OVERVIEW
Olde World Windows and Doors is a manufacturer of steel windows and doors for both residential and
commercial applications. The following problems are decisions that senior management faces in
addressing capacity and throughput challenges to optimize performance. The problems require you to
draw on what you have been reading in Operations Management: Processes and Supply Chains,
specifically:
• Supplement A: Decision Making (pp. 35-45)
• Chapter 2: Process Strategy and Analysis (pp. 53-67)
• Chapter 4: Lean Systems (pp. 143-167)
• Chapter 5: Capacity Planning (pp. 177-190)
• Chapter 6: Constraint Management (pp. 219-237)
Note: You are encouraged to review these chapters before you begin to work on the problems.
DECISION PROBLEM 1: Buying Additional Machines
Reminder: Successful businesses leverage operational processes that support their business strategy. If
the business sells mostly customized products, highly standardized assembly-line processes are less
likely to be efficient because of the setup time required. However, if large lots are produced to the same
specifications, automation can be a cost-effective solution even with high initial capital costs.
The fabrication manager at Olde World says that the purchase of new equipment is required. The
company is willing and able to make the capital investment necessary to purchase a computerized steel
cutter but is debating whether to purchase a single cutter or buy two cutters.
The finance department is in favor of purchasing just one cutter for now and then reassessing in six
months based on demand. While this sounds reasonable, there are two potential drawbacks: (1) it takes
six months from order to delivery to get the cutter, and (2) the vendor is willing to offer a discount if Olde
World purchases two cutters. To evaluate the options, the CFO and the VP of Sales review the sales
forecasts to identify the most likely demand scenarios using the following information:• There is a 25% probability that demand will be low and a 75% probability that it will be high.
• If two cutters are purchased, the net present value (NPV) is:
o $100,000 if demand is low
o $190,000 if demand is high
• If only one cutter is purchased:
o If demand is low, the NPV is $140,000
o If demand turns out to be high, there are three decisions the company could make:
▪ Don’t do anything – which means the NPV remains at $140,000
▪ Outsource some of the cutting work – which would result in an NPV of $160,000
▪ Buy the second machine – which would result in an NPV of $150,000
To help management evaluate their choices:
A. Enter the data above into the decision tree in the Application Activity 1 Workbook to evaluate
the purchase options management is considering.
B. What decision would you recommend to maximize expected returns for this scenario, and
what payoff would result from that decision?
C. Identify other operational considerations that must be addressed to evaluate whether the
purchase of additional machines supports or conflicts with the business strategy of Olde
World Windows and Doors (Note: you may make and state assumptions about the business
strategy). Explain why these considerations are important to making a good decision that
supports your stated business strategy.
DECISION PROBLEM 2: Capacity Planning to meet Uncertain Demand
Reminder: Demand uncertainties are the root of all capacity planning challenges. Excess capacity results
in waste if equipment, inventory, or personnel are idle. Insufficient capacity results in the loss of business
and the potential loss of sales to competitors who can meet customer demand.
Olde World produces three different types of window frame profiles – the Abbot, the Berkeley, and the
Cheshire. It is known that one specific machining center is the production bottleneck for all three frames.
Olde World’s production facility operates five days a week and has three 8-hour shifts. The facility is open
for 50 weeks a year.
Below are the time standards, lot sizes and demand forecasts for the Abbot, the Berkeley, and the
Cheshire. Since there is always some uncertainty in demand, the fabrication manager considers three
different forecasts ranging from pessimistic to expected to optimistic. The manager has determined that a
20% capacity cushion is optimal.Time Standard Demand Forecast
Frame Processing
(hours/unit)
Setup
(hours/lot)
Lot Size
(units/lot)
Pessimistic Expected Optimistic
Abbot 0.06 2.0 50 14,000 16,000 24,000
Berkeley 0.20 4.0 70 9,000 14,000 23,000
Cheshire 0.07 8.0 100 20,000 30,000 42,000
Given the information above, answer the following questions:
A. How many machines are needed at the bottleneck machining center for each of the three
demand forecast scenarios?
B. If the lot sizes were increased by 50%, how many machines at the bottleneck machining
center would be needed for each demand forecast scenario?
C. Assume lot sizes were not increased. If Olde World has two machines but can find a way to
reduce setup time by 90% through process improvements, would they have adequate
capacity to meet demand in all three scenarios without any increase in lot sizes?
D. Explain which considerations are most critical in developing capacity plans to optimize
performance.
DECISION PROBLEM 3: Managing Constraints
Reminder: A single constraint in a system can impact the entire output as sub-processes sit idle, waiting
for work. Identifying and reducing (even eliminating) a single constraint can have a dramatic improvement
on performance and profitability.
To match the three styles of window frames Olde World produces – the Abbot, the Berkeley, and the
Cheshire – the company also produces the same three styles of door frames. These are fabricated at
four different stations – W, X, Y and Z. They utilize a batch process that is quite efficient resulting in setup
times that are negligible.
The process sequence below shows the prices, weekly demand, and processing times for each of the
three door styles. The costs for raw materials and any parts that are purchased from outside suppliers are
per-unit consumption rates as shown in the inverted triangles. Additional information:
• There is no additional cost or penalty for not meeting the full demand.
• There is one worker at each station who is paid $20/hour and works a 40-hour week.
• Fixed costs for overhead are $10,000/week.Based on the information above, answer the following questions:
A. Which of the four processing stations has the highest aggregate workload, and therefore, is the
bottleneck in the production of doors at Olde World?
B. The company cannot always meet the demand for its doors, so the management team must
make decisions about what quantities of each door it should produce to maximize profits.
Because each of the three door styles has different costs and margins, Olde World has been
prioritizing production by using a traditional method of accepting as much of the product with the
highest margins up to the demand limit first, and then filling in the production plan with the next
most profitable door and then the least profitable door. However, the Theory of Constraints (TOC)
may suggest a way to improve profitability.
i. How would profits be improved if a TOC/bottleneck-based method for scheduling were
used to determine the product mix? Show calculations for both the traditional and
TOC/bottleneck methods.
ii. Explain why the TOC/bottleneck method is or is not superior for optimizing the profitability
of the product mix.
DECISION PROBLEM 4: Controlling Workflow and Inventory in Lean Systems
Reminder: In Lean systems, Kanbans are used to control the flow of work through a manufacturing or
service facility. The size of the Kanban (or container) determines the lot size, and the number of Kanbans
determines the work-in-process inventory, which includes safety stock inventory to cover for unexpected
requirements. Managers must decide on the number of units in each Kanban and the number of Kanbans
required.The final two stages in the assembly of the windows and doors are painting the frames and installing
glass – a process known as glazing. The racks on which the windows and doors are moved all have the
same configuration with each holding 5 units per rack. After painting is completed, the painters move the
frames into an automatic glazing workstation at the rate of one rack every 15 minutes. However, the
painting process often outpaces glazing leaving an excessive number of painted units awaiting glazing.
To evaluate how a “pull” system could improve the painting and glazing processes, answer the following
questions:
A. How many racks of windows and doors should move between painting and glazing if 290 units
are to be completed each 8-hour shift? Assume that the safety stock policy variable α is 0.15 and
the average waiting/handling time is 9 minutes per rack.
B. What is the significance of determining the correct number of racks (or Kanbans) between the
paint machine and glazing machine? In other words, how does it affect Olde World’s operational
competitiveness?
Application Activity Workbooks
To support your understanding of the principles being assessed in each decision problem, and to reduce
the need for excessive number crunching, we have included an Application Activity 1 Workbook in the
Assignment Module in Blackboard. The workbook features “solvers” that have embedded formulas to
complete the calculations and to test various outcomes by adjusting the inputs.
Instructions
1. Download the Application Activity 1 Workbook from Blackboard.
2. Go to the tab that matches the decision problem.
3. Enter the relevant data into the solver, adjusting inputs (where needed) to test different scenarios.
4. Take notes as you go on how changes in inputs impact performance.
5. Identify an optimal solution that addresses the challenges posed in the decision problem.
6. Save your work and submit the Application Activity 1 Workbook along with your written
responses.
Note: The purpose of the workbook is to help you understand the impact of changes in actions on
outputs. It is not a substitute for your written responses to the decision problems in the assignment.
These responses must be submitted in Word. You should treat this as the document you would
submit to senior management at Olde World Windows and Doors. As such, make sure your
analyses, summaries, and recommendations are well written and are clearly supported by the data.Submission Requirements
• Your written responses must be submitted in Word.
• Total length should be 2-3 pages. You are NOT required to submit elaborate explanations
defending your responses. Two to three sentences for each question will suffice.
• Submissions must be typed, single-spaced, professional font (size 10 – 12) with one-inch margins
on all sides.
• Include a cover page containing the title of the assignment, your name, your professor’s name, and
the course title and date.
• Submit your completed Application Activity 1 Workbook along with your written responses in
Word.