Shuzworld is considering the possibility of opening a new store. They have the option of building a new stand-alone store, opening a store in a strip
mall, or not building one at all. Shuzworld needs to decide if they should purchase market research.
Decision tree for Shuzworld’s is constructed regarding the possibility of opening a new store. In the case study, the stand-alone store would see good profits of $700,000 as long as there’s a favorable market and the opposite end in losses would show $400,000 in case the market was unfavorable. The strip mall store could show profits near $300,000 within a favorable market. However, the losses would only be around $50,000 in the case of there being an unfavorable market. That means in essence that there would be a 50/50 probability regarding both choices for not only favorable but the unfavorable market. If the decision was to be not opening a new store then there would be no profits or losses to be concerned with.
The statistical data used in this was the POM for Windows program. Using the decision analysis module was the best choice, as a part of which the graphical decision tree was selected. This was definitely the correct decision tool to utilize due to the fact it does allow for a better visual representation of the options available for Shuzworld’s. The options are laid out clearly and shown in the path in the blue which is the recommended path to follow. A decision tool is able to actually calculate the EMV (Expected Monetary Values) in this case based on maximizing profits or trying to minimize cost. Given the case study focus of profitability, maximizing profits was the best choice advantage to choose.
In the case study; Shuzworld might be considering carrying out a market research beforehand, which might possibly have a positive impact or on the other hand some negative impact on the marketplace. If the cost of doing the market research is not worth the investment then there will be no probable impact on the market place. Is purchasing market data at a price of $20,000 a good investment for the company? It is if there is at least a 60% chance of the information showing the market piece that is favorable which means that the other 40% would be unfavorable. The percentages of improvement for the market could go up 70%, and the flip side could show an unfavorable market increase of a higher number of 80%.
This is a decision tree based on the probabilities given in the case study. The decision tree was designed based on the figures that I received about whether or not to build a stand-alone store, a mall store, or whether the company should do nothing in this market based on the projected figures. With a 50% probability of an unfavorable and favorable markets, or states of nature, we can use the decision tree to help analyze whether or not to proceed with a proposed project. Once we know the numbers from the states of natures, we can determine the expected monetary value, or EMV for the state of nature. This is determined by multiplying the probability by one state of nature, plus the product of the probability by the other state of nature. For the Auburn Stand Alone project, the probability is 50% and the favorable market is $700,000. The unfavorable market is a loss of $40,000. So the EMV is (.5)(700,000) + (.5)(-40,000) which is $320,000. The Auburn Mall Store’s EMV would be (.5)(300,000) + (.5)(-50,000) which is $125,000. The EMV of doing nothing is, of course 0. This was all based on doing no survey. The top portion of the tree is conducting a $20,000 dollar market survey and watching those probabilities change based on the new data. The best decision is to choose the project that produces the highest EMV, in this case, it is my recommendation to conduct a market survey and chose the Auburn Stand Alone store. Based on the survey results, the probabilities have changed based on the outcomes. All of these changes contribute to the changes in the EMV which is what we are analyzing to determine which store to proceed with. I chose the decision analysis tool in POM for Windows because it allowed for the most manipulation of the data to produce the desired outcome. Two things that should be considered when determining the site for the new store should be the states of nature, and what their expected monetary values are. It also lays information out in a graphical form which makes it easy to interpret. Decision trees help to make decisions when large amounts of data are necessary to interpret efficiently. When you have to make a decision based on various outcomes and different probabilities as well as inputs, it is best to use the decision tree model. This software calculates the EMV as you input probability and profit or loss. The tool in POM can be helpful when you need information quickly without calculating this information by hand. When deciding on where to build a new location, there are environmental factors to consider as well as profitability. One major thing to consider is the size and cost of the building. Cash flow is very important to the success of the business. Knowing whether you must lease or buy a site is determined by the total building cost and how much this will affect net cash flows. Will the building appreciate in value? What is the net present value of the building in 10 years? There are many things to consider. Another thing to consider is how the local government regulates zoning laws. Is the equipment you need too large for the building you are considering to use? Will you need back door access for shipments and if so is there enough room for the driver to back in? Is there a parking regulation on how long the driver can be parked in one spot? What color do lines on the ground have to be in your city to signify handicap? There are many things to consider.
The decision is obvious; given the information, Shuzworld should go ahead with the plans of opening the stand-alone store due to the fact it has the highest factor in the EMV. By choosing this option there is the probability of profits reaching $700,000 in the favorable of markets or a significant less amount in an unfavorable market of $400,000. This shows a significant focus on this particular project versus others given the information in the market research data which shows the gaining of a profit margin of 70%.
However, taking this risk Shuzworld needs to consider all factors before making this type of decision due to the location.
A.2.
Shuzworld success will depend on the location and the market demand. Convenience is important to consumers and many times a consumer will choose a store for the convenience of the location and closest to their current location so location is an important factor to consider. One way to really focus on location is to make sure Shuzworld is located within the closest proximity of the consumer shoe buying markets. The map on the slide displays where a stand-alone store is the closest opportunity to the Auburn strip mall. This would be a good consideration if Shuzworld decides on the stand-alone store recommendation option.
The other factor is essential for the proximity of the store location to the suppliers. The case study of Shuzworld shows that the suppliers are defined as the production facilities and the warehouses. However, in the case study the location of both the production facilities and the warehouses are not shown to the proximity of the Auburn strip mall which is essential when deciding on location. Shuzworld would need to assure the transportation cost of the shipment of shoes to the different locations is cost effective for the company. As stated in the case study transportation can be very expensive for companies, which is why it is an essential factor to consider when deciding on the location of a new store.
Two important factors to consider when evaluating locations are the proximity of the store to its market and the proximity of its store to suppliers (Heizer & Render, 2011).
B. Project Techniques
Shuzworld can use two project techniques for the upgrade of their current store location:
PERT (Project Evaluation and Review Technique) and CPM (Critical Path Method).
PERT and CPM are alike, they both use six basic steps. These essential steps are:
1. Focus on defining the project and identify the breakdown of the work.
2. Determining the relationship between the listed activities.
3. Focus on drawing out the “network” which connects all the activities.
4. Focus on determining and assigning both time/cost for each activity involved.
5. Focus on determination of the critical path.
6. Compile all information to organize and control the project.
The difference between PERT and CPM is that CPM assumes that one time estimate will be correct. PERT uses three different time estimates for each activity, which gives calculations for standard values and standard deviations. The PERT techniques are used in the presenter's notes on the following slide (Heizer & Render, 2011).
Critical Path
A critical path is the path which is the longest throughout a project network of complete activities. The PERT decision tool that is appropriate to use for determining the critical path due to the fact of there being three separate time estimates for each activity given. By using the critical path shown on the slide it is information from our current store location. This critical path identifies the longest amount of time it takes for this particular project to be completed, which lists 108.2 days. The activity D listed isn’t part of the critical path due to the fact there is lag time of 19.27 days and there isn’t delays in the project if this particular activity isn’t delayed.
Shuzworld is looking for a 95% completed project within a particular timeframe so the focus is on the amount of days needed to achieve this goal. The formula to consider would be: Due Date = Expected Completion Time + (appropriate area under the normal curve x project standard deviation). As stated in the reading in order to solve this, the Normal Table in Appendix 1 has to be consulted to determine the value of Z (area under the normal curve) (Heizer & Render, 2011).
Closest Z-value to 95% ratio without going over would be 1.64. Take the number and place it into the equation. The date is equal to around 108.2 + (1.64 x 8.46), which then would give an answer of 122.07. Shuzworld would need to ideally plan for approximately 123 days in order to achieve the goal of 95% of finishing the particular project in the selected time frame.
If the decision of Shuzworld would be to crash this set time the project crash time would be 63.2 total days and a overall project cost of $12166.67. The timeframe of this type of crash focus would only be five days total. The crash focus would be on Activity 1 which constitutes a total cost of $2,500 ($500 per day). When looking at the critical path diagram the other activity that is listed to crash is activity D. However, it is not on the critical path so this is not a valid option. The recommendation in this particular crashing activity would be the option of Activity 1 in order to have the grand opening in a timely fashion.
C.
In order to determine trade-offs the linear programming is an essential tool. In order to meet the goals of any corporation, they need to be able to allocate resources of the company. One way to minimize the production cost is by using the linear programming and developing a staffing plan that will focus on the production line goals and the opportunity to minimize staffing levels of the company. In order to reduce production line cost, there would need to be fewer workers on the production lines. The domino effect would be fewer employees on the production lines leads to minimization of the overall cost of the production line itself.
As exhibited in the reading, those employees could be better allocated to another production or to another function within the company (Heizer & Render, 2011).
Production Mix: Kidshuz
A production plan is needed for Shuzworld in order to complete the 50 batches of Kidshuz shoes and sneakers for the following month. The forecasted consumer demand levels are 25 batches of shoes and 10 batches of sneakers needed. In order to manufacture, the cost of the shoes batch is $2,000.00 in order to manufacture and the sneakers cost is $1,500.00 in order to manufacture. Developing a production plan for Shuzworld is the recommendation that would focus on meeting the constraints and minimize the company’s production costs in the end.
The output identifies the goal of minimizing production costs of the company. There would need to be 25 batches of the Kidshuz and an additional 25 batches of the Kidshuz sneakers manufactured to achieve this goal. The overall manufacturing cost of both types of shoes would be an approximate total of $87,500.00. This information could then be entered into POM Windows program which in turn would determine the best solution. This would show the output figures displayed on the slide above. The output used was calculated by using the POM for Windows program.
The best decision tool that should be used is the linear programming decision tool which in turn would give the overall option to minimize the company costs. Using the linear programming tool was the most accurate measurement for this type of calculation because it is used to determine decisions that need to be focused on in order to allocate company resources. The goal of Shuzworld is to minimize cost. This was the essential minimizing option to use for accuracy.
Production Mix: Loafers
When focusing on the Tassel Loafers and Penny Loafer shoes, Shuzworld would need to know the production total required in meeting consumer demand levels. The cost of manufacturing the tassel loafer shoes is $800.00 which equates to 2 hours on the assembly production department and another eight hours in the finishing department. The penny loafer shoes cost $1,200.00 to manufacture which entails six hours in the assembly department and an additional four hours in the finishing department.
The manufacturing capacity of the assembly department shoes is 1,200 hours of capacity for the tassel loafers which equates to a level of 50 minimum production levels. The finishing department has a total of 1,600 hours capacity for the penny loafers shoes which equates to 100 level of the minimum production levels. The goal of Shuzworld in this scenario would be to meet the required constraints of the company while at the same time being able to maximize total profits.
The output in question was again calculated using the POM application. The recommended decision tool was the linear programming decision tool which again has the option to maximize profits of the company. Using the linear programming tool was the most accurate tool to use for these types of calculations because the linear programming determines the best decisions to make in order to allocate the company resources. The goal for Shuzworld is to maximize profits and this option allows them to do so, as a result of which is why it is the most appropriate linear programming tool to use. Linear programming is a part of mathematics which focuses on optimization and can be used when several variables are involved in the scenario. In addition, when the variables are perceived to have a linear relationship amongst themselves, then the linear programming seems to be the most ideal method, which is seen in this case.
D. Monte Carlo Simulation
The Shuzworld Baltimore store listed in the case scenario has been having a difficult time with the reordering and restocking of their supplies. The daily demand for shoes equates to approximately seven and twelve cases. There is a difference in the lead times when placing an order, which can vary from one to three days. The company’s goal of case demand equates to a period of 200 days total. This would include a lead time frequency for a period of 40 days total. Shuzworld needs a technique to utilize that could test the theory of reordering 30 cases of shoes when the levels of inventory reaches less than twelve or lower to show if it will be effective or not to use.
This decision can be made by utilizing the Monte Carlo simulation tool. As exhibited in the reading a Monte Carlo simulation is one that uses random numbers in the evaluation, because many factors are based on chance (Heizer & Render, 2011).
The simulation for the Baltimore store shows that the store does have an average consumer demand level of 10.5 cases per day. The rule of thumb is the average demand level is based on the random numbers that create the simulated demand levels. This Monte Carlo simulation shows that the company’s Baltimore store is able to handle the inventory if they change their practices to reordering 30 cases of shoes when inventory levels drop to twelve or below.
There are no sales lost during the period of 1-5 days. However, on day 3 there is only one case of shoes in the inventory levels which cuts the inventory level too low to meet demand of the consumer. The biggest problem arises on day 6 because on the end of day 5 there is only an inventory level of 9 cases and then the store decides to reorder. This simulation shows a lead time of 2 days. So by day 6 there is zero ending inventory which would equate to lost sales of three total which shows that the store isn’t meeting consumer demands. A full week equates to seven days which isn’t calculated in this scenario. However, the 7th day would also show a full day of lost sales due to lack of inventory levels because inventory wouldn’t arrive until the 8th day.
As exhibited in the reading a company should ideally run this simulation numerous times with random numbers, in order to get a more accurate picture (Heizer & Render, 2011). AIn this particular simulation ordering 30 cases doesn’t work for the Baltimore store in order to meet the demand of the consumer if the inventory levels reach twelve cases of below. This is just one variable simulation that showed the supply isn’t meeting the demand. In order to have a more accurate understanding of the inventory levels needed maybe running several different scenarios with random numbers could equate to a more favorable outcome for the store. Once a more favorable account occurred then the inventory ordering process could be updated to show a more favorable consumer demand level being met.
E.
1. By utilizing a human resource strategy at Shuzworld it would do two things: improve efficiency and improve effectiveness in operations. Companies use human resource strategy for gaining a competitive advantage by utilizing their labor and job design within the company. Employee jobs should be safe, physically appropriate and psychologically appropriate per individual.
As exhibited in the reading text the strategy will aim to make sure that both employees and employers are working towards the same goals, and that policy’s are equally and honestly enforced to gain mutual trust (Heizer & Render, 2011).
Companies that try to create a workplace that is surrounded by a quality of work life montra isn’t always an easy task. An extensive labor plan is always involved in order to create policies, schedules, regulations, rules and last of all employment stability. The employee expectations are set so this ensures all employees of the company know what is expected of them which helps them to follow guidelines for procedures and policies of the company. One important expectation for employees at Shuzworld is to know they are working for an ethical company with mission or vision statements that communicate how ethical the company is. This will help build employee’s trust in the company, which will in turn encourage them to work more efficiently (Heizer & Render, 2011).
First task of Shuzworld is to design jobs which entails defining the scope of practice for each task, duties involved, responsibilities, and lastly the required skills needed in order to perform the job. In order to be successful with employees it is essential to create a rewards system to motivate employees which doesn’t always entail money. Implementing a study in ergonomics will help the company understand how to design the work environment and make it more efficient for the employee’s success. Working in a safe environment is the goal for Shuzworld. This will help keep employees motivated and working efficiently (Heizer & Render, 2011).
Using an effective Human Resources sampling strategy is the key, which should always involve defining the labor standards within the scope of practice of the positions for the company. As exhibited in the text reading using historical experience, time studies, and work sampling will give Shuzworld a clear idea of how many resources to allocate to a specific job, so that employees will not feel over-worked or have too much idle time (Heizer & Render, 2011).
E.2.
In order to help lean operations and reduce waste which in-turn would increase efficiency in the production process, Shuzworld would need to implement the Lean Operations and Just-In-Time process. A large part of lean operations is finding ways to eliminate the waste. The seven ways of eliminating waste are: Overproduction, queues, transportation, inventory, motion, over processing, and defective product. As exhibited in the reading text lean operations is a customer-based approach, which tries to ensure that the customer gets the product they want, when they want it (Heizer & Render, 2011).
Using the Just-in-Time method it helps reduce waste, which improves cost effectiveness within the organization. This can be accomplished by having consumer products only produced when the customer wants to purchase them, or in other words, having the “right part in the right place at the right time” ("Just-in-time (JIT) production," 2006).
JIT at Shuzworld will reduce excess costs caused by extra inventory, obsolete parts, and unnecessary movement of supplies which saves money. JIT can also show bad inventory levels, because knowing that the cost of acquiring good quality supplies is in doubt much cheaper for the company. This in-turn will allow fewer bad components to be made, since inventory is kept to a minimum. Just-in-Time is a proven way to increase cost effectiveness (Heizer & Render, 2011). By having Shuzworld implement the JIT it will help Shuzworld reduce waste and increase efficiency in the production plants.
JIT key focus factors:
1. Stabilize and level the MPS with uniform plant loading
2. Reduce or eliminate setup times:
3. Reduce lot sizes
4. Reduce lead times
5. Preventive maintenance
6. Flexible work force*
7. Require supplier quality assurance and implement a zero defects quality program
8. Smalllot (single unit) conveyance
JIT focuses on reducing waste and making only what is needed. This concept fits the Shuzworld model perfectly. It is designed to reduce unnecessary waste and promote efficient use of the product design or use only what is needed. JIT focuses on reducing waste while TPS focuses on consistent training so employees are developed enough to be more productive at work. TPS is great for assembly lines which would be great for the assembly of shoes. JIT is a problem solving directive that will be helpful to determine production mixes and inventory ordering issues. JIT can reduce the amount in queues, control overproduction, optimize transportation, and control inventory. Remember, JIT focuses on problem solving. All of the situations brought to my attention have been problems that JIT can help to solve.
TPS is about constant training and development that can prove most useful in minimizing costs and maximizing profits. Lean operations intends to reduce waste and make information more user friendly to improve overall operations from the customer point of view. One way that Shuzworld can use LEAN operations is to continually use the services of consulting agencies that seek for ways to improve operations with computer generated models. This can help them reduce costs when companies attempt trial and error tactics for improving service. Rather than making changes and waiting to see how business operates, running the risk of losing competitive advantage or losing money, we can employ other methods such as simulations to allow for trial and error without interrupting the normal run of business to monitor how changes in processes affect the net profit or improve service. One LEAN practice is the 5s. Shuzworld can benefit greatly from this. Sort, straighten, shine, standardize, and sustain are all parts of the 5s LEAN program. Developed in Japan, this practice embraces ways to improve the visual dynamic of the workplace. Proper sorting of materials reduces clutter while straightening improves productivity and workflow. This minimizes waste because, ergonomically, a clean and well thought layout makes operations faster and improves SOS, or speed of service. Standardizing products help reduce waste because it is a well-known fact that repetition is the best way of improving one’s skill at any given task. Once something has been repeated over and over the same way, the likelihood of mistakes are minimal. Jidoka, is a system of JIT systems that focuses on improving quality at the source. This means that making sure processes are effective and efficient from the beginning can cut down on confusion late on. This will, in the end, make the process stronger and more effective. This can be accomplished through thorough training when new processes are introduced and that continuous training is offered throughout to make sure that all employees are comfortable with their jobs and tasks.
REFERENCES:1. Heizer, J., & Render, B. (2011). Operations management (10th ed.). New Jersey: Pearson.2. Just-in-time (JIT) production. (2006, January 27). Retrieved from http://personal.ashland.edu/~rjacobs/m503jit.html
3. Taylor,B.W & Russell, R.S. (2007). Operations Management (6th Edition). United States: John Wiley and Sons, Inc.
4. Brown,S. (2001). Operations Management. (6th Edition). United States: Routledge.
- Brennan, L.L. (2010). Operations Management. (1st Edition). United States: McGraw-Hill.
