**Question:**

Multiple choice questions:

Q1- Choose all of the below statements that are **consistent with lean thinking**.

- Transportation is one of the Seven Wastes (Muda)
- Creating numerical targets is the best way to motivate workers
- Each department or function should see other departments that use their output as customers
- Cultivate human capability through respect
- People are the most valuable resources
- Inventory is one of the Seven Wastes (Muda)
- Ideally, products should be pulled through production flows by customers
- Value is determined by what matters to the customer
- Waiting is one of the Seven Wastes (Muda)
- The customer determines the price
- Achieve desired profit by increasing the price of products
- Inspection is the best way to ensure quality
- Automation is the most important component of flow efficiency
- To manage effectively, go and see where the work really takes place
- Human capability is greater than machine capability

Q2- Lean is a set of principles that can be put into practice effectively in any organization regardless of leadership style or culture

Group of answer choices

True

False

Q3- As work flows from one step to another in a Lean organization where there are multiple available work stations downstream,

- to minimize flow time it always flows to the same work station
- to ensure consistency, visibility, and accountability it always flows to the same work station
- to minimize flow time it always flows to the next available work station
- to ensure consistency, visibility, and accountability it always flows to the next available work station

Q4- How does rigid specifications enable flexibility and creativity in Lean?

- By reducing variability introduced by individual workers’ improvement ideas
- By centrally controlling leading practices to provide top-down consistency
- By establishing a controlled baseline from which to design and evaluate improvements
- By ensuring only the most skilled workers provide input to improvement ideas

Q5- What is the most common and direct type of waste created by the bullwhip effect? Choose the best answer.

- Waiting
- Over processing
- Inventory
- Motion
- Transportation

Q6- Which of the below is NOT a potential cause of the bullwhip effect?

- Bulk price discounts
- Shortage gaming
- Demand fluctuations
- Infrequent orders

Q7- Which one of the following is a key challenge to implementing the Barilla JITD ordering process?

- Lack of trust
- Too much waste (muda)
- Implementing a waterfall vs agile model
- Technology limitations

## Revision Section

**For the disaster risk decision tree model, explain why an increase in S and an increase in U have the opposite impact on the choice of how many suppliers to use. What is the implication of these two phenomena taken together?**

Answer: From formula (S11-1), we notice that when S increases, (1 – S) decreases; therefore, the disruption risk probability due to all suppliers individually failing at the same time receives less weight. In other words, there’s a higher chance that all will be disrupted by a super-event anyway, so there is less incentive to increase the supplier base to handle the case where every supplier has a unique-event at the same time. Mathematically, the impact of a higher n in the second term is smaller because it’s being multiplied by (1 – S), which is smaller. Having said that, a larger S does increase the overall probability of total disruption, so it’s never a desired occurrence–it just means that simply adding more suppliers may not be quite as effective of a mitigation strategy. On the other hand, when U increases, the impact of the second term of formula (S11-1) increases, so adding another supplier (raising n by 1) has even more impact. This makes sense–the greater the chance that each supplier will individually fail, the more likely it is that we will want more suppliers.

**An implication of all of this is to try to reduce the value of S by changing the geographical landscape. In other words, in most circumstances, S would be larger for a city than for a country than for the whole world. Therefore, a geographically diversified supplier base would reduce S. In conclusion, when multiple suppliers are used, managers may consider using ones that are geographically dispersed to lessen the probability of all failing simultaneously.For the disaster risk decision tree model, explain why an increase in S and an increase in U have the opposite impact on the choice of how many suppliers to use. What is the implication of these two phenomena taken together?**

Answer: From formula (S11-1), we notice that when S increases, (1 – S) decreases; therefore, the disruption risk probability due to all suppliers individually failing at the same time receives less weight. In other words, there’s a higher chance that all will be disrupted by a super-event anyway, so there is less incentive to increase the supplier base to handle the case where every supplier has a unique-event at the same time. Mathematically, the impact of a higher n in the second term is smaller because it’s being multiplied by (1 – S), which is smaller. Having said that, a larger S does increase the overall probability of total disruption, so it’s never a desired occurrence–it just means that simply adding more suppliers may not be quite as effective of a mitigation strategy. On the other hand, when U increases, the impact of the second term of formula (S11-1) increases, so adding another supplier (raising n by 1) has even more impact. This makes sense–the greater the chance that each supplier will individually fail, the more likely it is that we will want more suppliers.

An implication of all of this is to try to reduce the value of S by changing the geographical landscape. In other words, in most circumstances, S would be larger for a city than for a country than for the whole world. Therefore, a geographically diversified supplier base would reduce S. In conclusion, when multiple suppliers are used, managers may consider using ones that are geographically dispersed to lessen the probability of all failing simultaneously.

Walsh Construction is considering two options for its supplier portfolio. Option 1 uses two local suppliers. Each has a “unique-event” risk of 8%, and the probability of a “super-even” that would disable both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries. Each has a “unique-event” risk of 18%, and the probability of a “super-event” that would disable both at the same time is estimated to be 1.2%.

**(a) What is the probability that both suppliers will be disrupted using option 1?(b) What is the probability that both suppliers will be disrupted using option 2?(c) Which option would provide the lowest risk of a total shutdown?**(a) S = 0.025; U = 0.08

From (S11 – 1), P(2) = 0.025 + (1 – 0.025)0.082 = 0.025 + 0.975(0.0064) = 0.03124

(b) S = 0.012; U = 0.18

From (S11 – 1), P(2) = 0.012 + (1 – 0.012)0.182 = 0.012 + 0.988(0.0324) = 0.04401

(c) Since 0.03124 < 0.04401, Option 1 (two local suppliers) carries the lower risk.

**Consider the disaster risk decision tree model.(a) Derive a formula to represent the amount that the probability of all suppliers being disrupted simultaneously, P(n), will increase if the super-event probability S is doubled.(b) Test your formula by computing the amount of increase if the original S equals 1% and there are two suppliers, each with U = 4%.**(a) Formula (S11 – 1) can be rewritten as: P(n) = S + Un – SUn

If S doubles: P(n) = 2S + Un – 2SUn

Subtracting the first equation from the second yields an increase of:

S – SUn, or S(1 – Un)

(b) The original P(2) = .01 + (1 – .01)(.042) = .01 + .001584 = .011584

If S doubles to .02, P(2) = .02 + (1 – .02)(.042) = .02 + .001584 = .021568

The increase = .021568 – .011584 = .009984 = .01(1 – .042)

**Suzy Jones is trying to decide whether to use one or two suppliers for the motors than go into the chain saws that her company produces. She wants to use local suppliers because her firm runs a JIT operation. Her factory is located in a coastal town that is prone to hurricanes. She estimates that the probability in any year of a “super-event” that might shut down all suppliers at the same time for at least two weeks is 5%. Such a total shutdown would cost the company approximately $100,000. She estimates the “unique-event” risk for any of the suppliers to be 10%. Assuming that the marginal cost of managing an additional supplier is $12,000 per year, should Suzy use one or two suppliers?**S = 0.05, U = 0.10, L = $100,000, C = $12,000

Using equation (S11-1), the probability of a total disruption using 1 or 2 suppliers equals:

P(1): 0.05 + (1 – 0.05)0.101 = 0.05 + (0.95)(0.10) = 0.145

P(2): 0.05 + (1 – 0.05)0.102 = 0.05 + (0.95)(0.01) = 0.0595

EMV(1 supplier) = $12,000(1 – 0.145) + $112,000(0.145) = $10,260 + $16,240 = $26,500

EMV(2 suppliers) = $24,000(1 – 0.0595) + $124,000(0.0595) = $22,572 + $7,378 = $29,950

In this case, the lower disruption probability of diversification is outweighed by the cost of managing a second supplier. Thus, one supplier should be chosen.

**The bullwhip effect describes the tendency for larger order size fluctuations in the supply chain as orders move from suppliers toward retailers.**False

The bullwhip effect can occur when orders decrease as well as when they increase.

True

**The overarching solution to the bullwhip effect is simply for supply chain members to share information and work together.**True

**A bullwhip measure value greater than zero indicates that the bullwhip effect exists.**False

**Which of the following is NOT a potential cause of the bullwhip effect?**B) channel coordination

Which of the following is NOT a remedy for the bullwhip effect?

C) order batching

**Which of the following is the prescribed remedy when the bullwhip effect is caused by shortage gaming?**E) allocate orders based on past demand

**What is the formula for the bullwhip measure?**A) variance of orders / variance of demand

What value of the bullwhip measure would indicate that the bullwhip effect exists?

A) greater than 1

**What value of the bullwhip measure would indicate that a dampening scenario exists?**D) less than 1

What is the value of the bullwhip measure for a company with a standard deviation of demand equal to 20, and a variance of orders equal to 450?

C) 1.125

450/20^2=1.125

**If the variance of orders of a manufacturer equals 800, and the variance of orders of its supplier equals 750, what is happening at this part of the supply chain?**B) The supplier is providing a dampening (anti-bullwhip) effect.

**Suppose that in month 1, both the retailer and the wholesaler in a supply chain ordered 20,000 units. Then in month 2, the retailer decreases its order size by 1000 units. If the wholesaler then decreases its order size in month 2 by 700 units, which of the following is TRUE?**B) The wholesaler is providing a dampening (anti-bullwhip) effect.

The U.S. ** __** program, designed to stimulate the economy and improve fuel efficiency, produced an unintended bullwhip effect in the automobile industry.

Cash for Clunkers

**Identify the four primary causes of the bullwhip effect and the remedy for each.**(1) Cause: Demand forecast errors (cumulative uncertainty in the supply chain); Remedy: Share demand information throughout the supply chain.

(2) Cause: Order batching (large, infrequent orders leading suppliers to order even larger amounts); Remedy: Channel coordinationâ€”determine lot sizes as though the full supply chain was one company.

(3) Cause: Price fluctuations (buying in advance of demand to take advantage of low prices, discounts, or sales); Remedy: Price stabilization (everyday low prices).

(4) Cause: Shortage gaming (hoarding supplies for fear of a supply shortage); Remedy: Allocate orders based on past demand.

**Describe how the U.S. Cash for Clunkers program unintentionally contributed to the bullwhip effect in the automobile industry.**In an effort to stimulate the economy and improve fuel efficiency, the United States offered attractive rebates for trading old cars in exchange for new, more fuel-efficient vehicles. This eight-week program proved very popular with consumers. Fearing a shortage and assuming that they would not receive 100% of their orders, some dealers inflated orders for new cars to try to receive a larger pool of allocated vehicles. In one month, the program increased demand by 50% for automakers, many of whom had already cut capacity significantly. Almost overnight, manufacturers and parts suppliers had to transform from a shift reduction mode to an overtime mode.

**Suppose that a firm incurs a demand variance of 400 units per week, and the variance of orders that it places equals 750 per week. What is the value of the bullwhip measure for this company?**Variance of orders / Variance of demand = 750 / 400 = 1.875 (so amplification is present)

**Consider a supply chain where a manufacturer sells to a distributor who sells to a wholesaler who sells to a retailer. Last year, the retailer’s weekly variance of demand was 4000 units. The weekly variance of orders was 5000; 8000; 12,000; and 17,000 units for the retailer, wholesaler, distributor, and manufacturer, respectively. (Note that the variance of orders equals the variance of demand for that firm’s supplier.)**(a) Calculate the bullwhip measure for the retailer.

(b) Calculate the bullwhip measure for the wholesaler.

(c) Calculate the bullwhip measure for the distributor.

(d) Calculate the bullwhip measure for the manufacturer.

(e) Which firm appears to be contributing the most to the bullwhip effect in this supply chain?

(a) 5000 / 4000 = 1.25; (b) 8000 / 5000 = 1.6; (c) 12,000 / 8000 = 1.5; (d) 17,000 / 12,000 = 1.42

(e) With the highest bullwhip measure value of 1.6, the wholesaler appears to be contributing the most to the bullwhip effect in this supply chain.

Over the past six months, Wholesale Foods of Fresno has experienced a standard deviation of demand of 600 units. Standard deviation of its orders during that period was 800 units.**(a) What is the bullwhip measure for Wholesale Foods of Fresno?(b) If Wholesale Foods of Fresno had made a perfect forecast of demand over the past 6 months and had decided to order 1/6 of that demand each month, what would its bullwhip measure have been?**(a) Variance of orders / Variance of demand = 8002 / 6002 = 640,000 / 360,000 = 1.78 (Note that while using the standard deviations to calculate the bullwhip measure would still indicate whether or not amplification exists, the value of that calculation would be different from that prescribed by equation (S11-2).)

(b) If order sizes are always the same, then the variance of orders equals 0. From Equation (S11-2), the bullwhip measure = 0 / 360,000 = 0 (complete dampening).

When using the factor weighting approach, most companies will use the same list of criteria and the same criteria weights.

False

The factor weighting model is an attempt to add subjectivity to decision making when selecting among suppliers.

False

Choosing suppliers simply based on the lowest bid has become a somewhat rare approach.

True

**A grocery store is trying to find a new supplier for carrots. Its three most important supplier criteria are freshness, lot size, and cost, with factor weights of 0.6, 0.1, and 0.3, respectively. What would a supplier with ratings of 6, 8, and 10 in the three respective categories score as a weighted total?**C) 7.4

**An industrial producer is searching for a supplier for ball bearings. Its three most important supplier criteria are price, quality, and delivery reliability. The firm has decided that quality and delivery reliability should carry the same weight, and that each of them are twice as important as price. If the weights sum to 100%, what would a supplier with ratings of 40, 90, and 75 in the three respective categories score as a weighted total?**A) 37

B) 370

C) 49

D) 205

E) 74

E) 74

Which of the following is NOT REQUIRED information to obtain to conduct the factor weighting technique in supplier selection analysis?

D) a qualitative scale on which to rate suppliers

**Which of the following elements of the factor weighting technique in supplier selection analysis does NOT contain a certain degree of subjectivity?**A) the formula used to calculate the total weighted score for each supplier

The ** __** model adds objectivity to decision making when selecting suppliers.

factor weighting

**Briefly describe how to conduct the factor weighting approach to supplier evaluation.**The factor weighting technique simultaneously considers multiple supplier criteria. First a set of important selection criteria must be chosen. Then an importance weight must be assigned to each factor. These weights often sum to 100%. Then each potential supplier is scored on each selection criterion according to the same numerical scale (e.g., 1-10). Finally, each supplier’s weighted total score equals the sum over all selection criteria of the product of that supplier’s score multiplied by the importance weight for that criterion. The supplier with the highest total scored is deemed most attractive.

**A company is about to select a vendor for the outsourcing of all of its engineering, environmental, and CAD requirements. It has identified four criteria critical to the selection. These criteria, and their importance weights, appear below. Three firms, A, C, and E, have indicated that they are interested in this position. The company has scored each of the three candidates on these criteria, using a 1-10 scale, where 10 is best. Candidate A scored 7, 7, 7, and 5, respectively, on the four criteria. Candidate C scored 9, 4, 8, and 6. Candidate E scored 5, 10, 10, and 7. Which vendor has the highest composite score?**Criterion, Weight

Engineering expertise, .40

Financial and managerial strength, .20

Integrity, .15

Staff experience and qualifications, .25

Company E has the highest composite score of 7.25

**Tommy’s Family Furniture is looking for a new supplier for its armchairs. Tommy is primarily interested in only two criterion: price and name brand value. He considers the value of the name brand to be three times more important than price. Tommy has narrowed his choices to two suppliers. On a 10-point scale, he has assigned Amy’s Armchairs a score of 8 on price and 5 on name brand value. He has assigned Annie’s Armchairs a score of 3 on price and 6 on name brand value. Apply the factor weighting technique to help Tommy choose a new armchair supplier.**To determine the appropriate weights for each category, create a simple algebraic relationship.

Let X = the weight for criterion 1.

Then X + 3X = 100%, i.e., 4X = 1, or X = 0.25 = 25%. Thus, price has a weight of 25%, and name brand value has a weight of 3(25%) = 75%.

The total score for Amy’s Armchairs = 8(0.25) + 5(0.75) = 2.0 + 3.75 = 5.75

The total score for Annie’s Armchairs = 3(0.25) + 6(0.75) = 0.75 + 4.5 = 5.25

Despite a lower score on the more important criterion, the difference in price attractiveness was enough to give Amy’s Armchairs the highest score. Thus, Amy’s Armchairs should be selected.

The primary trade-off in transportation mode analysis involves evaluating holding cost against the cost of shipping.

True

**Typically, a more expensive shipping option is:**C) faster with a lower holding cost.

**Which of the following would NOT be considered (in addition to delivery speed) when choosing a mode of transportation?**A) on-time delivery

B) coordinating shipments to maintain a schedule

C) getting new products to market

D) keeping a customer happy

E) All of the above may be considered.

E) All of the above may be considered.

**Suppose that a product’s value is $1000. The manufacturer experiences a holding cost of 2.5% per month. The firm ships the product across country by truck, and it arrives six days later. The shipping cost is $80 per unit. What is the holding cost on each unit shipped? (Assume 30 days per month.)**B) $5.00

The primary trade-off in transportation mode analysis involves evaluating ** __** against the cost of shipping.

holding cost

Identify at least four factors in addition to delivery speed (and its impact on holding cost) that may need to be considered when choosing the best mode of shipment.

The four presented in the text are: (1) on-time delivery, (2) coordinating shipments to maintain a schedule, (3) getting a new product to market, and (4) keeping a customer happy.

Students may think of other valid considerations as well.

A shipment of parts valued at $75,000 needs to be shipped from Tampa, FL, to Chicago, IL. They could be shipped by rail, taking 15 days at a cost of $1,575, or by truck, taking 4 days at a cost of $2,640. The annual holding cost rate for this type of item has been estimated at 22%. What option is more economical?

Daily cost of holding the item is .22(75,000)/365 = $45.21

Days saved by using truck is 15 – 5 = 11 days

11 days Ă— $45.21 = $497.31

Extra shipping cost = $2,640 – $1,575 = $1,065

The $497.27 savings does not offset the extra shipping cost of $1,065. Send the shipment by rail.

A container of ball-bearings valued at $25,000, currently located in Houston, TX, needs to be delivered to the Morton, IL, plant. The standard shipment method takes two days. However, for an additional charge of $500, the container can be sent overnight to arrive one day later. The annual holding cost rate for this type of item has been estimated at 28%. Which option is more economical?

Daily cost of holding the item is .28(25,000)/365 = $19.18. Since the extra shipping cost is $500, the $19.18 savings does not offset the extra shipping cost. Send the shipment using the standard method.