Solution Manual For Operations Management For MBAs 5th

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CASE: BPO, Incorporated: Call Center Six Sigma Project
Allen Lauren, executive vice president of BPO, Incorporated (BPO) has received an
email complain from the CEO of one of their major clients stating that he was very
dissatisfied with their service and demanding an audit and possible renegotiation of their
contract. He is trying to decide how to respond.
Question 1: Is the variability in the times required by the benefits administrators
(BA) excessive? If so, what might be done about it?
Loading data took an average of 80 minutes but could vary between 20 minutes and 300
minutes (five hours). Contacting the client regarding errors took between 10 and 60
minutes 95 percent of the time and 150 to 210 minutes the other five percent of the time.
Determining eligibility of participants who had made a change averaged 90 minutes with
a range of five minutes to 300 minutes. Producing an audit report took an average of two
hours with a range of 15 minutes to six hours.
Manually updating the database took an average of 85 minutes with a range of 10
minutes to five hours. Downloading changes took an average of 50 minutes but ranged
from 15 to 120 minutes. Based on this new information, participate eligibility was again
run, requiring an average of 90 minutes with a range of five minutes to 300 minutes.
Report generation took about 40 minutes with a range of five minutes to 120 minutes.
Importing reports into Access took an average of 25 minutes with a range of as little as
five minutes and as long as 60 minutes. Auditing these reports took an average of 45
minutes with a range of 15 to 180 minutes. Finally, uploading the results of everything
took an average of 180 minutes with a range of 30 minutes to as long as 495 minutes.
These results show a very wide range of variations. No doubt some of the variation is due
to varying sizes of clients. To the extent that the variations are due to other factors, BPO
should investigate best practices and additional training to reduce the variation. In
addition, many of these steps appear ripe for automation.
Question 2: Jerry Small observed “a number of CSRs putting clients on hold despite
the fact that they are trained not todo this.” Why might they be doing this?
The BPO phone system is designed to automatically track the duration of each call and
presumably this is used at some point to evaluate the customer service representatives
(CSR) and their performance. One of the things Jerry discovered in his investigation is
that the BPO phone system does not include hold time in the call duration. Thus, a CSR
can reduce their apparent call duration time by placing the client on hold while
researching their issue.
Question 3: CSR utilization is only 37 percent. Why so low? How might it be raised?
Two issues are likely at play here. The first is the phone system not tracking call duration
while the call is on hold. Thus, the CRS is working doing research but that time is not
being logged. Second, there is a large variation in call volume from a high of 60 per hour
11:00–12:00 to a low of 10.2 7:00–8:00 P.M. While BPO had staggered scheduling, it is
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likely that there were periods of time when the CSRs had fewer calls than they could
handle, leading to a lower utilization.
BPO clearly needs to fix the issues with its phone system so hold time is counted as part
of call duration. This will give much better planning data and allow for better evaluations
of the CSR employees. Additionally, BPO may wish to look into using part-time BPO
employees during periods of high demand.
Question 5: Does the Health and Welfare Service Delivery Process appear to be
fundamentally broken to you? Are incremental improvements likely to help?
The fact that BPO is losing money while revenues have been growing at 30 percent
annually does indicate a serious problem that clearly cannot be solved by growth alone.
They wide variations in processing times by the BA’s indicates that the process is not
well standardized and is poorly automated. All of this would seem to indicate a
fundamentally broken process.
The low utilization of the BA’s and CSR’s indicates that better scheduling and changes to
staffing levels might improve the profitability picture somewhat. However, this seems
unlikely to improve customer service. For that, better processes and more automation are
likely required.
Question 6: How would you suggest that Allen Lauren respond to Sam Regan?
To begin with, the email from Sam Regan provides no details on why he was dissatisfied
with the service provided by BPO. Did it take too long? Was the service provider rude?
Were the answers wrong? Without knowing the exact nature of the problem, any response
to Regan would be premature.
Assuming the dissatisfaction steams from the service taking too long or related issues,
then Lauren can respond by discussing the improvement processes currently in the works.
If the dissatisfaction came from other reasons, that information might suggest other areas
for Jerry Small to investigate.

CASE: Peerless Laser Processors
Peerless Saw Company was in dire straits when they decided to purchase their first laser
cutting system. Even though they could not justify the ROI, in retrospect, the investment
“saved” the company. The following factors contributed to this situation:
 Peerless was selling to the same customers, but the laser system had created a new
and growing market that had not previously existed.
 The original ROI would have been based on a single shift. Because of the new
market, the company actually operated the laser on two shifts.
 To successfully apply ROI, Peerless would have had to predict the creation of the
new market, a nearly impossible task.
Question 1: How did the laser cutter “save” Peerless Saw Company when it could
not be justified on payback or ROI grounds? Does this mean that the economics of
automation is not important, or at least were not for Peerless?
In 1981, the company faced a do or die decision that forced them to use new technology.
If the lasers failed, the company would have had nothing to fall back upon. There was no
good economic justification available at the time upon which to base the decision. By
contrast in 1984 the company had a track record with the technology, had a good feel for
the market and its potential growth, and was in a much stronger position financially. Ted
can be much more comfortable making this decision because of the reduction in
uncertainty. The decision is harder on one way though. When the company had it’s back
to the wall, it was clear that something different had to happen and quickly. When the
company is in a more comfortable position, the pressure to make a decision is greatly
reduced, making it easier to procrastinate.
Question 2: Compare the decision Ted faces now—the 1200-watt laser purchase—
with the decision he faced in 1981 when he was considering the three punch presses.
Structure the investment decision for each of these cases. (Assume a computer costs
about $20,000 and software about $80,000. Training costs are included in this
charge.) Consider costs, benefits, and risks. How has the decision environment
changed? Is Ted more or less comfortable with this decision? How is this decision
easier? How is it harder?

There are some potential problems with the new laser:
 Peerless will be creating products that are unfamiliar to them.
 Peerless has no way of knowing if the new market will respond as well as the
saw blade market did to the anticipated improvements in quality and cycle time
coming from the laser.
 The new product line will require different distribution channels, different
marketing techniques, and will draw new and different competition.
 Peerless may not be able to attract enough business to keep the system
productive.
The potential benefit is, of course, a new large market to successfully apply Peerless’s
laser cutting experience. A significant strategic variable that Peerless should consider is
the long-term viability of the saw blade market. The success of laser cutting (as Peerless
has experienced) and other technologies has the potential to reduce the overall market for
mechanical cutting devices over the long term.
Question 3: What do you think the potential problems might be in purchasing the
1200-watt laser? What about the potential benefits? Will this laser have the same
impact on the business as the first laser? What are the strategic variables involved
in these decisions?
The following steps are needed to estimate the payback:
1) Estimate the amount of laser cutting needed using a 14” saw blade as a typical
product. The blade would have approximately a 44” circumference. Doubling this
amount to account for teeth and adding 9” for the arbor gives approximately 97” of
linear cutting distance required to manufacture the blade.
2) Based on the cutting speed of 40”/minute, the cutting would take 2.4 minutes.
Adding time to handle the blade, and maintain the workstation, estimate the total time
at 3 min/blade.
3) Exhibit 3 estimates the operating cost of a 1200 watt laser at $.10/min, making the
laser’s portion of the blade cost $.30/blade; not a particularly significant amount for a
$25 blade.
4) Exhibit 3 estimates the cost of the laser to be about $200,000. Assume an additional
$100,000 for computers and training bringing the total to $300,000.
5) If the laser can produce a blade every 3 minutes, than it could produce 160 in eight
hours at $25 a unit. Based on Exhibit 1, the current profit margin is 12%, so it’s safe
to assume that the single shift daily profit would equate to 160 X $25 X 12% or $480.
6) Given the $300,000 cost of the laser, the single shift payback period would be 625
days or half that amount for a two-shift operation.
In addition to the brisk payback, the laser improves quality, cycle time and flexibility in
responding to customer demand.

Question 4: Estimate costs and revenues for this new system to perform a payback
analysis. Use the variable cost data in Exhibit 3; assume the laser cuts at the rate of
40 inches per minute, that a typical blade of 14 inches sells for $25 (33% discount
for volumes near 100 units), and the same computer and software will be used as
currently. Material load time for a 10-blade sheet of steel is one minute. Use a 3-inch
arbor hole size and assume that a cut tooth doubles the cut distance. How would you
address the quantification of the intangible benefits the new system might provide?
Is the new system justified on an economic basis? How might this system be more or
less justifiable on an economic basis than the first laser system?
The new laser system adds to the high tech image of the company and reinforces the
employee’s pride. The original laser system was probably viewed as a threat to jobs
when it was first implemented. Now that the company has experience with the benefits
of laser cutting, they are in a better position to justify the investment both on non-
economic and economic grounds.
Question 5: What are the organizational/behavioral considerations involved in this
purchase? Are they the same as the first laser? How might this system be more or
less justifiable on a noneconomic basis than the first laser system?
The laser itself would use cybernetic systems to control the cutting process. The first
implementation project would have benefited most from cybernetic processes as well
because of Peerless’s unique position. Since they were in a do or die position, they would
not have wanted to kill the project for the conventional reasons. In fact, based on the
typical parameters used for go/no-go controls, Peerless would have been justified in
killing the first laser project. Instead, because of their dire circumstances, they stuck to
their guns and eventually achieved success. The second implementation project would
benefit from go/no-go controls because it is being conducted in a much more stable
business environment in which where the company could back away from the project if
necessary.
Question 6: Ted is thinking about offering 25 of his largest customers the
opportunity to tie into his system directly from their offices. What benefits would
this offer to the customers and Peerless? What problems might it pose?
The direct interface with customers could have several benefits:
 It speeds turnaround time and allows the customer to experiment with new
products.
 It helps build loyalty among the customer base to the Peerless products and
services.
 It reduces overhead costs and errors by eliminating some of the handoffs the data
goes through using the conventional process.

The direct interface could also have some problems:
 The customer’s data may cause problems in the machine’s operation, potentially
even causing a prolonged shutdown.
 Peerless would have to work out a scheduling system to insure that customers are
not interfering with Peerless’s or other customer’s schedules.
 Peerless would lose control of the expertise applied by its sales and technical
personnel.
 Peerless would be subject to data security and virus issues that could cause
problems with its machine or customer’s products.
Question 7: Advise Ted on the purchase of the new laser system.
I would recommend the purchase of the new system.

CASE: United Lock: Door Hardware Division (A)
United Lock is facing a severe capacity shortage in the production facility for its line of
door hardware. Door Hardware Division (DHD) management has identified three
capacity expansion alternatives:
1. Continue current operating practices and obtain additional production space.
2. Undertake a make-versus-buy study and consider outsourcing parts, components,
and/or complete products.
3. Implement world-class manufacturing (WCM) techniques to improve entire
production process.
The first two represented incremental changes to the production process while the third
option presented is a more radical alternative. It requires a major reorganization of
operations.
Question 1: Briefly describe the Kanban errors at United Lock. What are the
potential consequences of these errors?
There are two kanban systems in place. The systems are not well disciplined and are not
being enforced. Employees are refusing to use them. Basically, the systems are being
bypassed and the production system remains a push system.
By bypassing the kanban system, production scheduling is being mishandled and the
company is not seeing any benefit from its kanban system. Inventory levels are too high
and the wrong items are being stocked. Shipping delays are long and getting longer.
Question 2: Based on the DHD current operations suggest a few ways to improve
operations.
Clearly, the kanban systems need to be used and their use enforced. If basic scheduling
systems are not used, DHD has zero control over its production floor and any other
changes are problematic.
Too much inventory is a clear problem. Currently, 36 percent of floor space is being used
just to hold inventory with a value of $7 to $8 million. While some of this may be due to
the kanban systems not being used, it is likely that other problems are contributing to this
significant amount of inventory. Additional problems with inventory are that the company
oftentimes does not have the parts it needs. Having inventory but not having the right
inventory is both expensive and an indication of serious scheduling problems.
Lack of capacity, which is the focus of this case, is clearly a problem. Based on their
forecast, 18 workcenters will be working at above 100 percent capacity in 1992 and by
1995 that will rise to 42 or 22 percent of their workcenters. What is not clear is how much
of this is due to demand rising and how much of it is due to producing the wrong
products/components that then just go into inventory.
On time delivery appears to be a serious problem that is getting worse. Customers are
looking for delivery in two to three days and they are not meeting that.

Production batch sizes need to be better coordinated. For example, cylinder caps are
produced in lots of 250,000 while doorknobs are produced in batch sizes of 50,000 to
80,000. While there may be reasons for the differences, such a large difference indicates a
lot of work in process inventory.
Question 3: Which of the three capacity expansion alternatives would you select and
why?
Option one of simply expanding the current production facility with more space seems to
be an especially poor option. With high inventory levels and poor kanban discipline, the
current production process is deeply flawed and throwing more space at it without fixing
the underlying problems is a short-term fix at best.
Option two of outsourcing some of the production is a somewhat better option; especially
if the poorly performing work centers are the ones to be outsourced. This has the
additional advantage of being less risky since DHD does not need to invest under this
option. However, quality may be an issue. Additionally, loss of control has the potential
to be an issue; however, it appears that DHD does not have a lot of control over its own
production process so this does not appear to be an especially big risk.
Option three of converting to focused factories and world-class manufacturing techniques
has the most potential. Production is kept in-house to maximize control over quality and
delivery. This option would improve efficiency so space requirements would actually go
down, even with the increases in production.
The big unknown is the quality of the management at DHD. There inability to enforce
kanban discipline does not look promising. If management is up to the challenge, option
three appears to be the best approach. If management does not feel up to the challenge, or
if they feel that their workers are not up to the challenge, then option two would be a
better choice.

CASE: Heublein: Project Management and Control
System
The Heublein PM&C system was developed out of a need for greater visibility once
projects had been approved via the normal review and approval process. As delivered, the
PM&C system provided a flexible and customizable framework for the planning of
capital projects. It was developed in house with extensive input and approval of each
engineering director. This implementation strategy created immediate support among the
figure users of the system.
Question 1: How did the development process aid in its acceptance?
The project to implement the PM&C system followed the same overall process and the
system was suggesting. Not only did this help legitimize the process but it also helped
serve as a first test of the system. Steps that did not work out here could be dropped
before the system was fully implemented. Additionally, the relative value and importance
of each component could be determined during the project. This would insure that the
system would not be overburdened by unusable or unneeded components.
Question 2: Was the resulting system flexible?
The resulting system was highly flexible since fundamental to its implementation was the
idea that each project would have the ability to alter the framework suggested by the
PM&C system to support the specific needs of that project. For smaller and less
expensive projects, some of the more costly components of the PM&C system could be
eliminated entirely.
Question 3: What was the key deliverable of the PM&C system?
The key deliverable of the PM&C system was the project plan. The project plan for each
project was a set of documents that was assembled from a menu of components suggested
by the PM&C system. These components were intended to give a complete view of the
project in terms of schedule, scope, cost, organization, and so on. It was designed to give
this information at a level high enough so as not to get weighted down with too much
detail.
Furthermore, the project plan was to be developed early in the project life cycle, during
its planning phase. Doing this forced the project team to undertake a fairly detailed and
comprehensive planning effort. This could then be used for monitoring, tracking, and
oversight; as well as the initial project approval. Projects that deviated significantly from
the plan could then easily be spotted and corrected.
Question 4: Which project planning aids are used?
In the execution of this case, variations of the following planning aids were used: work
breakdown structure (WBS), action plan, linear responsibility chart (accountability
matrix), and a Gantt chart.
Question 5: What was the purpose of the project? Was it successful?

The purpose of the project was to design and deliver a system that would improve the
execution of capital projects within Heublien. Specific goals include improve cost
performance and obtain more optimal utilization of their capital funds. Emphasis was
placed on better project performance, not on catching mistakes after the project was over.
From the final remarks in the case, it appears to be headed toward significant
improvements in capital projects.
Question 6: What was wrong with the previous focus on cost-benefit? Does the
PM&C system still include cost-benefit?
There is nothing inherently wrong with focusing on cost-benefit analysis. Many firms do
just this. The issue was that once approved, the projects moved into the implementation
phase without monitoring or oversight. As a result, errors and cost overruns were caught
only after they occurred. The new PM&C system does not replace the cost benefit
analysis. What it does is to help improve the visibility of project execution with the goal
of recognizing problems before they occur.
Question 7: What do you think of this approach?
In general, the PM&C system seem logical. It allows management to compare various
projects using a somewhat standard set of plans and criteria. This makes the process of
selecting between various projects much easier.
The one part I take issue with is the premise that the project plan is “required before any
capital project may be submitted to the approval process at Heublien.” This seems to be
somewhat out-of-order. A plan of this size will take a fair amount of effort and expense to
complete. It makes no sense to undertake such a large amount of work prior to a project
being reviewed by top management. It would seem to make more sense to continue the
project selection process based on the cost-benefit studies as currently required but add
an additional gate between top management approval and implementation. At this gate,
the top management would review the plan and have the authority to approve for
implementation, defer for additional information, or cancel the project.

CASE: D. U. SINGER HOSPITAL PRODUCTS CORP.
Question 1: Construct the six elements of the plan identified in the case.
The following are the elements:
A. WBS

B. The following AON network was developed using Microsoft® Project:
Note that the “Box Style” has been simplified from the MSP default for clarity.
C. The critical path and project duration are displayed with the Gantt chart from MSP:

D. Based on the network shown, and a start date of 9/12/05, the activity list, early-start
date, slack list and schedule would be as follows:

E. The following graphs from MSP illustrate the period labor requirements for each
group. The graphs show the hours of work per month required by each resource to
achieve the schedule. Note that the graphs change color to show resource over-
allocations. This is because MSP allows the designation of “Max Units” for each
resource. For these graphs, all the Max Units had been set to 100% meaning that the
resource was available for 100% of its calendar. The calendar was set to the “Standard”
for both the tasks and the resources; a 5 day, 40-hour workweek. The level where the
graph switches from blue to red fluctuates in these graphs because the actual number of
work hours changes from month to month. Some organizations will use an average of
168 hours per month to simplify hand calculations. Note that unless the Resource
Leveling Tool is invoked, the value of Max Units has no direct affect on the schedule.




The graph for the project as a whole cannot be viewed directly in MSP. One of its
limitations is that it cannot take separate resources and combine them in meaningful
ways. While some grouping is possible in certain views, no facility exists to display
more than one resource on a resource graph. The underlying data, however, can be easily
exported to Excel where the graph can be created. The following graph was created from
the “Work” data element that shows the total number of hours to be worked each month.
F. Lengthening the schedule by 14% would change the completion from month 16, week
65 to month 18, week 74. The key tasks to move for best leveling are c, d and h. Since h
is on the critical path, it will be delayed by the full 9 weeks. Activities c and d will each
be delayed by two weeks. The new schedule looks like this:
The cash flow requirements can be graphed by exporting the MSP data to Excel. Use the
“Analyzed Timescale Data in Excel” function from the Task Usage view with the Table

set to Cost. By using this view, the fixed cost associated with each task is prorated across
the duration and added to the labor costs. The result looks like this:
The peak in cash flow is caused by the equipment purchases beginning in month 12.
Question 2: Analyze the plan for potential problems.
The project has some areas of potential problems:
 The demand for R&D personnel is quite high in months six and seven
 The demand for engineers is quite high during the middle of the project
 Both maintenance and purchasing have high demand towards the back end of the
project
 The development of the processing and packaging systems are significant
activities that could become bottlenecks
Question 3: Analyze the plan for opportunities.
This project benefits considerably from level loading (as seen in F. above), achieving a
significant reduction in the overall peal load for resources with a small increase in
duration. The project plan would benefit from an analysis of the potential for crashing to
reduce durations.
Question 4: Should the executive committee approve the plan? Why or why not?

Factors in favor of approval are:
 The project plan has a sound basis in recent experience and appears to be detailed
and well thought out.
 The risks are well understood
Factors against the approval:
 Uncertainty in the market for this product
Therefore if test marketing of this product indicates sufficient demand, then the
committee should approve the project.
Question 5: What alternatives might the executive committee suggest for analysis?
The committee should have marketing analyze how time sensitive the product launch is.
If the launch would benefit from acceleration, than the committee should have analysis
done on crashing costs. If the launch is could be delayed, then the committee should
consider lengthening or delaying the project.

CASE: Automotive Builders, Inc.: The Stanhope Project
Question 1: How did ABI handle forecast risk?
ABI did two major things to manage the risk associated with the forecasts:
1) They chose a manufacturing facility and process that could be most easily used for
other products and customers.
2) They minimized their capital investment in the project to reduce the potential losses if
no customer could be found for the new plant’s output.
Question 2: Were ABI’s Stanhope site costs in Table 2 derived by a top-down or
bottom-up process? Why?
Based on the table, it is impossible to know how the estimates were determined. Each
line item could be roughly scaled from a previous project or derived from a laborious
bottom-up build-up complete with competitive bidding from prospective vendors.
Question 3: What are the answers to Steve White’s questions?
The answers to Steve White’s questions are:
1) The concern about short term ROI assumes that ABI’s market position and
profitability will go on forever with no change required on ABI’s part. There are
serious concerns about ABI’s future market based on changes in the way that their
customers do business. The investment may dilute ROI in the short term, but the
project is intended to maintain ABI’s market position going into the future.
2) The project payoff is not in reduced labor costs, but increased quality and capacity,
allowing ABI to become a sole source parts supplier for a major manufacturer.
3) There is some asset protection built into the project through the choice of equipment
and process. ABI is proposing to use a flexible manufacturing system (FMS) to allow
the new plant to switch to other products and customers at a minimal cost if
necessary.
4) This project is intended to maximize sales potential.
Question 4: What other factors are relevant to this issue?

Some other factors relevant to this issue:
1) ABI’s ability to manage projects that introduce new facilities.

2) ABI’s ability to implement and manage a new manufacturing system.
3) The positions and capabilities of ABI’s competitors.

Question 5: How do the changes in assumptions mentioned by the other managers
affect the proposal?
Three potential assumption changes are mentioned:
1) The possibility that the demand will fall in a much wider range than in the forecasts
used to justify the project. Another way to ask the question is to subject the project
finances and ROI to sensitivity analysis. How robust is the decision under a much
wider range of the inputs, including the sales forecasts?
2) The concern about the Scenario II analysis is only relevant if it affects the project
go/no go decision. The manager’s point seems to be that ABI will not lose as much
from Scenario II as thought, but how is that relevant to the decision? It only matters
if this reduced loss when compared with not performing the project at all is more
favorable to the project.
3) Again, the concern is only relevant if it affects the decision. As discussed in the first
point, sensitivity analysis could be performed to determine how much the outcome is
dependent on the margin. Overall, however, the decision is more of a strategic one
designed to position ABI to be a viable competitor in a sole source environment.
Question 6: What position should Jim take? Why?
Jim should approve the project. The upside is terrific and the risks low.

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Question 4: What other factors are relevant to this issue?

1) ABI’s ability to manage projects that introduce new facilities.

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