「Production Management System」Final Take Home Exam

Department: Finance Student ID: M11118804 Name: Avrillia Clementine Pratomo

1. An automobile manufacturer uses about 60,000 pairs of bumpers (front bumper and rear bumper) per
year, which it orders from a supplier. The bumpers are used at a reasonably steady rate during the 240
working days per year. It costs $3.00 to keep one pair of bumpers in inventory for one month, and it
costs $25.00 to place an order. A pair of bumpers cost $150.00. The supplier offers a system of
quantity discounts, as follows. (20%)

• Answer:
- Information:
D = 60,000 pairs of bumper (front and rear) per year
Working days = 240 per year
Cost:
➢ To keep 1 pair per month = $3
➢ To make an order = $25
➢ Of a pair of bumpers = $150

- Calculations:
𝑄
❖ Annual Holding Cost = 2 𝐻
(3 𝑥 12)𝑄
=
2
=18Q
𝐷
❖ Annual Ordering Cost = 𝑄 𝑆
(60,000 𝑥 25)
=
𝑄
1,500,000
=
𝑄

❖ Total Annual Cost = Annual Holding Cost + Annual Ordering Cost

1,500,000
= 18Q +
𝑄

❖ Quantity Discount Model :

Total Annual Cost = Annual Holding Cost + Annual Ordering Cost + Purchasing Cost
1,500,000
Total Annual Cost = 18Q + +P𝑥 Q
𝑄

a. What is the total annual cost for any given order size Q less than 300 pairs?
1,500,000
• Total Annual Cost = 18Q + +P𝑥D
𝑄
1,500,000
= 18Q + + (150 – (150 𝑥 0%)) 𝑥 60,000
𝑄
1,500,000
= 18Q + + 9,000,000
𝑄

b. What is the annual carrying cost for any given order size of Q between 300 and 499 pairs?
• Total Annual Carrying Cost = Annual Holding Cost
= 18Q
 1,500,000
• Total Annual Cost = 18Q + +P𝑥D
𝑄
1,500,000
= 18Q + + (150 – (150 𝑥 4%)) 𝑥 60,000
𝑄
1,500,000
= 18Q + + 8,640,000
𝑄

c. What is the annual carrying cost for any given order size of Q, given that Q is at least 500
pairs?
• Total Annual Carrying Cost = Annual Holding Cost
= 18Q
1,500,000
• Total Annual Cost = 18Q + +P𝑥D
𝑄
1,500,000
= 18Q + + (150 – (150 𝑥 10%)) 𝑥 60,000
𝑄
1,500,000
= 18Q + + 8,100,000
𝑄

d. Draw the graph of the three total cost functions on a piece of rectangular coordinate paper.

2. In the course of manufacturing an amplifier, an off-on switch must be attached to the front panel. A
time study analyst wishes to determine how long it takes an experienced employee to perform this
operation; he therefore times a worker during several repetitions, producing the data below in
minutes. (15%)
 • Answer:
Calculation
a. What is the true (population) mean time for attaching the off-on switch?
True mean time = Total of Time Observation / Number of Time Observation
= 141.1 / 16
= 8.81875

b. What is the observed time for attaching the off-on switch?

∑ 𝑋𝑖
Observed Time = 𝑛
141.1
= 16
= 8.81875
➢ There’s no difference with the true mean time because there are no data outliers in the
time observed.

3. Business has been good for the Black & White News Company, which receives magazines from the
publishers and distributes them to the news racks of drugstores and supermarkets. At present, it has
five customers, each of which is serviced once a week; expired magazines are collected and new
editions are displayed on the racks. (This problem is obviously artificially small.) Here are the x and y
coordinates of the locations of the customers and the number of truckloads of magazines that go to
each destination. The company operates out of a single warehouse, whose coordinates are also
included. The company has outgrown the warehouse, and the partners are discussing whether to
expand the present facilities or to construct a larger warehouse at a new site. (15%)

• Answer:
Calculation:

➢ n=5

∑𝑋 𝑥 𝑄
➢ 𝑋̅ = 𝑖𝑄 𝑖
95
=
14
 = 6.785714286
∑𝑌 𝑥 𝑄
➢ 𝑌̅ = 𝑖𝑄 𝑖
55
=
14

= 3.928571429

➢ Location of center of gravity:

➢ Will the company expand the present facilities or to construct a larger warehouse at a
new site?

As we can see from the table above, the distance of the weekly load from the
warehouse to the customer is longer than the distance of the weekly load from the center of
gravity to the customer. The distance difference between the warehouse (62.22) and the
center of gravity (43.34) is about 1.5, times. So from this reason, it already shows that it will
give more benefit for the Black & White News Company to construct a larger warehouse at
a new site rather than expand the present facilities. But the Black & White News Company
should also think about other costs like the cost to construct a new building, the cost from
the supplier to them, and other resources.

4. Contemporary enterprises were facing many challenges in modern production systems. The scope for
the industries is not only for the production, but also for other aspects, for example, cost, resource,
flexibility, and so on. Although a lot of concepts and tools are addressed and developed; however, it
looks like still not enough to solve complex problems. As a production manager, please describe your
opinions based on the topic we have learned in this class for the following questions.
a. Based on your observation, please describe, what are the current challenges for contemporary
enterprises in the production system?
• Contemporary enterprises/business is a form of business that has a mix of up-to-date
knowledge and processes, but not every business can succeed with this form of business.
The challenges for these businesses are:
➢ Uncertainty → this challenge is caused by the forecast that can’t really reflect the
future or is not too accurate. We never know what will happen in the future, and that’s
why it will be a challenge for every manager to prepare the company so they can meet
customers’ demands.
➢ Sustainability → can we use the resources that don’t harm ecological systems. This
means we have to include the measures of social criteria in our calculations and the
decisions we take.
➢ Economic problem → because there’s uncertainty and limited resource, managers need
to make the production of the company to have efficient and effective operations.
Because when the production system can be effective and efficient, the cost can be
reduced and they get economies of scale.
➢ Innovating → nowadays, managers are demanded to have thought of many ideas about
how to make their products and also services can be easily accessed by the customer
and also answer the needs and what customers want. They need to think about the
strategy of the design of their products and services. What if they do the
standardization strategy or mass customization or delayed differentiation, they need to
consider everything from the costs, resources, and other factors.
➢ Cyber -risk → cyber risk is increasing in this form of business, their internal
information can be exposed, and other risks like data theft, hacks, and other attacks.
That’s why managers need to do cyber-security.

b. So far, what kind of concepts, methodologies, or tools have been developed to solve the
challenges in question? Among these tools in your answer, do you agree they are effective to
solve the problem? No matter your answer is yes or not, please describe the reasons as you can
as possible.
➢ Uncertainty → some managers do the time-series forecasting that will forecast the
patterns from past observations, then will use it as future values of the time-series. I
think this is a good method for forecasting than other methods because they see the
trend of the customers or seasonally so it will be more accurate to do it, also there’s a
technology forecasting that can help predict the future of the trend and new trends more
accurately.
➢ Sustainability → manager needs to make a sustainability report or CSR so that every
stakeholder knows that the company does business with the consideration of social and
environmental issues. I think this is a good method to make not only the production
system can do the operation well but also the financial and marketing system because
the customer and also the investor will see the company as a good business.
➢ Economic problem → managers need to do capacity planning, line balancing, and
location planning. I think this is the best method and also the most reasonable action for
managers can do in this study. This is because when you can get the shortest time to
produce and you know your maximum capacity, you can get the maximum output you
can produce and you can do the shortest way to distribute the product. Managers have
to know their maximum capacity so they can get higher efficiency and effectiveness,
 and also lower the cost to get economies of scale. This can also boost the profit and can
lower the risk of bottleneck operation so they will reach BEP.
➢ Innovating → managers doing the Quality Function Deployment with House of
Quality. I think it’s a good approach, manager can do to make some new innovation
which is to see what the customers want and needs. And in these years, I think this
method is easier to do because of the internet and new technology, manager can push
doing this to know more about their markets and making some new innovation from
that information.
➢ Cyber-risk → manager need to do cyber-security which is really needed by
contemporary businesses as they use so many technologies to perform their operations
so it can help to ease their fears from this risk. I think for this method, managers are
really need to do this because with doing this can make the information of company
more secure.