Answers to Old Midterm Questions
Question 1 These questions deal with Mitchell Gold Co. as described in the articles “A Maverick of Sofas Rearranges the Furniture Business” and “Gold’s New Rush”.
[1.a] Using the dimensions we discussed in class, how would you describe Mitchell Gold Co.’s strategic position?
Mitchell Gold competes by offering high quality products at a lower price than most makers of similar quality furniture. They offer limited variety in comparison to other makers, which allows them to be more responsive and deliver orders in a timely manner (97% on time shipment).
[1.b] Consider the following description of another furniture maker’s (Invincible IPF) business:
The standard product line has about 500 different items, with many of the pieces starting as stock, unfinished wooden frames imported from Europe. But the finished furniture can be as different as the imaginations of the designers, with 60 different standard finishes for the wood and an almost unlimited selection of upholstery provided by designers. … Because each piece is hand finished by rag and brush and made to order, the process can take 12 weeks or longer, with one custom-made entertainment cabinet nearing completion after almost six months. (The Record, Bergen County, NJ, 12/09/2001)
How would you anticipate that Mitchell Gold’s production processes differ from those of Invincible IPF? Be sure to discuss the nature of the production equipment and the placement of inventory.
MG offers less variety and has greater volume than Invincible. Consequently, MG likely uses more specialized equipment while Invincible has primarily general-purpose equipment.
Since designers provide upholstery provided for custom orders, Invincible should have little raw material and no finished goods. MG likely has higher raw material and finished goods inventory. Given the long flow times, Invincible likely has much higher WIP levels.
[2.a] In The Goal, Jonah asks Alex 3 questions: Did your throughput increase? Did your inventories decline? Did your process cost decline? Define each of the three italicized terms for a process and explain why a positive answer to each of the three questions may be classified as an improvement.
Throughput corresponds to the rate at which flow units flow through the process. Throughput in general should correspond to sales not production. If the product has a positive margin, an increase in throughput increases positive cash flows. Inventories correspond to the number of flow units within process boundaries. Decreasing inventories decreases the amount of working capital required. It also decreases any reduction in inventory value due to obsolescence. Process cost refers to the cost incurred in transforming inputs to outputs. A reduction in process cost increases margin and thus profitability.
[2.b] Many enlightened firms have made flow time reduction a key objective. Discuss under which conditions a reduction in flow time improves performance of a process in terms of the modules we have discussed:
1. strategic & competitive impact:
Reducing flow time allows a firm to target customer segments that may want a faster response. It also allows a firm to be more responsive to volume and taste changes of the customer.
2. impact on financial flows:
Cash is tied up as working capital for a shorter amount of time.
3. impact on critical path:
The critical path gets shorter.
4. impact on bottlenecks:
Bottleneck capacity may go up only if the flow time at the bottleneck is reduced.
5. impact on lean operations:
Generally allows a firm to operate with lower levels of inventory. Also shortens the time lag between introduction and detection of defects.
[2.c] List three ways to increase the capacity of a process. Consider the likely relative cost of implementing these changes and present them in order from cheapest to most expensive...
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