University of International Business and Economics

School of International Trade and Economics

LM503 Operations Management
Fall 2018
Problem Set 1 Solutions
Note: You must show your work to fully justify your answers.

1. Product Mix (12 points)

A small insurance company has five employees; one administrative support person
named Lynsey, two junior staff members Candy and Nadia, and two senior team
members Davina and Gordon. The company handles three different types of files:
Low-value, mid-value, and high-value files. Processing different types of files will be
done by different employees and takes the following steps. Low-value files will first
be processed by Lynsey, who needs 20 min per file, before she passes them on to
Davina (30 min per file). Davina finally passes the file to Nadia, who needs 30 min
to complete the file. Mid-value files will be started by Candy (30 min), then go on
to Gordon (30 min), continue to be processed by Nadia (20 min) before Davina (20
min) finishes them. High-value files need to be processed by Candy (20 min), Gordon
(20 min), and finally Davina (10 min).
(a) (4 points) Suppose the company handles an equal number of low-value, mid-
value, and high-value files. Which of the five employees is (or are) the bottleneck?

Solution:
Low-value Medium-value High-value 1LV+1MV+1HV
Lynsey 20 0 0 20
Candy 0 30 20 50
Nadia 30 20 0 50
Davina 30 20 10 60
Gordon 0 30 20 50
Davina is the bottleneck.

(b) (2 points) Does the bottleneck depend on the product mix (of low, medium,
and high value files)? Why or why not?

Solution: Yes, for example Nadia and Davina are the bottlenecks if the
product mix is 2LV+1MV.

Suppose the company decides to stop taking low-value files and focus only on mid-
value and high-value files.
(c) (3 points) Which of the five employees is (or are) the bottleneck? Justify your
answer.

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LM503 Problem Set 1 Fall 2018

Solution:
Medium-value High-value 1MV+1HV
Lynsey 0 0 0
Candy 30 20 50
Nadia 20 0 20
Davina 20 10 30
Gordon 30 20 50
Gordon and Candy are the bottlenecks.

(d) (3 points) Does the bottleneck depend on the product mix (medium and high
value files)? Why or why not?

Solution: No, because 15x + 10y for Candy and Gordon ≥ 10x + 5y for
Davina ≥ 10x for Nadia, where x and y are the number of medium and high
value files, respectively.

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LM503 Problem Set 1 Fall 2018

2. Little’s Law (12 points)

(a) (6 points) Little Claw Pet Hospital takes in stray pets as part of its service to
the community at large. The hospital receives 200 stray pets per month, 40%
of which are cats and the rest are dogs. The average stay of a cat is 15 days
and the average stay of a dog is 10 days. The hospital has enough boarding
facilities to hold a maximum of 50 dogs and 30 cats (a dog cannot be housed in
a cat kennel and vice versa). Is the boarding house at Little Claw big enough
to accommodate the demand on its facilities? Assume 30 days per month.

Solution: Use Little’s Law.

Cats: R = 200 pets/month ×40% = 80 cats/month.
Dogs: R = 200 pets/month ×60% = 120 dogs/month.
Cats: I = R · T = 80 cats/month × 15 30
months = 40 cats.
Dogs: I = R · T = 120 dogs/month × 30 months = 40 dogs.
10

The average inventory of cats (40) would exceed the capacity of the hospital
for cats (30), so the hospital currently cannot accommodate the demand on
its facilities.

(b) (6 points) Little Slaw’s Famous Diner remains open 24 hours per day, 365 days
per year. The total number of customers served in the restaurant during 2008
was 12% greater than the total for 2007. In each year, the number of customers
in the restaurant was recorded at a large number of randomly selected times,
and the average of those numbers in 2008 was 16% greater than the average in
2007. By how much did the average duration of a customer visit to the diner
increase or decrease?

Solution:
I2008 1.16I2007
T2008 = = = 1.036T2007 .
R2008 1.12R2007
Thus, there was a 3.6% increase in the average visit duration from 2007 to
2008.

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LM503 Problem Set 1 Fall 2018

3. Gantt Chart (25 points)

Motivated by “Terminator Salvation”, a toy company plans to produce little toy ter-
minators. Heads and torsos will be assembled separately, but in parallel, and then
the head will be attached to the body before the product will be packaged. In the
following the detailed steps are described: The head goes in sequence through the
following three stations: add eyes (together 10 secs), add chip (10 secs), and add
voice module (10 secs). At the same time as the head finishing, the torso goes in
sequence through the three stations: add legs (together 5 secs), add batteries (15
secs), and add arms (together 5 secs). Then the finished head will be attached to the
finished body (10 secs) and the toy will be packaged (5 secs).

Assume this is a fully automated process.

(a) (2 points) Draw a simple process flow diagram.

Solution: See figure on the last page.

(b) (2 points) What is the theoretical flow time to finish one toy terminator (ignor-
ing time spent waiting in buffers between machines)?

Solution: max{10+10+10,5+15+5}+5+10 = 45 secs.

(c) (2 points) Which station(s) is (or are) the bottleneck?

Solution: Stage ‘add batteries’ has the longest flow time and is therefore
the bottleneck.

(d) (2 points) Assuming the production has been started up in the morning and is
running smoothly now. What is the time between two finished toy terminators?

Solution: The bottleneck determines the capacity rate of the whole sys-
tem. Therefore, the time between two finished toy terminators is the time
needed to add batteries, i.e., 15 secs. The capacity rate of the system is 240
terminators / hr.

(e) (3 points) Draw a Gantt chart for the production of the first three toy ter-
minators in the morning. Use different colors/patterns or numbers (1,2,3) to
distinguish the bars for the three different toy terminators.

Solution: See figure on the last page.

(f) (1 point) What is the utilization of the packing station?

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LM503 Problem Set 1 Fall 2018

Solution: 5/15=33.33%

(g) (2 points) What is the average utilization of all stations?

Solution: (4 × 10/15 + 3 × 5/15 + 15/15)/8 = 7/12 = 58.33%

To improve the process the toy company hires a consultant from “WhiteRock Con-
sulting”. The consultant, Mr. Bryan, looks at the your process flow diagram (see
above) and suggest to add an additional machine to attach head to the torso. His
reasoning is that this station receives input from two assembly lines (head assembly
and torso assembly), and furthermore, it takes twice as long as the packing station.
(h) (2 points) Mr. Bryan claims that this will increase the capacity rate of the pro-
cess. Do you agree? Why or why not?

Solution: No, I do not agree with Mr. Bryan’s claim. Bottleneck will remain
the same.

(i) (2 points) Does this changed design of the process lead to any other changes of
performance characteristics? Please discuss.

Solution: Same flow time. Lower utilization.

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LM503 Problem Set 1 Fall 2018

Using the initial process setup (without Mr. Bryan’s changes), the company also
wants to produce iRobots. The difference to toy terminators is that they do not use
batteries, do not need a control chip and do not have a voice module.
(j) (2 points) What is the theoretical flow time to finish one iRobot (ignoring time
spent waiting in buffers between machines)?

Solution: max{10,5+5}+5+10 = 25 secs.

(k) (2 points) Which station(s) is (or are) the bottleneck?

Solution: There are two bottleneck stations, which are ‘add eyes’ and ‘at-
tach head to torso’.

(l) (3 points) Throughout the day, the company would like to make toy terminators
and iRobots at a ratio of 2:1. Based on this product mix, which station(s) is (or
are) the bottleneck?

Solution: There are three bottleneck stations, which are ‘add batteries’,
‘add eyes’ and ‘attach head to torso’. Given that the company needs to
make toy terminators and iRobots at a ratio of 2:1, the flow time of the
above three stations becomes the longest, which is 30 secs.

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LM503 Problem Set 1 Fall 2018

4. Inventory Build-up and Little’s Law (19 points)

Consider a firm that operates a cannery. All fish brought in by a fleet of fishing boats
are processed at the cannery. The firm also has a freezer of unlimited size that stores
unprocessed fish.

There are three seasons. The fleet yields 3,600 tons/month during the first third
of the year, 4,800 tons/month during the middle third, and only 600 tons/month
during the final third. The cannery’s processing capacity equals 3,000 tons/month.

(a) (3 points) Draw an inventory build-up diagram for one year.

Solution: see Figure. For the first third of the year, the incoming fish supply
exceeds the cannery’s processing capacity at the rate of 600 tons/month
(3,600 tons/month - 3,000 tons/month). For the middle third, the supply
exceeds processing capacity by 1,800 tons/month. For the final third of the
year, the supply is only 600 tons/month, thereby allowing the cannery to
reduce the amount in the queue at the rate of 2,400 tons/month.

(b) (2 points) What is the average monthly inventory.

Solution: Average inventory = (48,000 Ton Months)/(12 Months) = 4,000

Tons

(c) (2 points) Calculate the average system throughput rate.

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LM503 Problem Set 1 Fall 2018

Solution: 3,000 Tons/Month. Avg. throughput rate = processing capacity

rate, because even during the final third of the year there is still enough fish
in the freezer.

(d) (2 points) Determine the average waiting time for fish in the freezer (= average
time spent in the freezer before being processed).

Solution: Little’s Law:

Avg. waiting time = (avg. inventory)/(avg. processing rate) = (4000 Ton-
s)/(3000 Tons/Month) = 1.33 Months
OR
Avg. waiting time = (Total inventory months)/(Total Yearly Arrivals) =
(48,000 Ton Months/Year)/(36,000 Tons/Year) = 1.33 Months

Scenario 2: The freezer size is limited to 2,400 tons. Assume the fishing fleet will not
catch more than 3,000 tons per month when the freezer is full.
(e) (3 points) Draw an inventory build-up diagram for one year.

Solution: see Figure. The freezer reaches its limit of 2,400 tons at the end
of month 4. During the middle third of the year, the fleet can only fish at
3,000 tons per month due to the storage constraint. The cannery works off
the entire freezer inventory in month 9 since the harvesting rate in third
season is only 600 tons/month.

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LM503 Problem Set 1 Fall 2018

(f) (2 points) What is the average monthly inventory.

Solution: Average inventory = (15,600 Ton Months)/(12 Months) = 1,300

Tons

(g) (3 points) Calculate the average system throughput rate.

Solution: For the first 9 months of the year, the cannery is processing at the
rate of 3,000 unprocessed tons/month. For the final 3 months, the cannery
processes only 600 tons/month. Therefore, to calculate the average through-
put rate for unprocessed fish, we need to calculate a weighted average. Avg.
processing rate for unprocessed fish equals: ((3000 Tons/Month)(9 Months)
+ (600 Tons/Month)(3 Months)) / 12 Months = 2,400 Tons/Month

(h) (2 points) Determine the average waiting time for fish in the freezer (= average
time spent in the freezer before being processed).

Solution: Little’s Law:

Avg. waiting time = (avg. inventory)/(avg. processing rate) = (1300 Ton-
s)/(2400 Tons/Month) = 0.54 Months

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LM503 Problem Set 1 Fall 2018

5. Queuing Models (18 points)

Ivan’s Car Wash

Ivan opens his new Hand Car Wash company. The opening day is going well and the
average time to wash a car is 20 minutes. Ivan keeps track of the washing process very
carefully and observes a standard deviation of 12.5 minutes. The arrival of customers
follows a Poisson process with an average inter-arrival time of 30 minutes. (Hint:
The arrival follows a Poisson process is equivalent to say that the inter-arrival time
follows an exponential distribution.)
(a) (4 points) Give arrival rate λ, service rate µ, Ca , and Cs .

Solution: Arrival rate λ = 1/30 [min/customers] = 2 customers/hr. Ser-

vice rate µ = 1/20 [min/customers] = 3 customers/hr. Customer arrivals
follow a Poisson process, i.e., the inter-arrival times are exponentially dis-
tributed, so Ca = 1. The coefficient of the service times is

Cs = σs /E{s} = 12.5/20 = 0.625.

(b) (1 point) On average, what is the utilization of the system?

Solution: ρ = λ/µ = 2/3 = 66.67%.

(c) (4 points) On average, how long do customers have to wait before they can enter
the bay?

Solution:
ρ2 C 2 + Cs2
Iq = · a
1−ρ 2
( )2
2
3 12 + 0.6252
= ×
1 − 32 2
= 0.927 customers.
Iq
Tq =
λ
= 0.4635 hours
= 27.81 minutes.

Therefore, on average, customers need to wait 27.81 minutes before they can
enter the bay.

Because of the high labor cost and the high variability in service time, Ivan decides to
stop the hand-wash service, and invests in a mechanized car wash. This automated
service takes exactly 10 minutes.

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LM503 Problem Set 1 Fall 2018

(d) (3 points) On average, how many customers are in the queue now?

Solution: Deterministic time for car wash, so Cs = 0. Service rate µ = 6

customers/hr. From part (a), we know λ = 2, Ca = 1.

ρ2 C 2 + Cs2
Iq = · a
1−ρ 2
2
(2/6) 12 + 02
= ×
1 − 2/6 2
= 0.083 customers.

On average, there are 0.083 customers in the queue now.

Due to low price and fast service, the demand at Ivan’s company increases dramat-
ically. On average, 10 customers arrive in one hour. The inter-arrival times are
exponentially distributed. In order to keep the waiting time low, Ivan adds a second
automated bay, which also takes exactly 10 minutes to wash a car.
(e) (1 point) Customers follow a single waiting line. What is queuing notation of
the current system?

Solution: The inter-arrival times are exponentially distributed. The service

times are deterministic. Now, we have two servers, so c = 2. Hence, the
queuing notation is M/D/2.

(f) (1 point) What is the average utilization of the current system?

Solution: The utilization of the system is

λ 10 5
ρ= = = = 83.33%.
2µ 12 6

(g) (4 points) On average, how many customers are there in the whole system (wait-
ing line plus in service)?

Solution: On average, the number of customers in the whole system is

I = Iq + Is
√
ρ 2(c+1) Ca2 + Cs2 λ
= · +
1−ρ 2 µ
( )
√
2(2+1)
5
6 12 + 02 10
= × +
1 − 56 2 6
= 1.9194 + 1.6667 = 3.586 customers.

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LM503 Problem Set 1 Fall 2018

6. Project Management (14 points)

After receiving an A in Operations Management you have been hired for a summer
job in Beijing as a Project Manager. The activities, their predecessors, and their
respective time estimates are shown below:

ID Immediate Normal Normal Crash Crash

Predecessor Time Cost Time Cost
A - 9 150 6 210
B A 30 180 27 270
C A 18 240 12 480
D A 33 150 21 450
E B, D 15 120 12 210
F C 24 300 18 580
G E, F 18 210 Cannot be crashed

(a) (3 points) Draw the critical path diagram.

Solution: See figure on the last page.

(b) (4 points) What is the critical path? What is the duration of this project (using
normal times)? What is the total normal cost?

Solution:
Critical Path(s): A-D-E-G.
Initial Project Duration: 75 days.
Initial Total Cost 1350.

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LM503 Problem Set 1 Fall 2018

(c) (7 points) Because you have to be back to school in September, and you can-
not start before you have finished your last final exam, you need to shorten the
project to 63 days (end of June to end of August). You want to keep the cost as
low as possible since the budget is very tight. What is the minimum total cost
to finish the project in 63 days?

Solution:
Total Costs # Days Critical Paths Crashable Tasks Best Option
1350 75 A-D-E-G A, D and E A
1410 72 A-D-E-G D and E D
1485 69 A-D-E-G B, D and E E
A-B-E-G
1575 66 A-D-E-G B, C, D and F B, C and D
A-B-E-G
A-C-F-G
1860 63 A-D-E-G
A-B-E-G
A-C-F-G

Page 13 of 13 End of Problem Set 1.

3. Gantt Chart
(a) Draw a simple process flow diagram.

(e) Draw a Gantt chart for the production of the first three toy terminators in the morning.
Activities Time Span
Add Eyes 10 1 2 3
Add Chip 10 1 2 3
Add Voice 10 1 2 3
Add Legs 5 1 2 3
Add Batteries 15 1 2 3
Add Arms 5 1 2 3
Attach H to B 10 1 2 3
Package 5 1 2 3
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75

6. Project Management