IE 7200 Supply Chain Engineering

Spring, 2020

Practice Midterm

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1. Answer the following multiple choice questions by providing the single best response.

(1) Which of the following regarding competitive strategy are true?

a). By providing customized semiconductor chips to companies, the National

semiconductor Corporation is competing mainly on the basis of volume flex-
ibility.
b). All eight dimensions of competitive priorities should be given equal emphasis.
c). A firm competing on the dimension of volume flexibility will generally be
expected to do well producing a product or service with a seasonal demand
pattern.
d). Federal Express has been seen impressive increases in sales by emphasizing
development speed.

(2) Forecasting methods that assume that demand is highly correlated with certain
factors in the environment(e.g., the state of the economy, interest rates and etc.)
are known as

a). Quantitive forecasting methods

b). Time series forecasting methods
c). Causal forecasting methods
d). Simulation-based forecasting methods

(3) Time series forecasting methods are most appropriate when

a). There is little historical data available

b). The underlying demand pattern does not vary significantly form one year to
the next
c). Experts have critical market intelligence
d). Forecasting demand several years into the future

(4) A responsive supply chain should have

a). high capacity utilization

b). supplier chosen based on cost
c). long lead times
d). buffer inventory

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(5) The aggregate planning strategy where a stable machine capacity and workforce
are maintained with a constant output rate, with inventory levels fluctuating over
time is the

a). Chase strategy

b). Level strategy
c). Mixed strategy
d). Time flexible strategy

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2. Short Answer Questions.

(1) Define economy of scale. List three sources (causes) of economies of scale in a
supply chain.

(2) Consider a supply chain that consists of several manufacturing facilities located
in different countries. These manufacturing facilities satisfy demand across the
world. Explain how maintaining excess capacity in the manufacturing facilities
can be used to cope with exchange rate variations.

(3) Consider grocery industry. Explain how distributors add value to supply chains
in this industry, i.e., how distributors can improve supply chain performance in
this industry.

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3. The ABC company manufactures engines which are sold to several automotive manu-
facturers (OEMs). Currently, ABC corp produces the engines in three plants located
in Youngstown (labeled as Y), Omaha (labeled as O) and Indianapolis (labeled as I).
The ABC corp distributes the engines to three OEMs, located in Dearborn (labeled as
D), Toronto( labeled T) and Chicago (Labeled as C).

The annual demand is 100 at the Dearborn OEM, 80 at the Toronto OEM and 120 at
the Chicago OEM. All demands are given in 1000s of units.

The unit cost(in thousands of dollars) to produce and ship 1000 units from each plant
to each OEM is given below.

ABC Corp would like to determine how much of the capacity at each plant to allocate
to each of the OEMs in order to determine the total cost of production and shipping.
In this probelm you will be asked to write a mathematical formulation of the problem.

(1). Define the appropriate decision variables for this problem, i.e., specify some math-
ematical notation to represent the quantities that must be determined and specify
in words what this notation represents. use the following subscripts: Y to rep-
resent Youngstown, O to represent Omaha, I to represent Indianapolis and D to
represent Dearborn, T to represent Toronto and C to represent Chicago.

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(2). Write the objective function for this problem. If you require additional notation.
Please make sure that it is clearly defined.

(3). Write all of the capacity constraints for this problem. If you require additional
notation. Please make sure that it is clearly defined.

(4). Due to excess capacity, the ABC Corp is considering shutting down one or more
of their plants. Modify the objective function and constraints as given in parts (2)
and (3) to incorporate this decision. Make sure to clearly define any new decision
variables that are required. In addition , specify any additional data (e.g, costs)
that would be needed, beyond that which is given above.

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4. Given the following demand at the XYZ company, complete empty cells in the table
below.

(1). Complete the 3rd and 4th columns. For the moving average forecast (third col-
umn), use N = 3. For the exponential smoothing forecast (fourth columns), use
α = 0.2

(2). Fill in the rest of the table. Based on the forecast error for January through May,
which method performed better? Why?

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5. The ABC Manufacturing is deciding whether or not to expand the manufacturing ca-
pacity for their most popular product, and if so, by how much. Current market demand
for the product is 1000 units per year and current capacity is 1000 units per year. If
they choose to expand, they may purchase either a large machine ( with capacity of
500 units) or a small machine (with capacity of 250 units). The larger machine costs
$200, while the smaller machine costs $100. The ABC company estimates that there
is a 50% chance that demand could go up by 50% next year and a 50% chance that
demand could go down by 50% next year. For each unit of product it manufactures
and sells, the ABC company earns a profit of $1. If demand exceeds supply in any
year, the company can obtain product to meet the excess demand (demand in excess
of capacity) on a spot market, but doing so will reduce the firm’s profit to $0.5 per unit
of product sold. What decision would you recommend? Consider a two year planning
horizon( the current and next year) and a discount factor of 0.10. Assume any machine
purchases will take place in the current year.

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6. A manufacturing firm is constructing an aggregate plan for the next 6 months. All
demand must be met by the end of the 6 months period. The firm starts with no in-
ventory at the beginning of January and will end with no inventory at the end of June.
Capacity can be adjusted by hiring and firing workers, but only full-time workers can
be used. No overtime or subcontracting is allowed. Each unit of production requires
2 labor hours and each worker works 10 hours per day. Construct an aggregate plan
using a chase strategy and fill in the table below.

(1). Fill in the blank cells in the table above.

(2). Suppose the company plans to offer a promotion(price reduction) in April. This
promotion will not cause an increase in the overall demand. However, it will bring
forward 20% of demand from each of the following 2 months. Without recalcu-
lating the aggregate plan, describe in general how will the promotion affect the
aggregate plan and how you expect the the total cost of using a chase strategy to
change.