44 Chapter One. Stag eniCinapaien Problems for Secti 5. Prosimity to other facilites. Many companics tend to place manufsetwring divi sions and corporate facilities in the sarne geogrephtic area, For example, JBM crigi- natod in Westchester Covaty in Now York, anal locuied many of its divisions in that state By locating key personel nzuz each other. the firm has hoe able realize economics of scope. 6 Quatity of life in te region. Win cchovsing a site that will be atiractive to cmplayees may help in recruiting key per- sonret, This is especielly we in high-tech isdusrics that must compete for workers with particular skills ther iggues ur wtaicrate the elajicc uta lucations, Lat 34. A Sur-up company, Mucrotech, plans to proguve a device lo translate Merse code to written message on £ horse compaer ano send writen messages in Morse conle over the ai-waves. The device is primarily of interest 70 ham radio enthasi- asia The president, Ron Lodel, estimates that t would requize a S30.K0 initial investment. Each unit costs him $2010 persface and each sells for $85. @. How many unity must be sod in order for the Erm to recover ite initial invesrmeat? 6. Wha 6 Wf the price were incressed to S100 sacly, ind dhe break-even voluuee 1s the total reverwe at the break-even volume’ 35. Forthe previous problem. suppose that sales anv expected t0 be 10 un.ty ii the “rst yar and imerease at a rate of 40 porecai per year. Kow many years will it take to Tecoup the $30.00 initial investment? Assume ‘hat cach unit sells for S85 36. A duneatic prextucer of baby carriayes. Pramblc, ouys the Whcels Irom a company in De wtb of England. Currently the wheels most Sa cach, but for a nomibe: of reasons the price will double, In order to produce the whocls theraselves. ramble woul have uy ad) 1 exist ng faites eta cost of $8000, Hesfienates that its unit cost of prodaction would be 3.50. Al the cnreent time. the company sells 10,00 arviages smnuslly, (Assume that there ere lua wheels par curiage.) @ At the Curren, sales race. how long would i, tke to pay hack the investren! required for dhe eapuision? 1h, Wasslls see expected to increase at ¢ rate uf |S percent per yces. how long will il uke to say buck the expansion’? 37, Basca on past experience, a chemicals ‘imestinates tha! the costof new capacity undcltions Ofeys t3e law 1 sr ‘where » is measured in tons per year and j()) in millions of dollars. Demand is ng at the rate of 3,090 tons per year énd the ascounting Jepartrient rece. ends a rate of 12 percent per year [or discounting ‘ture costs, 4, Determine the opt mal timing of plant additions and the optimal size of each axddiuion, >. What isthe cost of eaca addition? ©. Whats the present value of the cest of the next four additions? Assame an ‘addition has just been mace fer the purposes of your calculation. (Refer to Appendia I-A fora discussion of ecst discotnting.)TAZ Senses a5 + 38. A majoroil company is consicering the apt mal timing lor the constnastion af new refineries. Fiom past experience, each doubling of the sire of w elinery ata sing! Jucetion restts iv an iterease in tae constniction evsts of about 6K pervent. Fur thesmore. a plant size of (0.000 barrels pet day cnais 86 milion. Asean thatthe demand for the cil is sncreasing at a constant rate of -wo million barrel years. snl the stiscoumt rate for futur: costs 1s 19 percent 4 Find the values of k and @ axsumiag a relationshap of the torm f(y) — ev Assuime tat y iy in units of bartels» Detenmnins the optimal tiring of plant additions and the optimal size of each plant © Suppose thatthe large single refinery tat can be built with cument techao}- ‘088 is 150000 barrels per diy. etemnine the mtn timing of plantations and the optimal size of each plant in this case. (Assume 365 days per year for your calculations.) 39, Diseuss the pros and cons of locating manufacturing facilities in x foneign country 1.12 Summary This chapter discussed the imaortance off aperations strategy and its relationship to the overall basiness strategy of the firm. Cheracions continass to grow in importers inthe lien, While a larger portion of direct manufueturing continues to move off-shore, the importance of the manufacturing function should not be snderestimaicd. The sic. cess of the operations strategy car be measured along «eral dimensions. These in- clude the obviowk measures of cos: and product chazacteristics. hut who include qual ity. delivery speed, delivery rcliability, und fie xibiliy The classical view of mantfaeturing strategy. duc primarily to Wickham Skinner, considers the follow ing Four dimensions of sirutszy: time harivon, focus, evaluation, and consistency. Different types af decisions relate to citferent time frames. A plant should be designed with a specific focus in mind. whether ibe to minimize unit cost or w matimize product quality. Several evaluation critesia may by wplied uo anil ne the effectiveness af a straury We hear more and more frequenlly that we cre part ei « globe) community. When, buying products txuy. we are Ie«sconcemed with the county uf cuigin than wiNh Ihe charscicristics ofthe product, How many consuricrs of cell phones arceven aware that Nokia is headquartered in Finland, Ericsson in Sweden, ané Motorola in the United States? An interesting question explored by Michael Porte is. Why dusune indusiries Seem to hive in some counteies? While the answer is complex, Pork suggests chat the following Lou factors are “nos! important: factor conditions; demand conditions related and sapperting industien. snl frm siraiegy, strucnare. and rivalry ‘Changing the way tha one does things ex be difficult. Eso mune difficult is chany. ing the way that = compary ckes things, For thet reeson, business process enginecr- ing (BPR) is a peintul process, eveu wheu it warks ‘The mest dramatic successes Of BPR have come in service functions. but the concept can be applied to any eavirun nem: I iy the process of rethinkirg how and why things are done im a certain way. Inteligently dnc: BER can lead uo draamatic improvernenls, How2ver. it can also be a ‘me-consum ng. and costly process Just-in-time (JIT) is u philosopay that g-ew from the kanban system develeped by Toyota. Atthe heat uf dre approwch isthe elimination of waste Systems arc put m place 'o reduce material ows to small batches to avoid large buiklups of wark-in-peevess inventories, While JTT developed on the factory floor. is a concept that hes beenapplied tn the purchasing function us well, SUCCESS!" a Penne eeeestres close proxirnle quizes the development oflong-term relationships, and usually requires close proximity to suppliers. The “W6chanics off are eiscussed in more detail in Chspter 7 Teing whlero gettouhe ‘market quickly with produets that people wantin he volumes thatthe marketplace tequites is crucial if one Wanls to be marke: leader. Time-based competition sieans thar the ire liom product conception t0:ts appearance in she mar. Iketplace must he reduced. To do sc. one performs as mary tasks concurrently 2s poss ble: Tn many inslances, tie te masket is ess important than ine volume. Being the firstto the market may not mean much if wn cannot most product demand “The dramatic successes of he Japanese during the 1970s and LNs were Lo a Tate extent die to the outstanding quality af thcir manufactured products. Two Arrericins, Deming and Juran, visited J2pan jn :he carly 1930s and plays an imporunt role in uuakiog the Jepanese avvare of the -mpotarce of producing quality products. The ‘quiSiry movement ir the Unixed States has resulted in a much greeter awareness of the importance ¢f quility, recognition for oulstadiry acheeane in this areas si Ube Malet Daldrige Aware. and iniiation of important progrems such as qaality eitcles ind the six sigma program zt Motorola. sBotn the staistical and the o-ganizational ‘genes eonceming quality are discussed in deial so Chaster 112) THis important to understard beth product and process Tie eyeles Both gc through the fou: cyeles of start-up. rapid growth, riaturition, and stabilization vr dec:ine. Tris false important Understand which types of processes are appropriat: for wluch types Df products and insustrics. To this end, Euyes and Wheelwright have developed the concept of the prodvet-process mattis, ‘Learning and experience curves are useftt in modsling the dectine i Labor ko orthe decline iu puuduct cos as exporience is gained in the pextuction of an itern or family of items, These curves hive been shown to obey st exponential fav ara car. be useful predictors of the cost or time required for producuon. (Mloure’s Law. due ws Gordon Moore, a {yonder of Intel. predicted the doubling of chip performance every I tmoaths, This is an example ofan exper ence curve. and the prediction has continued abe accurate 1 the preseat day.s We divcassel wu ruethods for assisting With eapueity expansion decisions, Break even curves provid: a means of determining the sales volume necestury to justify investing Jy new or existing faciblis, A simple niodel fora dyramic expansion policy is preseniod that gives the eptimal timing aru sizing of new facilities zsunning con: ‘tant slemind growth aad discountirg of future costs, We also discussed issues that ltise in trying "0 decide where ty facate new facilities. Th.s problen ts very comples jn that there are many fuctrs Uual relate 10 the lecision of where to locate production, design, and management facilities, Additional Problems for Chapter 1 40, Whatisa production and operations strategy’ ‘2ksouss the elements in coramnen with markctingund financial straseptes and the elements tha ave differen 41. Whatis the difference between the product Ife eyete sd the process life cycle? Ln ‘what way are “hese corcepis tekited? 42. Suppose that ibe Mendenhall Corporation, a producer of women’s bundbiags, has deterovined that 2 /$ percent experizce cuive accurately describes the evolution of its production cows for a new line. IF ue first unit costs $100 to produce, what should the 10,000th unit cost based on the experience curve?