer of wire windings (used in
transformers) in making electric motors. Joe Wilson, VP operations, has experienced
an increasing problem with rejected product found during the manufacturing
operation. Im not sure where to begin, admitted Joe at the weekly meeting with his
boss. Rejects in the Winding Department have been killing us the past two months.
Nobody in operations has any idea why. I have just brought in a consultant, Roger
Gagnon, to take a look at the situation and make recommendations about how we can
find out what is going on. I dont expect Roger to make technical recommendations
just see if he can point us in the right direction.
Gagnons first stop later that day was the production floor. His discussions with the
production supervisors in the Winding Department indicated that they had no real
grasp of what the problem was or what to do to correct it. A tour of the winding
operation indicated that there were three machines that wound wire onto plastic cores
to produce the primary and secondary electric motor windings. After inspection by
quality control (QC), these windings then went to the Packaging Department.
Packaging personnel, Gagnon found, inspect their own work and make corrections on
the spot. The problem is that too many windings are found to be defective and require
reworking before they can be packaged.
Gagnons next stop was the Quality Control Department, where he obtained the
records for the past months Winding Department rejects.

TABLE 1. Transformer Reject Log: Winding Process

No. of Reject Units by Cause
No
Failed
Inspections
Bad Twisted Broken Abraded Wrong Wrong
Inspected Winder
Electrical
Wind
Wire
Leads
Wire
Core Wire
Test
1
100
1
1
0
4
1
0
0
1
2
100
2
2
1
0
0
1
5
0
3
100
3
0
0
0
1
0
0
3
4
100
1
0
1
3
0
0
0
0
5
100
2
3
1
0
0
2
3
0
6
100
3
0
0
1
2
0
0
0
7
100
1
1
0
0
2
0
0
0
8
100
2
0
0
0
0
0
3
0
9
100
3
0
0
1
2
0
0
3
10
100
1
0
0
1
0
0
0
0
11
100
2
0
0
0
0
0
2
0
12
100
3
0
0
0
3
1
0
3
13
100
1
0
1
5
0
0
0
0
14
100
2
0
0
0
0
0
2
1
15
100
3
0
0
0
3
0
0
2
16
100
1
0
0
2
0
0
0
0
17
100
2
0
0
0
0
0
1
0
18
100
3
0
0
0
3
0
0
3
19
100
1
0
1
5
0
0
0
0
20
100
2
0
0
0
0
0
1
0
100
3
0
0
0
1
0
0
4
21
22
100
1
0
0
6
0
0
0
0
23
100
2
1
0
1
0
1
0
0
24
100
3
0
0
6
1
0
0
4
100
1
0
0
4
0
0
0
0
25

fraction
defects
0.08
0.11
0.07
0.05
0.11
0.06
0.04
0.05
0.09
0.02
0.04
0.10
0.07
0.05
0.08
0.03
0.03
0.09
0.07
0.03
0.08
0.07
0.05
0.14
0.05

a. Prepare an outline for Shambhu Pradhans report. What charts or graphs might be
included in the report? You could use z=2 confidence level.
b. Prepare Shambhus recommendation, with justification, on one page.
(12+6)
p-Chart
p = 166/2500 = 0.066
p = sq rt [(p (1 p ))/n] = sq rt [(0.066x0.934)/100] = 0.025
UCL = p + zp = .066 + 2x.025 = 0.116
LCL = p - zp = .066 - 2x.025 = 0.016

From the p-chart it can be seen that since one of the points (sample no 24) lies outside the
upper control limit, this is due to some assignable cause and therefore we can conclude
that the process is not within control.
Pareto Chart
Type of Defect
No of defects
Winder
49
Broken Leads
39
Faiuled Electric test
24
Abraded Wire
19
Wrong wire
17
Bad wind
8
Twisted wire
5
Wrong Core
5
166

% of defects
29.52%
23.49%
14.46%
11.45%
10.24%
4.82%
3.01%
3.01%
100.00%

From the Pareto chart, it is clear that the major causes of the defects are winder
and broken leads. If these two problems are taken care of, the total number of
defects will reduce by about 53%.
4. Chicago Supply Company manufactures paper clips and other office products.
Although inexpensive, paper clips have provided the firm with a high margin of
profitability. Samples of 200 were taken and the numbers of defects in the last 10
samples were as follows: 5, 7, 4, 4, 6, 3, 5, 6, 2 and 8. Establish upper and lower
control limits to reflect a 99.73% confidence level? Is the process in control?

ANS:
Sample No
1
2
3
4
5
6
7
8
9
10

No of defects
5
7
4
4
6
3
5
6
2
8
50

Fraction defective
0.025
0.035
0.020
0.020
0.030
0.015
0.025
0.030
0.010
0.040

= Total no of defects Total no of pcs inspected

= (5+7+4+4+6+3+5+6+2+8) (10 * 200) = 0.025

p (1 p) / n = ((0.025*(1 0.025)) / 200) = 0.011

A 99.73% confidence level would reflect a z value = 3

UCL = p + 3p = 0.025 + 3*0.011 = 0.058
LCL = p - 3p = 0.025 - 3*0.011 = - 0.008 = 0 (no negative UCL's permitted)

Plotting the fraction defectives (no of defects in each sample divided by the
sample size i.e. 200), we see that all points fall within these two control limits, and
hence we can conclude that the process is in control

5. Resistors for electronic circuits are manufactured on a high-speed automated machine.

The machine is set up to produce a large run of resistors of 1000 ohms each. To set up
the machine and to create a control chart to be used throughout the run, 10 samples
were taken with 4 resistors in each sample. The complete list of samples and their
measured values are as follows:
Sample No
1
2
3
4
5
6
7
8
9
10

Readings in ohms
1010 991 985 986
995 996 1009 994
1015 1020 1009 998
1013 1019 1005 993
994 1001 994 1005
990 1003 1015 1008
1001 986 996 996
996 1006 997 989
981 991 989 1003
999 993 988 984

i. Is this process in control?

ANS (i)
S.No
1
2
3
4
5
6
7
8
9
10

1010
995
1015
1013
994
990
1001
996
981
999

Readings in ohms
991
985
996
1009
1020
1009
1019
1005
1001
994
1003
1015
986
996
1006
997
991
989
993
988

986
994
998
993
1005
1008
996
989
1003
984

X = 9985.8/10 = 998.6 ohms

R = 193/10 = 19.3 ohms
UCLX =
LCLX =
UCLR =
LCLR =

X + A2R
X A2R
D4R
D3R

From the table

A2 = 0.73
D4 = 2.28
D3 = 0
UCLX = 998.6 + 0.73*19.3 = 1012.7 ohms

Mean X
993.0
998.5
1010.5
1007.5
998.5
1004.0
994.8
997.0
991.0
991.0
9985.8

R
25
15
22
26
11
25
15
17
22
15
193

LCLX = 998.6 - 0.73*19.3 = 984.5 ohms

UCLR = 2.28*19.3 = 44 ohms
LCLR = 0
The X-chart will look like below

The R-chart will look like below

Since all points fall within the control limits of both the X and R charts, we can safely
conclude that the process is within control.
6. Lackeys, a local bakery, is worried about increased costs particularly energy. Last
years records can provide a fairly good estimate of the parameters for this year.

Charles Lackey, the owner, does not believe things have changed much, but he did
invest an additional $3,000 for modifications to the bakerys ovens to make them
more energy-efficient. The modifications were supposed to make the ovens at least
15% more efficient, but extra labor-hours were required for workers to become
familiar with the process changes. Lackey has asked you to check the energy savings
of the new ovens and also look over other measures of the bakerys productivity to
see if the modifications were beneficial. He has the following data representing a
month from last year and an equivalent month this year::

Production (dozen)

Last year

Now

1,500

1,500

350

325

$15,000

$18,000

3,000

2,750

Labor (hours)
Capital Invested ($)
Energy (BTU)

Determine the multifactor productivity using the following costs:

- labor $8 per hour
- capital 0.83% per month of investment
- energy $0.60 per BTU
You are to provide Mr Lackey with a multifactor indication of the productivity increase
or decrease between last year and this year.
Energy Change:
Last year

: 1500*12/3000 = 6.0 loaves/BTU

Now
: 1500*12/2750 = 6.55 loaves/BTU
Percent Change: (6.55-6)/6*100= 9.17%
There has definitely been an increase in the energy productivity which means there
have been savings in energy.
Labor Change:
Last year

: 1500*12/350 = 51.43 loaves/labor hour

Now
: 1500*12/325 = 55.38 loaves/labor hour
Percent Change: (55.38-51.43)/51.43*100= 7.68%
There is also an increase in labor productivity
Investment Change:
Last year

: 1500*12/15000 = 1.2 loaves/$ investment

Now
: 1500*12/18000 = 1.0 loaves/$ investment
Percent Change: (1.0-1.2)/1.2*100= -16.67%

However as we can see there has been a decrease in the investment productivity.
This can be however be substantiated with the fact that due to this investment, the
energy savings is now possible and that this has cause an increase in the energy
productivity.
Now looking at the total multifactor productivity figures
Last year
: 1500*12/(350*8+3000*0.6+15000*.0083) = 3.81
Now
: 1500*12/(325*8+2750*0.6+18000*.0083) = 4.09
Percent Change: (4.09-3.81)/3.81*100= 7.35%
So as can be seen the modification could only make the ovens 7.35% more
efficient and not 15% more efficient.