**Question 1**

Trader Joe (a retail chain owned by Aldi)’s reports sales of $1,750 per square foot per year, more than double that of Whole Foods (another retail chain). Trader Joe’s gross margin is 25%, and Whole Foods’ is 35%. Trader Joe’s carries around 4,000 SKUs (products), with 80% of them bearing the “Trader Joe’s” brand, whereas Whole Foods carries more than 20,000 SKUs, with 15% of them bearing the “Whole Foods” brand. The following excerpt appeared recently in the business press:

“Take peanut butter. Trader Joe’s sells 10 varieties. That might sound like a lot, but most supermarkets sell about 40 SKUs. For simplicity’s sake, say both a typical supermarket and a Trader Joe’s sell 40 jars a week. Trader Joe’s would sell an average of four of each type, while the supermarket might sell only one. With the greater turnover on a smaller number of items, Trader Joe’s can buy large quantities and secure deep discounts. And it makes the whole business — from stocking shelves to checking out customers — much simpler.”

It has also been noted that, instead of buying from distributors, Trader Joe’s purchases directly from the manufacturers, which then ship their products straight to Trader Joe’s distribution centers.

- a) (i) What is the strategic position targeted by Trader Joe’s? ii) What does that require from them in terms of operational competencies and (iii) What process choices allow them to support this position?

- b) Noting that sales per square foot are low in Whole Foods relative to Trader Joe’s, a consultant advised Whole Foods to reduce the variety that they offer “because they are not focused.” Discuss this statement.

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**Question 2**

Reducing transfer batch sizes increases the capacity of a process.

**Circle one: Agree Disagree**

**Explain:**

**Question 3**

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Sunset is a call-center outsourcing vendor. Sunset’s HR department is charged with making sure that the total number of agents on the company’s payroll is sufficient to meet the capacity requirements needed for Sunset’s multiple contracts. Currently, the firm hires 100 agents per week. Upon hiring, an agent enters a **two-week** training program. (These are refered to as *Trainee agents*). However, 10 percent of the agents that are hired quit immediately after the training period ends. The rest become *Active agents*. Agent turnover is a well-documented problem in the call-center industry and, on average, active agents remain with Sunset for only one year before quiting (assume 1 year= 50 weeks). The following figure shows the process at Sunset:

- a) How many
*Active agents*are on average on Sunset’s payroll?

**Answer: On average, there are Active agents.**

**Explain:**

- b) Sunset is expecting some new contracts that will increase its
*Active agent*What is the rate at which the HR department must hire agents to guarantee that the average number of*Active agents*in steady-state equals 5400?

**Answer: The hiring department must hire at a rate of agents per week. **

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**Explain:**

- c) We return to the setting in part a (
**with agents being hired at a rate of 100 per week**). The cost of hiring an agent (placing ads, interviewing etc.) is estimated at $1000 per agent. Sunset pays $250/wk to each*Trainee agent*during the training period. The salary of an*Active agent*is $500/wk. What is Sunset’s annual personnel cost (hiring + wages)?

**Answer: The annual personal costs** **are $ per year. **

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**Explain:**

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**Question 4**

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New Muenster is a prestigious high school in the northern suburbs of Houston. Every year, in April, the admissions office of the school sorts out the applications of students and sends out acceptance and rejection letters. The process of reviewing the applications is performed by the admissions team that consists of Abraham, Burt and Caroline.

The school also accepts international students and their applications are processed together with the domestic ones. **15% of the applications are international and the rest are domestic**.

Burt is in charge of initial sorting and data verification. He can review an application in **15 minutes** if the application is complete. Tracking missing data takes him additional **10 minutes** and 30% of all applications (domestic and international) have missing data that needs tracking down.

An application that is complete is then ready for the second step which is the review of test results and grade sheets from previous schools. Abraham is in charge of this step and it takes him **25 minutes** per international application and **20 minutes** for a domestic one. This is the only step where there is a difference in processing time between a domestic and international application and this is due to the additional English language exams that international applicants must undergo.

After writing his comments on the test grades he passes the applications on to the essay-reading step that is performed by Carolyn. Carolyn spends **55 minutes** per essay (international or domestic) and writes down her comments. The final decision is made in the final review step where Abraham and Carolyn discuss together each application and decide whether to admit the student or not. This final step takes **20 minutes** per application, regardless of whether it is international or domestic.

Below is a process flow diagram

- What is the theoretical flow time for complete international applications (i.e, those that don’t require tracking down additional information)?

**Answer: The theoretical flow time is _______________ minutes.**

**Explain:**

- b) What is the bottleneck of the process? What is the capacity of this process?

**Answer: The bottleneck is _________________.**

**The capacity is ___________________ applications per hour.**

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**Explain:**

- c) Ruth is hired to help Carolyn both in the essay reading and in the final review steps. The final review of a given application can now be performed by Abraham and Carolyn or by Abraham and Ruth – in either case it still takes 20 minutes per application. How does this change the TFT from part (a) (i.e. for complete international applications)? What is now the capacity of the process?

**Answer: The new theoretical flow time is _______________ minutes. The new capacity is _____________applications/hour. **

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**Explain:**

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**Question 5**

Two industrial distributors each start out selling a single brand of motor and both achieve annual sales of $100,000 after one year. Over the next two years, both grow their annual sales to $1,000,000. The first distributor grows sales for the same single brand of motor. The second distributor adds nine other brands of motors and achieves $100,000 in sales for each brand.

- Once they have reached $1,000,000 in sales, which of the two distributors would you expect to maintain higher inventories? Explain (max 50 words).

**Explain:**

- By growing, the annual turns for the first distributor

**Circle one: Increase Remain unchanged Decrease**

Explain (max 50 words).

**Explain:**

**Question 6**

Major League Lumber (MLL) sells baseball bats. Its most popular models are the Williams and the Mendoza. The sales rates of the two models are the same. Although they come from different suppliers, the models have similar ordering costs. The Mendoza, however, costs MLL twice as much as the Williams. MLL’s current policy is to order 200 Mendoza bats when it places an order and to order 400 Williams bats when it places an order. **Is MLL ordering optimally (i.e., ordering to minimize its annual holding and ordering costs) for both models?**

**Circle one: Yes! No! Not enough information to tell.**

**Explain:**

**Question 7**

Eva recently had a baby girl, Kim, delivered. Each day on average, Kim needs 10 diapers. Eva orders diapers from the company called 8thGeneration. 8thGeneration produces a diaper at a cost of $1 per diaper, and it sells at a price of $2 per diaper to consumers. In addition, it charges $4 shipping fee per shipment regardless of the number of diapers per order. It takes 9 days for each shipment to be delivered from 8thGeneration to Eva. Consider one year as 360 days. Eva estimates that the aggregate holding cost for diapers, inclusive of the physical holding costs and cost of capital, is 25% per year.

- a) What is Eva’s optimal order quantity of diapers per each order?

**The optimal order quantity per each order is ______ diapers.**

**Explain:**

- b) 8thGeneration provides express shipping, a shipping period of 1 day instead of 9 days, at the same shipping fee of $4 per shipping for premium customers. Premium customers have to pay annual membership fee of $5. Explain in words the tradeoff that Eva should analyze when deciding whether she should become a premium customer.

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**Explain:**

**Question 8**

Consider the process flow of the clinic shown below.

What is the capacity that a team of two doctors can achieve (per hour in steady state)?

**8.a. The clinic with a team of two doctors can set up ___**

___________**casts per hour**

**Explain:**

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**8.b. The clinic with a team of two doctors can check in **_____ _________ patients per hour

**Explain:**

**(10pts)**

- If a company grows sales by a factor of 4 by growing sales of each existing product by a factor of 4, the days of cycle inventory are expected to increase / decrease / remain unchanged. Why?

**Circle one: Increase Remain unchanged Decrease**

**Explain:**

- If a company grows sales by a factor of 4 by growing product variety by a factor of 4, the days of cycle inventory are expected to increase / decrease / remain unchanged. Why?

**Circle one: Increase Remain unchanged Decrease**

**Explain:**

[Q10; **5pts**] List two major pros and two major cons of setting up cells. What situations are best for setting up cells?

**Explain:**

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[Q11; **5pts**] List key components of the Toyota Production System that help improve performance in terms of cost, quality, and time? Link your points to which specific wastes (the 8 wastes) they reduce and how this was achieved in the house game.

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**Explain:**

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[Q12; **5pts**] Inventory is always a waste.

True / False. Explain.

**Explain:**

[Q13; **5pts**] Best-selling books are likely to benefit (in terms of reduced safety inventory) more from aggregating safety inventory than books that are ordered infrequently.

True / False. Explain.

**Explain:**

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