University of Pennsylvania

The Wharton School

Department of Operations and Information Management

EXAM 1A Solutions: OPIM 101, Spring 2010

Tuesday, March 2nd, 6:00-8:00pm.
Professors Cachon and Savin

Section # (201,,215): _________

Instructor (circle): Hill Saunders Serafini Sodhi Ramachandran Yeh

PennCard Last Name:

Total score:
PennCard First Name:

Instructions:

SHOW ALL OF YOUR WORK on this exam. No credit is given on the quantitative
questions unless work is shown.

During the exam you may not consult with anyone other than the exam proctor,
a professor or recitation instructor.

You may use one reference sheet of paper during this exam. Two pieces of paper
stapled together is not acceptable. It must not exceed the dimensions 8.5 x 11.
You may include on this sheet any content you wish (on 1 or 2 sides), written in
any manner. You cannot share reference sheets with another person during the
exam.

You may use a calculator on this exam as long as the calculator cannot
communicate with another device. Calculators cannot be shared with others.

You may not use computers, cell phones or any electronic device that can
communicate with another device.

There are 30 questions on this exam. No partial credit is given. All correct
answers are worth 1 point each. There is no penalty for guessing on qualitative
questions.

Use pen to write all of your answers.

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(Q1-Q4) Imagine US is a startup that offers high definition 3D prenatal ultrasounds for high-end
customers. The service process includes five activities that are conducted in the sequence
described below. (The time required for each activity is shown in parentheses):

Activity 1: Welcome a patient and explain the procedure. (8 minutes)

Activity 2: Prep the patient (e.g., show them to the room, apply ultrasound gel). (5 minutes)
Activity 3: Take images. (14 minutes)
Activity 4: Analyze images. (12 minutes)
Activity 5: Discuss diagnostic with patient. (16 minutes)

At each location there are employees (servers) S1, S2, and S3. The assignment of tasks to
servers is the following:

S1 does Activity 1.
S2 does Activities 2 and 3.
S3 does Activities 4 and Activity 5.

Q1. What is the capacity of this process (in customers per hour)?

Answer: the activity time at S1, S2, and S3 is 8 minutes, 19 minutes, Customers per hour
and 28 minutes, respectively. S3 is the bottleneck. The capacity of
2.14
the process is the capacity of the bottleneck.
60min/28min=2.14 customers/hour.

Q2. Suppose 2 patients arrive every hour on average. Ignoring any start of day or end of
day effects, what is the utilization of Server 1 (as a %)?
Answer: S1s capacity is 60min /8min=7.5 customers/hour, and the %
demand rate is 2 customers /hour, which is smaller than the process
capacity 2.14 customers/hour. Thus, the system is demand constrained. 26.67%
The utilization of S1 is: 2/7.5=26.67%

Q3. Suppose each activity can be done by any server and any server can do any set of activities.
However, each activity is done by only one server. For example, a feasible assignment includes:
S1 does activities 1 and 5, S2 does activities 2 and 4, and S3 does activity 3. Of course, the
original assignment of servers to activities is also feasible. What is the maximum capacity of the
process (in customers per hour)?
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Answer: the total activity time = 8 + 5 + 14 + 12 + 16=55min. A perfectly Customers per hour
balanced line will have each server working 55/3=18.3min. The best we 3
can do is to combine the 8min task with the 12min task, 5min task with
the 14min task. Thus, the capacity of the process will be 60min/20min=3
customers/hour.

Q4. Now suppose each activity can be assigned to more than one server, each activity can be
done by any server and any server can do any set of activities. What is the maximum capacity
of the process (in customers per hour)?

Customers per hour

Answer: we assign all the tasks to each server. There will be no idle time
in this case. The process capacity is 60min/55min*3 = 3.27 3.27
customers/hour

(Q5-Q9) Joes Beer, Bait, & Tackle Co. is a small chain of fishing tackle stores in northern
Minnesota. In 2009, the companys revenue was $4,300,000 and its cost of sales was
$3,200,000. Assume 52 weeks and 365 days per year.

Q5. Joe keeps only 5.5 days-of-supply of inventory on average because much of his inventory is
live bait and micro-brew beer, both of which have a short shelf life. What is his annual
inventory turns?
Annual turns
Answer: 365/5.5=66.36
66.36

Q6. Given that he has 5.5-days-of-supply of inventory on average, how much inventory does
Joe have on average (in $s)?
$s
Answer: $3,200,000/(365/5.5)=$48219 48219

Q7. Joe needs to purchase malt for his micro-brew production. His supplier charges $35 per
delivery (no matter how much is delivered) and $1.20 per gallon. Joes annual holding cost per
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unit is 35% of the dollar value of the unit. Joe uses 5000 gallons of malt per week. How many
gallons should Joe order from his supplier with each order?

Answer: suppose Joe orders x gallons per order. The fixed portion of the Gallons
delivering cost is $35*5000*52/x per year. The average annual
inventory holding cost is x/2*1.2*35%. Then the total weekly cost is $35 6583
* 5000 * 52/x + x/2*1.2*35%. The cost is minimized at
x = sqrt(35*5000*52/(0.6*35%))=6583 gallons.

Q8. Suppose Joe were to order 3800 gallons each time he orders. How many orders per year
would he place on average?
Orders per year
Answer: 5000 *52 /3800=68.42 68.42

Q9. If Joe places an order for 15000 gallons, then he will receive a 4% discount off the regular
price of $1.20. If Joe were to do this with each order, what would be his average weekly total
cost (in $s)? Dont forget to include the cost to purchase the units, the delivery charges and
inventory holding costs.

Answer: with a 4% discount, the malt is 1.2*(1-0.04)=$1.152 per gallon. $s

Weekly purchase cost= $1.152*5000=$5760. Weekly delivery charges =
5000/15000* $35=$11.67. Weekly inventory holding cost = 15000/2 * 5830
$1.152 * (35%/52)=$58.15. Total cost = $5760 +$11.67 + $58.15=$5830

(Q10-Q13) Precision Testing (PTest) does fluid testing for several local hospitals. Consider their
urine testing process. Each sample requires 12 seconds to test, but after 300 samples, the
equipment must be recalibrated. No samples can be tested during the recalibration process and
that process takes 30 minutes.

Q10. What is PTests maximum capacity to test urine samples (in samples per hour)?
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Answer: PTest can test 300 samples in 12*300/60+30=90min=1.5hour. Samples/hour

The capacity is 300 samples/1.5hours=200samples /hour.
200

Q11. Suppose 180 urine samples per hour arrive to PTest to be tested. Assuming the process is
not supply constrained, what would be the maximum number of samples in queue waiting to
be tested? (Hint: consider the inventory pattern of untested samples in this process.)

Answer: During the 30 minutes of recalibration, inventory will cumulate Samples

at the speed of 180 samples/hour to 90 samples. After the
recalibration, inventory will decrease at the speed of 3600/12-180=120 90
samples/hour. This takes 60/120=0.5hour. Within this much time, 0.5 *
(3600/12) = 150 samples will be tested. PTest can still continue testing
until it has tested 300 samples. During this time, the inventory remains
zero. When the next recalibration starts, a new cycle starts. Thus, the
maximum number of samples waiting to be tested is 90 samples.

Q12. Suppose 2.5 urine samples need to be tested per minute. What is the smallest batch size
(in samples) that ensures that the process is not supply constrained? (Note, a batch is the
number of tests between calibrations.)
Answer: batch size = 2.5 * 30/(1- 12/60*2.5)=150samples. Samples

150

Q13. PTest also needs to test blood samples. There are two kinds of tests that can be done a
basic test and a complete test. Basic tests require 15 seconds per sample whereas
complete tests require 1.5 minutes per sample. After 100 tests, the equipment needs to be
cleaned and recalibrated, which takes 20 minutes. Suppose PTest runs the following cyclic
schedule: 70 basic tests, 30 complete tests, recalibrate and then repeat. With this schedule,
how many basic tests can they complete per minute on average?

Answer: number of basic tests per minute = 70 / (15/60 * 70 + Basic tests/min

1.5*30+20)=70/82.5=0.848
0.848
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UP Fitness will install 3 new trapezoidal gel-resistance toners (trappy for short), the latest
exercise gadget, specifically designed to contour upper back muscles. Clients who want to use
these machines arrive at the rate of 85 per hour. The coefficient of variation of the inter-arrival
times is 3. If all three machines are busy, UP Fitness clients use other pieces of equipment,
waiting for one of the trappies to become available. The trappy experience is intense 120
seconds of explosive exercise intensity. The standard deviation of the usage times (measured in
seconds) is quite small only 30.

Q14. On average, how many UP Fitness clients are using a trappy?

Answer: The capacity of UP Fitness is 3600sec/120sec * 3 =90 clients per Clients

hour. The utilization of the UP Fitness is 85/90=0.944. That is, on
average 3* 0.944=2.83 machines are in use. In other words, 2.83 clients 2.83
are using a trappy on average.

Q15. On average, how many UP Fitness clients are waiting to use a trappy?

Clients
Answer: Activity time: 120sec=2min. Utilization = 0.994.
2 0.944
2(31) 1 2
3 (30 / 120) 2 69.39
Time in queue 48.98 min
3 1 - 0.944 2

Use Littles Law: 48.98min *(85/60min)=69.39clients

(Q16-Q17) Find a Doctor, is a small startup that helps people find a physician that best meets
their needs (location, insurance accepted, etc.) During a slow time for them, they have 7 staff
members taking calls from customers. On average, one call arrives every 6 minutes (with a
standard deviation of 6). Each staff member spends 20 minutes with each customer (on
average, with a standard deviation of 30).

Q16. What is the probability that one of their staff members is busy (as a %)?

Answer: utilization of each staff is p/(a*m)=20/(6*7)=47.62%. %

47.62%
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Q17. How long (in minutes) does a customer spend on average waiting on hold before they can
start speaking to a representative from FaD?

Answer: activity time = 20min. utilization = 47.62% Minutes

20 0.4762
2(7 1) 1
(6 / 6) 2 (30 / 20) 2
Time in queue 0.96 min 0.96
7 1 - 0.4762 2

Q18. The organizers of a conference in the Philadelphia Convention Center are evaluating the
possibility of setting up a computer area where attendees can check their e-mail on computers
provided by the organization. There will be one common queue for all computers and only one
person uses a computer at a time. On average there are 15 attendee arrivals per hour, the
standard deviation of the time between arrivals is 4, and the average time a person spends on
the computer is 10 minutes (with standard deviation 3). To ensure that waiting times are not
too long, the organizers what to ensure that the utilization of the computers doesnt exceed
90%. At least how many computers do they need to have?

Answer: activity time = 10min. inter-arrival time = 60/15=4min. To Computers

ensure at most 90% utilization, i.e. 10/(m * 4) <= 0.9, we need m >=
10/4/0.9=2.78. That is we need at least 3 computers. 3

Q19. You have currently 7 items on your to-do list. Below are the items, and the estimated
times to complete them:

Restring your snow shoes so you can get to class - 120 minutes
Take a nap - 100 minutes
Work on a homework assignment - 80 minutes
Update your Facebook account - 60 minutes
Call your mother - 30 minutes
Eat some food - 20 minutes
Call a friend to discuss weekend plans - 10 minutes

Suppose you start immediately with your tasks, no other tasks get added to your to-do list
today, and you sequence them so as to minimize the average time the tasks wait before you
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start them. What will you be doing in 190 minutes from the time you start? (Write the
underlined task name above for your answer.)

Answer: do the shorter task first. The sequence is the following: Task
Friend(finishes at 10min), food(30min), mother(60min),
facebook(120min), homework(200min), nap, snow shoes. Since 60 min Homework
< 190 min < 120min, you will be doing homework in 190 minutes from
the time you start.

(Q20 Q21) The Happy Toy Companys R&D department is always looking for great ideas for
new toys. On average, the R&D department generates about 10 new toy ideas a week. To go
from idea to approved product, the idea must go through 5 stages:

Pr(Fail) = 40% Pr(Fail) = 50% Pr(Fail) = 65% Pr(Fail) = 80%

Initial Safety Focus Final

Mockup
screening testing group decision

In initial screening a staff member spends 2 hours considering the idea. In mock-up, the idea is
sent to one of many suppliers to produce a physical mock-up of the toy. There is essentially
unlimited capacity at this stage, but it takes 4 days to get the mockup built even though
multiple mockups can be built simultaneously. In safety testing each idea requires 2 days from a
staff member to have the idea checked for safety. In focus groups each idea requires 3 hours
from a staff member to have the idea test marketed. Finally, the management team meets for 4
hours per idea to decide if the toy should be added to its line of products sold to customers.

At the end of each stage, successful ideas enter the next stage. All other ideas are dropped. The
following table summarizes the process:

Time per idea put

Pr(Success) Pr(Fail) Staffing into this stage
Screening 60% 40% 2 2 hours
Mock-up 4 days
Safety 50% 50% 7 2 days
Focus group 35% 65% 1 3 hours
Final decision 20% 80% 1 4 hours
For example, there are 7 staff members that work in the safety stage. In each stage each idea is
processed by only one staff member: for example, once one of the 7 staff members starts
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working on an idea in the safety stage, the idea completes that stage in 2 days (and either exits
or moves to the focus group stage). Everyone works 8 hours per day, 5 days a week.

Q20. On average, how many ideas are in the mock-up stage?

Answer: 10 * 60%=6ideas/week. 6 ideas pass the screening stage and Ideas

then enter the mock-up stage per week. Each idea spends 4days/5
days/week=0.8week in the mock-up stage. Use Littles Law, 6 * 0.8= 4.8 4.8
ideas.

Q21. Among these stages, what is the highest implied utilization (as a %)? %

Answer: the highest implied utilization is safety, 34.29%. 34.29%

time per Demand available hours implied

Pr(success) Pr(Fail) Staffing idea(hours) perweek per week utilization
screening 60% 40% 2 2 10 80 0.2500
mock-up 100% 0 32 6
safety 50% 50% 7 16 6 280 0.3429
focus group 35% 65% 1 3 3 40 0.2250
final decision 20% 80% 1 4 1.05 40 0.1050

(Q22-Q23). Palm Tree (PT) productions, based in Los Angeles, invests in movies. They are
currently considering a script by an acclaimed Australian writer, titled Duet with a Dingo - a
romantic comedy about a concert violinists affair with a sheep rancher in the outback. Foreign
romantic comedies have not fared well in the U.S. for several years only about 10% of them
have gone on to have any commercial success. However, without the need for fancy props and
special effects, PT figures it could make this movie for about $18 million. If it does become a
success, then it would make about $45 million in revenue. A failure would make only about $10
million in revenue.

Q22. What is the expected value of investing in this movie (in $ millions)

Answer: if the company invests in the movie, it gets 10% * 45+(1- $ millions
10%)*10-18=-4.5million dollars.
-4.5
Your initials: _________ Page 10 of 14

PT is nervous about this movie but thinks there is potential. In the past they have hired a
consulting company, Film Insight (FI), that conducts focus groups to screen movie scripts. In the
past, 80% of the time, FI, tells PT that their movie is a dud and will not lead to commercial
success. The other 20% of the time they find that the movie has promise. 44% of the scripts
that are labeled as having promise go on to have commercial success.

Q23 Say PT hires FI to investigate the potential of Duet with a Dingo. If FI returns the dud
verdict, what is the probability the movie nevertheless becomes a commercial success (as a %)?

Answer: Pr(success )=Pr(success | labeled promise)*Pr(labeled %

promise) + Pr(success | labeled dud)*Pr(labeled dud). Thus, we
solve for 1.5%
Pr(success | labeled dud)
=[ Pr(success) - (success | labeled promise)*Pr(labeled promise) ]/
Pr(labeled dud)
= (0.1-0.44*0.2)/0.8=0.015

Q24 - Seeing what happened to Toyota, Nissan is concerned with the design of its acceleration
pedal in its Varoom model. They can test the part for its safety, but conducting a test is costly.
Alternatively, they could just recall the part at a cost of $100 million. Or, they could do nothing.
If the part never fails (it is OK), then they dont incur any costs. If it fails in the field, then the
cost in terms of repairs and brand reputation is estimated to be $5,000 million. If they conduct
the test, then the outcome is either Good or Bad. The probability it fails in the field, given a
Good result from the test is Pr(Fail| Good) = 0.005. However, if they get a Bad result,
then Pr(Fail| Bad) = 0.25. The chance of getting a Good result is pretty high, Pr(Good) =
0.99, because they expect that the chance of a failure is small. To help you, the following
decision tree represents the information given above:
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What is the most they are willing to pay to conduct this test (EVSI) (in $ millions)?
$ millions

11.5

Answer:
i) Without the information from the test, the probability that Nissan part fails is
0.99*0.005+0.01*0.25=0.00745. If Nissan does nothing, it gets -5000*
0.00745+0=-37.25 > -100. In this case, Nissan will not recall and gets -$37.25
millions in expectation.
ii) With the information from the test, if the signal is good, Nissan will not recall
since -5000*0.005 + 0=-25>-100 and gets - $ 25 million in expectation. If the signal
is bad, Nissan will recall since -5000*0.25+0<-100 and will get -$100 million.
Thus, the expected value when the test is carried out is -25*0.99-100*0.01=-
$25.75million

The ESVI = -25.75 (-37.25)=$11.5 million

Your initials: _________ Page 12 of 14

Q25. Recall our discussion of queues in womens restrooms and the general impression that
they are longer than in mens restrooms. Based on the queuing formula we discussed in class
(and assuming they are true), which of the three explanations below could explain this
observation?

i) Women have longer inter-arrival time, a.

ii) Women have longer processing time, p.
iii) Women have a higher coefficient of variation in their processing time, CVp

a) i only e) i and iii only

(a,,h)
b) ii only f) ii and iii only
f
c) iii only g) all of them (i, ii and iii)
d) i and ii only h) none of them (neither i, ii and iii)

Answer: i) longer inter-arrival time will lead to shorter queues. Only ii and iii are correct.

Q26. A pediatric practice has 5 physicians. Historically, patients were assigned to one physician
and these patients always were treated by the same physician. For example, Alices patients
always visited her (for well visits and sick visits) and never interacted with the other
physicians. However, they have decided to change how they see patients. Now patients will be
seen by whoever is available (i.e., not treating patients). Based on our discussion of queuing
theory, which of the three outcomes below are likely to occur due to this change?

i) The coefficient of variation of patient inter-arrival times will increase

ii) The utilization of each physician will increase
iii) The average number of patients actually with a physician (that is, inventory
in process) will increase

(a,,h)
a) i only e) i and iii only
b) ii only f) ii and iii only h

c) iii only g) all of them (i, ii and iii)

d) i and ii only h) none of them (neither i, ii and iii)

Answer: i) the inter-arrival time is not affected by the change in the process. ii) Some
physicians might see an increase in the utilization, while others might not. It is not certain.
iii) Inventory in process will not change because the flow rate (i.e. arrival rate) does not
change and the activity time does not change.
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Q27. Which of the following best describes the expression buffer or suffer?

a) The capacity of a process will increase if the line becomes better balanced (in the sense
that the utilizations of the steps become more similar).
b) If an insufficient amount of inventory is allowed between stages of a production (a,,e)
process, the capacity of the process can decrease.
c) The more inventory in a process, the longer it will take each unit to flow through the b
entire process.
d) If batch sizes are not sufficiently large, the process can become supply constrained.
e) None of the above.

Answer: a) This is not necessarily true. The capacity will keep the same if the capacity for
the bottleneck remains the same. b) when there is insufficient amount of inventory between
stages, the chances of starving will increase. The overall capacity can decrease. c) is not
necessarily true since the flow time is determined by the capacity of the process. d) is correct
in itself but is not the explanation for buffer or suffer.

Q28. Henry Ford famously proclaimed You can have any color you want, as long as it is black.
Which of the following best reflects his motivation for this position:

a) He believed that customers didnt actually like other colors, so why go through the
hassle of making different color cars.
b) With more than one color, the process would have switch over times and that could (a,,e)
reduce the overall utilization of the process.
c) He wanted to establish black cars as part of his companys brand image at that time. b
d) Assembling non-black cars takes longer than black cars.
e) He understood that increasing inventory in a process can lead to a longer flow time
through the process.

Answer: with more than one color, the process has to constantly switch from one color to
another. That is to say, a lot of time will be wasted in the setup, and the utilization will
decrease.

Q29. Given that Costco wants to be profitable, which of the following best explains why Costco
has higher sales (in $s) per employee than WalMart?

a) Costco has been operating for a longer time than WalMart

(a,,e)

e
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b) Costco sells a greater variety of products than WalMart

c) Costco has fewer employees than WalMart
d) In the U.S., Costco operates in fewer states than WalMart
e) Costcos gross margin is lower than WalMarts gross margin

Answer: Why does Costco have higher gross sales per employee than WalMart? Because if
didnt it wouldnt be profitable given that it has lower gross margins. Thus, e) is correct.

c) If WalMart and Costco had the same total sales, then Costco would have higher sales per
employee if it had fewer employees. But WalMart and Costco dont have the same total
sales. Thus, there is not a clear link between sales per employee and the number of
employees. For example, suppose WalMart had twice the sales and twice the number of
employees of Costco. Then Costco would have fewer employees but exactly the same level of
sales per employee. In other words, the number of employees tells us very little about a
companys sales per employee.

Q30. Which of the following best explains why slow turning items may not be profitable at a
brick-and-mortar retailer?

a) If turns are low, days-of-supply will also be low

b) If turns are low, the gross margin will also be low (a,,e)
c) If turns are low, the setup costs to stock the shelf will be high
e
d) If turns are low, blocking and starving are more likely to occur
e) If turns are low, units spend a long time on the retailers shelves

Answer: a) If turns are low, days-of-supply will be high. b) it is not necessary that the gross
margin will be low, since various factors affect gross margin. c) setup costs are not affected
by turns. d) starving is less likely to occur when turns are low. e) units spend too much time
on the shelves and this will increase the inventory holding cost.