Operation Management

Operation Management


         A company needs to truck a load of goods to another warehouse.  With standard shipping, it takes two days to deliver the goods.  If the company opts for express delivery by hiring an extra driver for $175, then the load can be driven around the clock so the delivery time is reduced to one day.  The shipment is valued at $1M, the company’s annual holding cost is 25%, and it is open for business every day of the year.   Determine the cost difference between the two options.  Express your answer rounded to the nearest dollar without the $ or commas.



         A factory needs to produce 80 units per day.  It is open for business 8 hours per day.  Determine the required Takt time in minutes rounded to the nearest minute.


4 points  


         Prior to a set of on-site vendor evaluations, your purchasing team determined what it wanted to see in an appropriate vendor and assigned weights to each factor as follows:

                Decision Factor         Weight
   1         Quality         25%
   2         Location         15%
   3         Price         20%
   4         Staff Support         5%
   5            Financing Terms         35%

   After the evaluation visits, the team ranked the 4 vendor candidates as follows:

             QualityLocationStaff SupportPriceFinancing Terms
            Pogo Company            5            3            3            1            5
            GoGo Incorporated            3            1            5            3            5
            Logo Corporation            3            5            3            5            3
            Dodo Limited            5            3            1            5            3

         Determine the numeric score for GoGo Incorporated to the nearest tenth (0.1 accuracy) and enter it in the box below.


5 points  


         The IT department at a local business determined that the computer server was not capable of handling the additional e-commerce traffic with the introduction of 2 new product lines. A eager junior IT staff (new graduate of a JC) suggested that the company acquire the top BL server product from IBM based on the following numbers:

         Initial installed cost: $35,000

         Annual operating cost: $2,500 per year

         Salvage value: $3,000

         Asset life (life of computer): 5 years

         Firm’s weighted average cost of capital (WACC): 10%

         The expected net cash inflow from this asset investment is expected to be $10,500 per year during the asset’s useful life of 5 years. Using the convention of “Cash In” as positive cash flow and “Cash Out” as negative cash flow, determine the net present value of this proposed asset investment to the nearest dollar. The CIO (Chief Information Officer) is very sensitive to the company’s P&L (profit and loss) position.

         Hint: Present Values of Future Cash Flows


5 points  


         Based on the result above, select the appropriate (best) statement you should make to the CIO.

multiple choice:

        A.           A. “The annual $10,000 cash inflows from this investment far exceeds the annual cash outflows. Additionally, the total cash inflows also exceed the initial cash out (investment). I concur with my colleague and recommend that we invest in this asset!”

        B.         B. “Mr. CIO… with all due respect towards my JUNIOR colleague, the numbers disagree with his recommendation. Given the cash flows, the investment has a poor NPV and thus should not be considered unless we can negotiate a better initial cost for this asset or improve upon the project’s cash inflows.”

        C.         C. “The cash inflows from revenues are higher than the cash out for operating expenses. The NPV looks great. I concur with my colleague -invest in this asset!”

        D.         D. “I don’t know, Sir. I feel incompetent, having barely passed Finance and Ops. I must defer my recommendation until tomorrow, so I may confer with a colleague.”