OM Test 2

What is the utilization rate of a hotel with 200 rooms and 150 occupied?

75% (Utilization = 150/200 = 0.75 = 75%)

How do you identify a bottleneck?

Identify the work activity that has the smallest throughput (slowest step in the process).

In an analytical queuing model, what do service times measure?

Process components.

What is utilization?

The fraction of time a workstation or individual is busy over the long run. Also written as: Utilization = Demand Rate / (Service Rate × Number of Servers).

What is the typical queuing system used by banks and airline ticket counters?

One or more parallel servers fed by a single queue.

What is a bottleneck?

The work activity that effectively limits the throughput of the entire process (also called a constraint).

A warehouse can process 600 returns/day; the average returns = 200. What does 600/200 calculate?

Throughput (capacity divided by demand = throughput rate ratio — here it gives the capacity utilization context; dividing capacity by demand = 3× capacity over demand).

In the seafood gumbo process (A=400, B=300, C=300, D=400 units/min), which steps experience idle time while overall output is maximized?

Process A and D — they can run at 75% capacity (300/400) while B and C (the bottlenecks at 300) run at 100%.

In the potato chip process (A=400, B=500, C=300, D=400 units/min), which step must be 100% utilized to maximize output?

Process C — it is the bottleneck with the lowest capacity (300 units/min).

What is the Theory of Constraints?

A set of principles that focuses on increasing total process throughput by maximizing the utilization of all bottleneck (constrained) work activities.

What probability distribution do analytical queuing models assume for arrivals?

Poisson probability distribution.

What is throughput?

The number of units or tasks completed per unit time from a process (output rate).

Which of the following is NOT an example of a non-physical constraint: load/product demand; capacity of a resource; inefficient management policy; environmental/organizational factors?

Capacity of a resource — that is a physical constraint, not a non-physical one.

What happens if Process X (bottleneck) and Process Y (non-bottleneck) both run at full capacity?

There will be an accumulation of output from Process Y waiting for output from Process X at assembly (Y produces faster than X can feed).

In the utilization calculation: Demand Rate / (Service Rate × Number of Servers), what is divided by service rate × servers?

Demand rate.

What is flow time (mean time)?

The average time it takes to complete one cycle of a process from start to finish.

Which bottleneck management principle is correct?

At bottleneck workstations, buffer inventory should be placed in front of (before) the bottleneck to maximize its utilization and factory output.

What is a simulation replication?

One simulation run (also called a replication).

Which of the following is NOT part of a queuing model?

A map of processes and functions.

What is NOT true of simulation models?

'A simulation model is used to get estimates and an analytical model provides detailed analysis' is FALSE — it's actually the reverse: simulation gives estimates; analytical models (when applicable) can give exact answers.

What will occur if both Process X (bottleneck) and Process Y (non-bottleneck) are running at full capacity?

Process Y will be starved for inventory — X can't produce fast enough to keep Y busy.

What is Little's Law (Work in Process equation)?

WIP = Throughput × Flow Time (WIP = TH × CT).

A florist sells 100 bouquets/day and holds 200 bouquets in average inventory. What is the average time a bouquet stays in the shop?

2 days — Flow Time = Inventory / Throughput = 200 / 100 = 2 days (Little's Law).

What is a waiting line also called?

A queue.

What is a lost sale?

When a customer cannot get an item and goes elsewhere to purchase it instead of waiting (vs. a backorder where the customer waits).

What is the shortage (underage) cost for the bookstore textbook problem?

$175 — Shortage cost = Selling price of substitute − Lost profit. The book sells for $250, cost is $50, so margin = $200. But students can buy a podcast for $25 instead, so shortage cost = $200 − $25 = $175.

What is the Economic Order Quantity (EOQ) formula?

EOQ = √(2 × D × S / H), where D = annual demand, S = ordering/setup cost, H = holding cost per unit per year.

Given: D=12,000/yr, S=$50/order, H=$5/unit/yr. What is the economic time interval (T*)?

EOQ = √(2×12000×50/5) ≈ 490 units. T* = EOQ/D = 490/12,000 ≈ 0.041 years ≈ 2.1 weeks → Less than or equal to 3 weeks.

What is lead time?

The time between placement of an order and its receipt.

In a fixed order quantity (FQS) system, when do stockouts occur?

When lead time demand exceeds the reorder point.

What are setup costs?

Costs incurred from configuring tools, equipment, and machines within a factory to produce an item.

What is a backorder?

When a customer is willing to wait for an out-of-stock item to be fulfilled; it results in an additional cost to the seller.

What is a stock-keeping unit (SKU)?

A single item or asset stored at a particular location.

From the bodega's perspective: Lisa couldn't find D-cell batteries and bought them at a big box store. What is this?

A lost sale (she did not wait — she went elsewhere).

What is average cycle inventory under the EOQ model?

Half of the order quantity (Q/2).

What are stockout costs?

Costs that reflect lost sales for external customers or costs associated with interruptions to assembly lines for internal customers; can also include backorder costs.

What type of inventory results from purchasing or producing in larger lots than immediately needed?

Cycle inventory.

What is work-in-process (WIP) inventory?

Partially completed products in various stages of completion awaiting future processing.

How does a Fixed-Period System (FPS) work?

It reviews inventory at fixed time intervals and orders sufficient stock to bring inventory position up to a replenishment level (M); order quantity varies each period.

What is static (stable) demand?

Demand that does not change over time; also called stable demand.

What is dynamic demand?

Demand that varies over time (e.g. seasonal peaks and valleys).

What is true of Class C items in ABC analysis?

They represent low dollar-value items; they can be managed using automated computer systems with less frequent managerial attention.

What is true of Class A items in ABC analysis?

They require close control by operations managers; they represent the highest dollar usage (typically ~80% of dollar value from ~20% of items).

What is inventory position (FQS)?

On-hand quantity + orders placed but not yet arrived − any backorders.

What is the single-period inventory model used for?

Situations where one order is placed in anticipation of a future selling season with uncertain demand (e.g., holiday merchandise, perishables).

What is independent demand?

Demand for a SKU that must be forecasted; it is not directly derived from the demand of other products (unlike dependent demand).

What is safety stock?

Additional inventory kept above the average amount required to meet demand, used to buffer against demand or lead time variability.

For the apparel company: cost = $5/shirt, revenue = $50/shirt, salvage = $0, mean demand = 150, std dev = 40. How many shirts to order?

Find critical ratio: Cu/(Cu+Co). Cu (underage) = 50−5 = $45. Co (overage) = 5−0 = $5. CR = 45/50 = 0.90. z for 90% = 1.28. Order = 150 + 1.28×40 ≈ 201 shirts.

What are the two principal decisions in a Fixed-Period System (FPS)?

The replenishment level (M) and the time interval between reviews.

What is backhaul?

The practice of using return trips of delivery trucks (that would otherwise be empty) to haul freight back toward the distribution center — used to reduce transportation costs.

What is true of purchasing in supply chain management?

It can have a significant impact on total supply chain costs.

What is an intermediary in a supply chain?

Any entity — real or virtual — that coordinates and shares information between buyers and sellers.

Which SCOR model function manages orders, transportation, and distribution?

The Deliver function.

What are the two primary responsibilities of logistics managers?

(1) Purchasing transportation services and (2) managing inventories and the movement of materials and goods through the supply chain.

What is the best action to mitigate the risk of inventory/warehouse stockouts?

Add safety stock.

What is a disadvantage of vendor-managed inventory (VMI)?

It often results in higher customer inventories than necessary (the vendor tends to keep more stock to avoid stockouts).

Which transportation mode is most flexible?

Truck.

What is recycling (in reverse logistics context)?

Taking used/worn-out products (e.g., old tires) and processing them into raw materials or new products.

What is reverse logistics?

Managing the flow of finished goods, materials, or components that may be unusable or discarded back through the supply chain (from customers toward suppliers/manufacturers) for reuse, resale, or disposal.

What type of e-commerce is a county government selling online educational services to local businesses?

G2B (Government to Business).

What is the SCOR model?

Supply Chain Operations Reference model — a framework for understanding and evaluating supply chain management across Plan, Source, Make, Deliver, and Return functions.

What is order amplification (bullwhip effect)?

The phenomenon where small fluctuations in retail demand cause increasingly large swings in orders as you move upstream in the supply chain.

Taylor finds a product with 5 returns last year and annual sales of $15 million. What is average inventory value?

Using return rate: 5 returns / $15M sales. If interpreted as inventory turns = 5, then Avg Inventory = $15M / 5 = $3 million.

What is pipeline inventory?

Inventory that has been ordered but is still in transit.

For Tech Supply Inc: avg inventory = $4M, COGS = $25M. What is inventory turnover?

Inventory Turnover = COGS / Avg Inventory = $25M / $4M = 6.25.

What is inventory turnover?

A measure of how quickly goods are moving through the supply chain; calculated as COGS / Average Inventory.

What is cannibalization (in maintenance/supply chain)?

Removing good/working parts from one broken unit to repair another unit.

What is refurbishing?

Completely disassembling a used product, replacing worn parts, upgrading components, and reselling it — marketed as like-new or reconditioned (e.g., remanufactured starter).

For SpeedX: annual sales = $3M, COGS = $2M, avg inventory = $600K, 200 operating days. What is daily revenue?

Daily Revenue = $3,000,000 / 200 = $15,000… but if 300 operating days: $3M/300 = $10,000. Answer options suggest $10,000 (≈ 300 days) or $30,000 — check: $3M/100=$30K. Most likely answer: $10,000.

For an online retailer: COGS = $2M, 200 operating days, avg inventory = $500K. What is COGS per day?

COGS/day = $2,000,000 / 200 = $10,000.

What is the total cost of ownership (TCO)?

The complete cost to purchase from a supplier, including purchase price plus all related costs (shipping, quality, returns, disruptions) — best method when comparing suppliers.

What is procurement?

The supply chain function responsible for acquiring raw materials, component parts, tools, services, and other items from external suppliers.

What is the sustainability goal in supply chain performance measurement?

To achieve a carbon-neutral supply chain (minimize environmental impact of supply chain operations).

What is logistics?

The discipline of managing the flow of materials and transportation activities to ensure adequate customer service at a reasonable cost.

What is the Newsvendor critical ratio formula?

Critical Ratio = Cu / (Cu + Co), where Cu = underage cost (cost of ordering too few) and Co = overage cost (cost of ordering too many).

What is Little's Law?

WIP = Throughput Rate × Flow Time (Inventory = Arrival Rate × Time in System).

Utilization formula (Method 1)

Utilization = Demand Rate / (Service Rate × Number of Servers).

Utilization formula (Method 2)

Utilization = Resources Used / Resources Available.

Inventory Turnover formula

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory.

Days of Supply formula

Days of Supply = Average Inventory / (COGS per day).

Flow Time formula (Little's Law rearranged)

Flow Time = Average Inventory / Throughput Rate.

EOQ formula

EOQ = √(2DS/H) where D=annual demand, S=order/setup cost, H=holding cost per unit per year.

Optimal Order Quantity (Newsvendor) formula

Q* = Mean Demand + z × Standard Deviation, where z = z-score for the critical ratio service level.

Reorder Point formula (with safety stock)

ROP = (Average demand during lead time) + Safety Stock = d̄ × L + z × σ_L.

Safety Stock formula

SS = z × σ_dL, where z = service level z-score and σ_dL = std dev of demand during lead time.

Throughput formula

Throughput = Output / Time (units completed per unit of time).

WIP (Work in Process) formula

WIP = Throughput Rate × Flow Time (Little's Law).

Daily Revenue / Daily COGS formula

Daily Revenue = Annual Revenue / Operating Days; Daily COGS = Annual COGS / Operating Days.

Inventory Value formula (given turnover)

Avg Inventory = Annual Sales (or COGS) / Inventory Turnover.

Bottleneck identification rule

The process step with the LOWEST capacity (throughput rate) is the bottleneck.

Non-bottleneck idle time rule

Non-bottleneck steps run at the same rate as the bottleneck, so they will have idle time = (their capacity − bottleneck rate) / their capacity.