SOLUTION MANUAL
Matching Supply with Demand: An Introduction to Operations Management
Gérard Cachon
5th Edition
,Table of Contents
Chapter 1: Introduction
Chapter 2: The Process View of the Organization
Chapter 3: Understanding the Supply Process: Evaluating Process Capacity
Chapter 4: Estimating and Reducing Labor Costs
Chapter 5: Batching and Other Flow Interruptions: Setup Times and the Economic Order
Quantity Model
Chapter 6: The Link Between Operations and Finance
Chapter 7: Quality and Statistical Process Control
Chapter 8: Lean Operations and the Toyota Production System
Chapter 9: Variability and Its Impact on Process Performance: Waiting Time Problems
Chapter 10: The Impact of Variability on Process Performance: Throughput Losses
Chapter 11: Scheduling to Prioritize Demand
Chapter 12: Project Management
Chapter 13: Forecasting
Chapter 14: Betting on Uncertain Demand: The Newsvendor Model
Chapter 15: Assemble-to-Order, Make-to-Order, and Quick Response with Reactive Capacity
Chapter 16: Service Levels and Lead Times in Supply Chains: The Order-Up-To Inventory
Model
Chapter 17: Risk-Pooling Strategies to Reduce and Hedge Uncertainty
Chapter 18: Revenue Management with Capacity Controls
Chapter 19: Supply Chain Coordination
,Chapter 2
The Process View of the Organization
Q2.1 Dell
The following steps refer directly to Exhibit 2.1.
#1: For 2001, we find in Dell’s 10-k: Inventory = $400 (in million)
#2: For 2001, we find in Dell’s 10-k: COGS = $26,442 (in million)
26, 442$/ year
#3: Inventory turns = = 66.105 turns per year
400$
40% per year
#4: Per unit Inventory cost = = 0.605% per year
66.105 per year
Q2.2. Airline
We use Little’s law to compute the flow time, since we know both the flow rate as well
as the inventory level:
Flow Time = Inventory/ Flow Rate = 35 passengers/ 255 passengers per hour = 0.137 hours
= 8.24 minutes
Q2.3 Inventory Cost
(a) Sales = $60,000,000 per year / $2000 per unit = 30,000 units sold per year
Inventory = $20,000,000 / $1000 per unit = 20,000 units in inventory
Flow Time = Inventory/ Flow Rate = 20,,000 per year = year = 8 months
Turns = 1/ Flow Time = 1/( year) = 1.5 turns per year
Note: we can also get this number directly by writing: Inventory turns = COGS / Inventory
(b) Cost of Inventory: 25% per year /1.5 turns = 16.66%. For a $1000 product, this would
make an absolute inventory cost of $166.66 .
Q2.4. Apparel Retailing
(a) Revenue of $100M implies COGS of $50M (because of the 100% markup).
Turns = COGS/ Inventory = $50M/ $5M = 10 .
(b) The inventory cost, given 10 turns, is 40%/10 = 4% . For a 30$ item, the inventory
cost is 0.4 $30 = $1.20 per unit .
Q2.5. La Villa
(a) Flow Rate = Inventory / Flow Time = 1200 skiers /10 days = 120 skiers per day
(b) Last year: on any given day, 10% (1 of 10) of skiers are on their first day of skiing
, This year: on any given day, 20% (1 of 5) of skiers are on their first day of skiing
Average amount spent in local restaurants (per skier)
Last year = 0.1$50 + 0.9$30 = $32
This year = 0.2$50 + 0.8$30 = $34
% change = ($34 −$32) / $32 = 6.25% increase
Q2.6. Highway
We look at 1 mile of highway as our process. Since the speed is 60 miles per hour, it
takes a car 1 minute to travel through the process (flow time).
There are 24 cars on ¼ of a mile, i.e. there are 96 cars on the 1 mile stretch (inventory).
Inventory = Flow Rate * Flow Time: 96 cars = Flow Rate * 1 minute
Thus, the Flow Rate is 96 cars per minute, corresponding to 96*60 = 5760 cars per hour.
Q2.7. Strohrmann Baking
The bread needs to be in the oven for 12 minutes (flow time). We want to produce at a
flow rate of 4000 breads per hour, or 4000/60 = 66.66 breads per minute.
Inventory = Flow Rate * Flow Time: Inventory = 66.66 breads per minute* 12 minutes
Thus, Inventory = 800 breads, which is the required size of the oven.
Q2.8. Mt Kinley Consulting
We have the following information available from the question:
Level Inventory (number of consultants at Flow Time (time spent at that
that level) level)
Associate 200 4 years
Manager 60 6 years
Partner 20 10 years
(a) We can use Little’s law to find the flow rate for associate consultants: Inventory =
Flow Rate * Flow Time; 200 consultants = Flow Rate * 4 years; thus, the flow rate is
50 consultants per year, which need to be recruited to keep the firm in its current size
(note: while there are also 50 consultants leaving the associate level, this says nothing
about how many of them are dismissed vs how many of them are promoted to
Manager level).
(b) We can perform a similar analysis at the manager level, which indicates that the flow
rate there is 10 consultants. In order to have 10 consultants as a flow rate at the
manager level, we need to promote 10 associates to manager level (remember, the
firm is not recruiting to the higher ranks from the outside). Hence, every year, we
dismiss 40 associates and promote 10 associates to the manager level (the odds at that
level are 20%)
Matching Supply with Demand: An Introduction to Operations Management
Gérard Cachon
5th Edition
,Table of Contents
Chapter 1: Introduction
Chapter 2: The Process View of the Organization
Chapter 3: Understanding the Supply Process: Evaluating Process Capacity
Chapter 4: Estimating and Reducing Labor Costs
Chapter 5: Batching and Other Flow Interruptions: Setup Times and the Economic Order
Quantity Model
Chapter 6: The Link Between Operations and Finance
Chapter 7: Quality and Statistical Process Control
Chapter 8: Lean Operations and the Toyota Production System
Chapter 9: Variability and Its Impact on Process Performance: Waiting Time Problems
Chapter 10: The Impact of Variability on Process Performance: Throughput Losses
Chapter 11: Scheduling to Prioritize Demand
Chapter 12: Project Management
Chapter 13: Forecasting
Chapter 14: Betting on Uncertain Demand: The Newsvendor Model
Chapter 15: Assemble-to-Order, Make-to-Order, and Quick Response with Reactive Capacity
Chapter 16: Service Levels and Lead Times in Supply Chains: The Order-Up-To Inventory
Model
Chapter 17: Risk-Pooling Strategies to Reduce and Hedge Uncertainty
Chapter 18: Revenue Management with Capacity Controls
Chapter 19: Supply Chain Coordination
,Chapter 2
The Process View of the Organization
Q2.1 Dell
The following steps refer directly to Exhibit 2.1.
#1: For 2001, we find in Dell’s 10-k: Inventory = $400 (in million)
#2: For 2001, we find in Dell’s 10-k: COGS = $26,442 (in million)
26, 442$/ year
#3: Inventory turns = = 66.105 turns per year
400$
40% per year
#4: Per unit Inventory cost = = 0.605% per year
66.105 per year
Q2.2. Airline
We use Little’s law to compute the flow time, since we know both the flow rate as well
as the inventory level:
Flow Time = Inventory/ Flow Rate = 35 passengers/ 255 passengers per hour = 0.137 hours
= 8.24 minutes
Q2.3 Inventory Cost
(a) Sales = $60,000,000 per year / $2000 per unit = 30,000 units sold per year
Inventory = $20,000,000 / $1000 per unit = 20,000 units in inventory
Flow Time = Inventory/ Flow Rate = 20,,000 per year = year = 8 months
Turns = 1/ Flow Time = 1/( year) = 1.5 turns per year
Note: we can also get this number directly by writing: Inventory turns = COGS / Inventory
(b) Cost of Inventory: 25% per year /1.5 turns = 16.66%. For a $1000 product, this would
make an absolute inventory cost of $166.66 .
Q2.4. Apparel Retailing
(a) Revenue of $100M implies COGS of $50M (because of the 100% markup).
Turns = COGS/ Inventory = $50M/ $5M = 10 .
(b) The inventory cost, given 10 turns, is 40%/10 = 4% . For a 30$ item, the inventory
cost is 0.4 $30 = $1.20 per unit .
Q2.5. La Villa
(a) Flow Rate = Inventory / Flow Time = 1200 skiers /10 days = 120 skiers per day
(b) Last year: on any given day, 10% (1 of 10) of skiers are on their first day of skiing
, This year: on any given day, 20% (1 of 5) of skiers are on their first day of skiing
Average amount spent in local restaurants (per skier)
Last year = 0.1$50 + 0.9$30 = $32
This year = 0.2$50 + 0.8$30 = $34
% change = ($34 −$32) / $32 = 6.25% increase
Q2.6. Highway
We look at 1 mile of highway as our process. Since the speed is 60 miles per hour, it
takes a car 1 minute to travel through the process (flow time).
There are 24 cars on ¼ of a mile, i.e. there are 96 cars on the 1 mile stretch (inventory).
Inventory = Flow Rate * Flow Time: 96 cars = Flow Rate * 1 minute
Thus, the Flow Rate is 96 cars per minute, corresponding to 96*60 = 5760 cars per hour.
Q2.7. Strohrmann Baking
The bread needs to be in the oven for 12 minutes (flow time). We want to produce at a
flow rate of 4000 breads per hour, or 4000/60 = 66.66 breads per minute.
Inventory = Flow Rate * Flow Time: Inventory = 66.66 breads per minute* 12 minutes
Thus, Inventory = 800 breads, which is the required size of the oven.
Q2.8. Mt Kinley Consulting
We have the following information available from the question:
Level Inventory (number of consultants at Flow Time (time spent at that
that level) level)
Associate 200 4 years
Manager 60 6 years
Partner 20 10 years
(a) We can use Little’s law to find the flow rate for associate consultants: Inventory =
Flow Rate * Flow Time; 200 consultants = Flow Rate * 4 years; thus, the flow rate is
50 consultants per year, which need to be recruited to keep the firm in its current size
(note: while there are also 50 consultants leaving the associate level, this says nothing
about how many of them are dismissed vs how many of them are promoted to
Manager level).
(b) We can perform a similar analysis at the manager level, which indicates that the flow
rate there is 10 consultants. In order to have 10 consultants as a flow rate at the
manager level, we need to promote 10 associates to manager level (remember, the
firm is not recruiting to the higher ranks from the outside). Hence, every year, we
dismiss 40 associates and promote 10 associates to the manager level (the odds at that
level are 20%)
