Operations Management: Answers to Problems (11th Edition) by Krajewski and Malhotra

1-1
Chapter
1 Using Operations to Create Value
DISCUSSION QUESTIONS
1. Answering this question demonstrates that processes underlie all of our jobs. What might
be surprising is how many students would put their job in the category of “other,”
suggesting that many jobs do not fall neatly into any one functional area. Perhaps many
in the “other” category might best be called “operations” on further reflection.
Customers, both internal and external, are part of each process, and the goal is to manage
the processes to add the most value for them.
2. Amazon.com offers a very broad range of services and products at competitive prices. Its
competitive priorities would include fast delivery time, on-time delivery, customization,
variety and low-cost operations. As a business, Amazon.com is actually assembling a
customized basket of goods that must be delivered in a short window of time in a
dependable fashion. Low-cost operations are needed to remain competitive. To remain in
business, Amazon.com needs to maintain high volumes of traffic. Operations strategy
must focus on stock availability and quick, economical, and dependable delivery.
3. The hospital’s commitment to provide attention to patients arriving to the emergency
unit in less than 15 minutes and never to turn away patients who need to be hospitalized
implies that the facility must be designed to have extra capacity in both beds and
emergency room facilities. It must plan on having extra personnel in the emergency
room and also plan on having additional emergency personnel on call to take care of
unprecedented heavy loads. In line with the mission statement, maximum utilization of
the facilities (i.e., beds and emergency room personnel) would not be one of the
performance objectives for the hospital.
4. FedEx traditionally has competed on the basis of fast, dependable delivery. Before the
boom in Internet applications, many businesses relied on FedEx to get things to other
businesses overnight. Now, this need is beginning to diminish as sophisticated systems
are being installed to assist companies in planning operations better. And, the internet
based companies are adding more demands for low cost ground deliveries to specific
customer doors. FedEx, in order to remain competitive with companies such as UPS, has
moved into the door-to-door delivery business, perhaps through acquisition.
Nonetheless, it will require changes to this company’s competitive priorities.
5. Technology Management. To identify a market segment, we need to determine
answers to questions such as: Which colleges and departments currently offer the
subject? What do instructors desire in the way of textbook support? Is there a trend
toward Technology Management courses? Are there other Technology Management
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Using Operations to Create Value
1-2
texts? Some needs assessment can be accomplished by survey, but the response rate
may be low. A high-investment strategy would be to ask or hire instructors to
review and critique a list of topics, then an outline, then a draft. Explicit services
include supplying information about the subject in the form of a textbook and
instructor support in the form of ancillary publications.
6. It is often not a good idea for a company to try to excel in all of the competitive
priorities because it is generally impossible to do so. Mediocrity is a predictable
result. The choice and the minimum level of one or more of the competitive
priorities are set by the order qualifiers for the particular product or service. The
choice of the competitive priorities that the company should emphasize is usually
governed by the company’s strategy driven by its mission statement and the core
competencies that the company wants to harness to seek the best competitive
advantage.
7. Core processes should link to a firm’s core competencies. Core processes are those
processes that provide the firm the best competitive advantage. Essential to the
definition a firm’s core processes is the concept of “interaction costs.” These costs
include the time and money that are expended whenever people and companies
exchange services, products, or ideas. If the transaction costs are higher to retain a
process within the firm’s organization than to outsource the process, the process
should be outsourced.
8. Wendy’s assembles hamburgers to order. When materials are held at the stage just
before final assembly, they can be used to complete a wide variety of different
sandwiches. Because no finished-goods stock exists, when customers say, “Hold the
sauce,” there is no delay or waste of materials. Service clerks specialize. One clerk
takes orders and payment. Others fill portions of the order. Orders are processed in
single file. Throughput is normally restricted by transactions at the cash register. At
busy times, throughput is increased by splitting the bottleneck operation. One clerk
takes customer orders, another receives payment. The Wendy’s operation has some
characteristics of assembly. Therefore, the impact of new menu items on the
production operations must be carefully considered.
9. Grandmother’s Chicken.
a. Kathryn Shoemaker’s strategic plans include the following:
q Product and service plans: Should the new location offer a new mix?
q Competitive priorities: If the product mix and service mix are different at the new
location, the thrust could be on low volumes and high quality.
q Quality management: Should the goal be reliability or top quality?
q Process strategy: What processes will be needed to make chicken dinners in the
addition or new facility?
q New technologies: Is it time to automate? Is this why there is a problem in service
times?
q Capacity: How large should the addition or new facility be?
q Location: Should we locate in Uniontown or expand in Middlesburg?

Using Operations to Create Value l CHAPTER 1 l 1-3
b. Attitudes toward nutrition could change the demand for chicken. Competitors such
as Boston Market may be planning to move to Uniontown or even Middlesburg.
There may be a trend toward demands for ever-faster service, which cannot be
supported by the processes specified in the “unique recipe.” The economy of
Uniontown might not be supportive of restaurant services. Shoemaker should also
consider the availability of key resources, such as servers, whole chickens, spices,
and cooking oil. Will Uniontown labor organize?
c. The possible distinctive competencies at Grandmother’s Chicken Restaurant include
the “unique recipe,” the homey atmosphere, and friendly, prompt service.
10. Wild West, is recognizable as US WEST, which was bought out by Qwest in a
hostile takeover in June, 2000. But many other “Baby Bells” are in a similar
position.
a. Strategic plans include reducing overhead, reengineering operations, and investing in
new technologies to meet competition. The “do-nothing” option of remaining a local
monopoly telephone company is not viable because of competition from cable
systems and wireless systems that are capable of business and personal
communication. If the mission is too broad, Wild West should sell its financial
services and commercial real-estate businesses. Those businesses do not match their
distinctive competencies.
b. One environmental issue is whether communication, like health care, will be viewed
as a “right” and therefore should be free. A significant portion of Wild West’s
business is governed by regulatory agencies. Customer service in their core business
is essential to maintaining a favorable regulatory environment. Other business
opportunities, such as manufacturing and providing information services, are
prohibited by the same court order that formed the “Baby Bells” from AT&T.
c. Wild West’s distinctive competency is in connecting people (or machines) for the
purpose of communication. A weakness is high overhead inherited from the era of
telecommunication monopoly.
11. Although the answers may vary depending on the “niche” elements of the business, the
competitive priorities would include on-time delivery, low-cost operations, and
customization. The latter competitive priority comes from the capability to assemble
unique “baskets” of food items for each customer. There may be a need to coordinate a
given basket between two different stores. Capabilities to develop would include
information systems and Web page design, efficient scheduling of delivery trucks
(which must first collect the items in the basket and then deliver them to the customer’s
door), and an adequate fleet of trucks with drivers.

1-4
PROBLEMS
Addressing the Trends and Challenges in Operations Management
1. Boehring University
a. Value of output:
students credit-hours $200 tuition $100 state support
75 3 $67,500 class
class student credit-hours
+
⎛ ⎞
× × =
⎜ ⎟
⎝ ⎠
Value of input: labor + material + overhead
$25
$6500 75 students $30,000
student
$38,375 class
class
⎛ ⎞
+ × +
⎜ ⎟
⎝ ⎠ =
Multifactor Productivity ratio:
Productivity
Output $67,500
1.76
Input $38,375
= = =
Compared to Solved problem 1, multifactor productivity has increased from
1.25 to 1.76.
b. Value of output is the same as in part a: $67,500 class
Labor-hours of input:
20 16 320
hours
week
weeks
class
hours
class
× =
Productivity ratio:
Labor Productivity
Output $67,500
$210.94 hour
Input 320 hours
= = =
The $192 season ticket price is not used in this calculation. It is a “red herring.”
2. Suds and Duds Laundry
a. Labor productivity
Week
Number of
Workers
Input
(Labor-hours)
Output
(Shirts)
Output/Input
Ratio
1 2 24 68 2.83 shirts/hour
2 2 46 130 2.83 shirts/hour
3 3 62 152 2.45 shirts/hour
4 3 51 125 2.45 shirts/hour
5 2 45 131 2.91 shirts/hour
b. Output per person does not vary much whether it is Sud, Dud, or Jud working.
Productivity declines when all three are present. Perhaps there isn’t enough work to
keep three persons occupied, or perhaps there is not enough work space or
equipment to accommodate three workers.

3. White Tiger Electronics compact disc players
Value of Output: $300
Value of Input: Labor + Materials + Overhead
Productivity
Ouput $300
2.000
Input $30 $70 $50
= = =
+ +
10% productivity improvement → × =
2 00 110 2 200
. . .
Given productivity= 2 20
. , and the value of output = $300, we solve for the cost of
inputs:
Productivity
Ouput $300
2.20
Input Input
= = =
Input
$300
$136.36
2.2
= = or $136
The cost of inputs must decrease by( )
$150 $136 $14
− = .
a. A $14 reduction in material costs is $14 $70 20.00%
=
b. A $14 reduction in labor costs is $14 $30 46.67%
=
c. A $14 reduction in overhead is $14/$50 = 28.00%
4. Symtecks
The output of a process is valued at $100 per unit. The cost of labor is $50 per hour
including benefits. The accounting department provided the following information
about the process for the past four weeks:
Week 1 Week 2 Week 3 Week 4
Units Produced 1124 1310 1092 981
Total Value 112,400 131,000 109,200 98,100
Labor ($) 12,735 14,842 10,603 9526
Labor (hrs) 254.7 296.8 212.1 190.5
Material ($) 21,041 24,523 20,442 18,364
Overhead ($) 8,992 10,480 8,736 7,848
Multifactor Productivity 2.63 2.63 2.75 2.75
Labor Productivity 4.41 units/hr 4.41units/hr 5.15 units/hr 5.15 units/hr
a. Use the multifactor productivity ratio to see whether recent process
improvements had any effect and, if so, when the effect was noticeable.
Value of output
1124units $100 $112,400
× =
Value of input: labor + material + overhead
$12,735 + $21,041 + $8,992 = $42,768
Productivity ratio:
Labor Productivity
Output
Input
=

1-6
Week 1 Productivity
Output $112,400
2.628
Input $42,768
= = =
Week 2 Productivity
Output $131,000
2.628
Input $49,845
= = =
Week 3 Productivity
Output $109,200
2.745
Input $39,781
= = =
Week 4 Productivity
Output $98,100
2.745
Input $35,738
= = =
2.745 2.628
100% 4.45%
2.628
−
× =
Improved 4.45% - noticeable in Week 3
b. Has labor productivity changed? Use the labor productivity ratio to support your
answer.
Labor-hours of input: Labor $50/hour
Labor costs
Week 1 = $12,735/$50 = 254.7
Week 2 = $14,842/$50 = 296.84
Week 3 = $10,603/$50 = 212.06
Week 4 = $9,526/$50 = 190.52
Productivity ratio:
Labor Productivity
Output
Input
=
Week 1 = Labor Productivity
Output 1124
4.4130/ hour
Input 254.7 hours
= = =
Output 1310
4.413/ hour
Input 296.84 hours
= = =
Output 1092
5.1495/ hour
Input 212.06 hours
= = =
Output 981
5.1491/ hour
Input 190.52 hours
= = =
5.1491 4.4130
100% 16.68%
4.4130
−
× =
Improved 16.68%

5. Alyssa’s Custom Cakes
a.
5 Birthday cakes x $50 per cake = $250
2 Wedding cakes x $150 per cake = $300
3 Specialty cakes x $100 per cake = $300
Total monthly revenue = $850
Multifactor productivity ratio = output/input
1.25 = $850/x
Solve for x = $850/1.25 = $680
Total costs = $680
Average cost per cake = $680/10 = $68/cake
b. Labor productivity
Birthday cake = $50/ 1.5 hours = $33.30/hour
Wedding Cake = $150/ 4 hours = $37.50/hour
Specialty Cake = $100/1 hours = $100/hour
c. Based on labor productivity, Alyssa should try to sell specialty cakes the most.
d. Yes, Alyssa should stop selling birthday cakes. Based on answer a, she loses
$68 - $50 = $18 every time she sells a birthday cake.
6. Big Black Bird Company
The Big Black Bird Company problem is based on a product made by Raven
Industries. None of the numbers are representative of actual costs or volume.
a. Multifactor Productivity
Original Situation:
Value of output: 2500 000
uniforms $200
×
( ) = $500,
Value of input: 2500 000
uniforms $120
×
( ) = $300,
Productivity ratio:
Productivity = = =
Ouput
Input
$500,
$300,
.
000
000
167
Overtime Situation:
Value of output: 4000 000
uniforms $200
×
( ) = $800,
Value of input: 4000 000
uniforms $144
×
( ) = $576,
Productivity ratio:
Productivity = = =
Ouput
Input
$800,
$576,
.
000
000
139
Productivity decreases by:
1.67 1.39
100% 16.77%
1.67
−
× =
b. Labor Productivity
Original Situation:
Value of output (from part a) is: $500,000
Labor-hours of input: 70 40 30 40 4000
× + × =
( ) ( )
hours hours hours

1-8
Labor productivity = =
$500, $125
000 4000 hours hour
Overtime Situation:
Value of output (from part a) is: $800,000
Labor-hours of input: 70 72 30 72 7200
× + × =
( ) ( )
hours hours hours
Labor productivity =$800,000 / 7200 hours = $111.11/hours
Labor productivity decreases by:
(125/111.11) / 125 x 100% = 11.1%
c. Gross profits
Original Situation: $500, $300, $200,
000 000 000
− =
Overtime Situation: $800, $576, $224,
000 000 000
− =
Weekly profits increased.
7. Mack’s Guitar Company
a. Labor productivity = output/input
Output = 100 guitars x 80% completion rate x price/guitar
= 80 guitars/ month x $250/guitar = $20,000
Input
Labor = 10/hours per guitar x 100 guitars = 1000 hours
Labor productivity is $20,000/1000 = $20/hour
Multifactor productivity ratio = output/input
Output = 100 guitars x 80% completion rate x price/guitar
= 80 guitars/ month x $250/guitar = $20,000
Input
Labor = $10/hour x 10/hours per guitar x 100 guitars = $10, 000
Material = $40/guitar x 100 guitars = $4, 000
Overhead = $4,000
Multifactor productivity ratio = $20, 000/$18, 000 = 1.11
b. Option 1. Increase sales price by 10%
Output = 100 guitars x 80% completion rate x ($250 x 1.1) = $22,000
Input
Labor is same as in part (a) = $10,000
Material is same as in part (a) = $4,000
Overhead is same as in part (a) = $4,000
Multifactor productivity ratio = $22,000/$18,000 = 1.22
Option 2. Improve Quality
Output = 100 guitars x 90% completion rate x $250/guitar = $22,500
Input
Labor is same as in part (a) = $10,000
Material is same as in part (a) = $4,000
Overhead is same as in part (a) = $4,000
Option 3. Reduce costs by 10%
Output = same as in part (a) = $20,000
Input

Reduce costs by 10% yields 90% of the input costs from part (a).
= $18,000 x 0.90 = $16,200
Darren should choose Option 2 and improve quality because it yields the
greatest improvement in multifactor productivity.
8. Mariah Enterprises Productivity of Process Alpha and Process Beta
Excel used to perform all calculations
Process
Alpha Beta
Total Value of Output $17,150 $16,450
Total Cost of Labor $2,600 $3,000
Total Cost of Materials $5,500 $4,900
Total Cost of Overhead $6,000 $5,000
Labor Productivity $6.596 $5.483 unit $/ labor $
Multifactor Productivity $1.216 $1.275 unit $/ total $
Process alpha has 20% [(6.596-5.483)/5.483] higher labor productivity.
Process beta has 5% [(1.275-1.216)/1.216] higher multifactor productivity.
While process beta generates more dollars of output per dollar invested in input, it
doesn’t use labor as efficiently as process alpha.
9. Morning Brew Coffee Shop
Excel used to perform all calculations
a. Current labor and multifactor productivity
Currently
Regular
Coffee
Cappuccino
Vienna
coffee
total
Output in dollars $700.00 $300.00 $600.00 $1,600.00
Labor cost $320.00
Material cost $175.00 $75.00 $187.50 $437.50
Equipment cost $125.00
Overhead cost $225.00
Profit $492.50

1-10
Labor Productivity 5.0000
Multifactor Productivity 1.4447
After adding new product
After Adding
New Product
Regular
Coffee
Cappuccino
Vienna
coffee
Eiskaffee total
Output in dollars $700.00 $300.00 $600.00 $375.00 $1,975.00
Labor cost $320.00
Material cost $175.00 $75.00 $187.50 $112.50 $550.00
Equipment cost $200.00
Overhead cost $350.00
Profit $555.00
Labor Productivity 6.1719
Multifactor Productivity 1.3908
Change in Labor Productivity 23.438%
Change in Multifactor Productivity -3.727%
b. The units of Eiskaffee that would have to be sold to ensure that the multifactor
productivity increases from its current level may be calculated as follows:
102
945
.
288
833
.
2
1670
.
2
945
.
1888
5
1600
$
)
5
.
1
$
5
.
1307
($
4447
.
1
5
$
1600
$
4447
.
1
5
.
1
$
5
.
1307
$
0
.
5
$
1600
$
4447
.
1
350
200
))
5
.
1
($
)
25
.
1
($
150
)
75
($.
100
)
5
($.
350
(
320
$
)
5
($
)
4
($
150
)
3
($
100
)
2
($
350
4447
.
1
cos
cos
cos
cos
$
≅
=
+
=
+
+
=
+
=
+
+
=
+
+
+
+
+
+
+
+
+
=
+
+
+
=
x
X
x
x
x
x
x
x
x
x
t
Overhead
t
Equipment
t
Material
t
Labor
in
sold
Coffee
input
output

Calculation confirmed in Excel:
After
Adding
New

Product

Regular

Coffee

Cappuccino

Vienna

coffee

Eiskaffee
total

Output
in
dollars
$700.00
$300.00
$600.00
$510.00
$2,110.00

Labor
cost

$320.00

Material
cost
$175.00
$75.00
$187.50
$153.00
$590.50

Equipment
cost

$200.00

Overhead
cost

$350.00

Profit

$649.50

Labor
Productivity

6.5938

Multifactor
Productivity

1.4447

Change
in
Labor
Productivity
31.875%

Change
in
Multifactor
Productivity
0.001%

CASE: CHAD’S CREATIVE CONCEPTS*
A. Synopsis
This case describes a small furniture manufacturing company that has gained a
reputation for creative designs and quality by focusing on producing custom-designed
furniture. As its reputation grew it began to sell some standard furniture pieces to retail
outlets. The overall growth in sales volume and the diversification into the production
of standard furniture pieces have caused a number of issues to arise concerning both
the internal manufacturing operations and its relationship to the other functional
areas of the company.
B. Purpose
This case is designed to be used as either a “cold-call” case for class discussion or
an assigned homework reading. Major points to be brought out in the discussion
include:
1. The range of decisions that are made in designing and operating processes
2. The impact that these operating decisions have on the organization as a whole, such
as on marketing and finance
3. The impact that decisions made in other functional areas of the organization have on
the operating function
4. The need to go beyond the “functional silo” mentality and manage in an integrative
manner
*
This case was prepared by Dr. Brooke Saladin, Wake Forest University, as a basis for classroom
discussion.

1-12
C. Analysis
Question 1: What types of decisions must Chad Thomas make daily for his company’s
operations to run effectively? Over the long run?
The students should be able to discuss a number of short-term-oriented decisions
that are facing Chad Thomas. These should include:
a. How to set priorities and schedule different orders. Chad is receiving orders for both
custom-made, low-volume furniture pieces and higher-volume, standard pieces.
Sales have increased, but the amount of equipment and the production capacity of
the company have not. Different orders with different manufacturing requirements
are now competing for the same productive capacity.
b. What orders to accept and how long of a lead time to plan for in promising a delivery
date.
c. What type of work policies should be maintained for his employees? Decisions such
as the number and type of employees to employ, the number of hours to work per
day, and the amount of overtime to allow are all work policy decisions that impact
the available capacity level.
d. The allocation of resources, equipment, labor, and money to each product line.
e. The level of inventory to maintain at various stages of the production process for
both the custom and standard furniture lines (i.e., raw material, WIP, finished
goods). These decisions are linked to the longer-term, total inventory-investment
decision.
Examples of longer-term decisions that face Chad Thomas include:
a. Amount of money to tie up in the total inventory investment.
b. The type of equipment to invest in to support efficient production. At what point
should more specialized equipment be purchased to manufacture high-volume,
standard furniture pieces more efficiently?
c. What should be the overall workforce level to maintain, and what should be the
proper mix of skills and capabilities?
d. How should the facilities be laid out to accommodate the two different product
lines? This gets the students into a whole range of capacity and equipment
allocation decisions including size, type, and configuration.
In these decisions it is important that the students see the significance of consistency of
both strategic and operating decisions across functional areas.

Question 2: How did sales and marketing affect operations when they began to sell standard
pieces to retail outlets?
Standard furniture pieces compete on a different set of competitive priorities than
custom-designed pieces. Timely delivery and low costs are much more important than
product flexibility. Quality may also be defined differently. The existing facilities are set
up to provide flexibility with its job-shop orientation and general-purpose equipment.
By introducing a standard line that should be manufactured on a flow line with some
dedicated, more specialized equipment, a conflict has developed, and scheduling
problems have resulted.
Question 3: How has the move to producing standard furniture pieces affected the company’s
financial structure?
Inventory investment and operating costs are rising because of the frequent changeovers
to accommodate the two different product lines and their scheduling conflicts.
Profit margins for the standard line are smaller, which puts pressure on
manufacturing to increase productivity and reduce costs. There may also be an issue
concerning the assignment of overhead costs to each product line.
Finally, the potential need to rent warehouse space to store either WIP or finished-goods
inventory cuts into the profit margin for the standard furniture line.
Question 4: What might Chad Thomas have done differently to help avoid some of these
problems he now faces?
Chad needs to address issues relating to functional areas. Make sure the student is able
to identify decisions that relate to more than one functional area. Examples include the
following:
Operations Function
1. Monitoring capacity and utilization of facilities
2. Formulating inventory policies—dollars, items, and unit levels
3. Setting scheduling policies and priorities
4. Maintaining product line quality
Marketing and Sales
1. Accurately forecasting orders for standard pieces
2. Defining market segments and customer needs
3. Determining what delivery schedules can be promised to customers
Finance
1. Deciding level and type of investment
2. Investigating the effect of capacity investment decisions on ROI

1-14
Distribution/Logistics
1. Managing distribution and pipeline inventory
2. Comparing cost and advantages of various transportation modes
3. Meeting delivery lead times
Three possible avenues that students may focus on are: Thomas might have
a. Established a plan for a more controlled growth. Part of this plan would be the
development of the appropriate infrastructure to manage a controlled growth as to
what markets to enter, what product lines to develop, and how to develop the proper
manufacturing capabilities.
b. Maintained the company focus on custom-designed furniture only. This alternative
presents a whole different set of issues and decisions pertaining to future growth, but
it would have avoided the issues of mixed competitive priorities and scheduling
conflicts.
c. Realized the different requirements for each product line and focused the
manufacturing facilities into two separate sets of production facilities designed to
cater to each product line’s specific needs.
D. Recommendations
This case is not designed to be a decision-making case per se but rather a vehicle to
get students thinking about the types and the integrated nature of decisions that
operations managers face. The students may, indeed, have suggestions as to what should
be done to help out Chad Thomas. These recommendations will more than likely follow
the alternatives already discussed. As recommendations are provided by students, make
sure you push them to understand the implications of their recommendations with
respect to the company as a whole and the other functional areas.
E. Teaching Strategy
This case can be effectively discussed in 20 to 30 minutes by following the discussion
questions provided at the end. The questions are interconnected and somewhat
redundant on purpose to reinforce the interrelatedness of decisions made in various
functional areas of the company. The intent is to have the students understand the range
of decisions that face managers in the operating function and to realize that different
types of products competing in different markets place different demands on the
operating function. Therefore, productive systems will take on a variety of
configurations.
Exhibit TN.1 lays out a sample table to be written on the board displaying important
issues in the class discussion. Each column can be used to compare and contrast the
differences in the requirements imposed by custom versus standard furniture for each
area.

EXHIBIT TN.1 Board Plan
Important Issues Custom Furniture Standard Furniture
Marketing
Quality level and quality control
Process equipment
Process flow
Production scheduling system
Purchasing
Type of inventory and inventory
control system
Type of engineering
Type of labor and supervision
needed
Wage/reward system
Layout

1-16
CASE: BSB, INC.: Pizza Wars Come to Campus
A. Synopsis
BSB, Inc. presents the situation where launching a pizza service at a food service
operation on a college campus turns out to be very successful. As the manager of the
food service operation is contemplating an expansion of the service, an announcement
by the university that a new food court will soon be opening in the new student union
causes some concern. The new food court will contain, for the first time on campus,
other food service companies, including a new Pizza Hut kiosk. This causes the manager
of BSB, Inc. to reevaluate the competitive environment and her own competitive
priorities.
B. Purpose
BSB, Inc. provides the students an opportunity to discuss a number of strategically
focused issues to include the following:
1. Mission statements: Mission statements describe the fundamental purpose for which
the organization exists. The university decided that a focus on food service
operations was not part of its primary mission, so it contracted the service out to
BSB, Inc. Students should be able to describe a mission statement for BSB, Inc. This
statement will help in discussing the second major focus of this case.
2. Comparison of competitive priorities: When the pizza service was launched a
year ago, the competitive priorities were to expand the product line to offer
pizza that could be delivered quickly at a reasonable price. Costs were kept low,
and turnaround time was short due to the limited combination of toppings
available.
With the addition of the food court and Pizza Hut on campus, competitive priorities
may change. Delivery may still be a differentiating competitive priority, but product
flexibility (variety) and volume flexibility (large order sizes) may become more
important. BSB, Inc. may not be able to compete on low cost when compared to
Pizza Hut’s operations.
3. The impact changing competitive priorities has on operating decisions: Students
need to discuss the potential impact that different competitive priorities have on
process design and operating systems. If product flexibility and volume flexibility
become more important, then there are implications for:
a. Equipment needs—conventional oven versus continuous chain drive
b. Capacity requirements—order size and delivery cycle
c. Inventory issues—inventory needed to support product flexibility
4. Product life cycles: Demand for pizza on campus has leveled off. Why? Has it
reached its mature, steady state? What will be the impact of new competition? What
can be done to reposition pizza into a growth stage? These are questions that should
be asked of students to get them to think about pizza’s product life cycle.
C. Analysis

A good analysis of the situation can be performed by going through the five questions at
the end of the case. The following is what you can expect from a first-year MBA student
given the case as a take-home assignment to read and to respond to the questions at the
end.
Question 1: Does BSB, Inc. enjoy any competitive advantages or distinctive competencies?
BSB’s competitive advantage is close proximity to the customers. Though 43 percent of
meals are eaten off campus, 57 percent of meals are still eaten at BSB’s facilities. For
pizza delivery the close proximity is critical, as it allows for quicker delivery. In
addition, delivery can be done at a lower cost because bikes can be used.
BSB’s distinctive competencies are the location of facilities and market know-how.
Being on campus, BSB can provide delivery service quicker and at a lower cost. In
addition, by being on campus, BSB is closer to the customer base, which allows
Kershaw, the manager, to be more knowledgeable of her customer’s needs. She
employs environmental scanning, such as the customer surveys, to keep abreast of her
market.
Question 2: Initially, how did Renee Kershaw choose to compete with her pizza operations?
What were her competitive priorities?
Initially, Kershaw chose to compete on delivery service and price. She used quick
delivery as a key selling point. In addition, without a reasonable price, she could not
compete with the off-campus pizza companies. In effect, her order qualifier was price,
and her order winner was service.
Her initial competitive priorities for pizza were delivery speed and price. Her on-campus
location and limited standard toppings make these priorities possible. Unfortunately, this
policy limits the variety of pizzas available. The increased requests for additional
topping combinations and the leveling of sales suggest this policy may be hurting BSB.
Question 3: What impact will the new food court have on Kershaw’s pizza operations? What
competitive priorities might she choose to focus on now?
The new food court introduces new competition that has the same on-campus advantage
as BSB. In addition, these companies can also provide products at reasonable prices, but
unlike BSB, they have brand names. Her direct competitor, Pizza Hut, can probably
provide a similar price. Most likely Pizza Hut will also have limited varieties; however,
BSB still maintains its delivery advantage.
The most likely new competitive priorities for BSB will be expanded product variety
and longer service hours. The increased requests for alternate toppings show a customer
interest in variety, and the expanded hours will enable BSB to offer service when the
Pizza Hut is closed or when students are in their dorm rooms.

1-18
Question 4: If Kershaw were to change the competitive priorities for the pizza operation, what
are the gaps between the priorities and capabilities of her process? How might this
impact her operating processes and capacity decisions?
An increase in product variety will affect both service and cost. Kershaw probably
cannot have as many premade pizzas ready to throw into the oven. She will also need to
stock additional toppings. If she wants to maintain service, she will need to hire
additional workers. She will inevitably have some trade-off between service and price if
she adds product variety.
Kershaw will also need to add capacity. At present, she is near capacity with her pizza
ovens. She may even have to consider a new location, as there seems to be limited space
at the grill location. Clearly she will need to determine the viability of pizza service
before she takes this step.
Question 5: Can you outline a service strategy for Kershaw’s operation on campus?
If she chooses to stay in the pizza business, delivery will remain important. Food, most
likely pizza, delivered from off campus, is a significant competitor. These competitive
companies likely offer many pizza combinations. Therefore, BSB will need to increase
variety to remain competitive. The key to this strategy is to maintain quality and to
innovate on product offerings. Kershaw must use her proximity to the customer to
maintain her competitive advantage in determining their pizza delivery needs.
The other strategy would be total price competition. This would require her to keep the
limited menu and to push to keep costs at a bare minimum. Unfortunately this means
maintaining the same basic strategy she has now. However, this strategy will most likely
lead to an inevitable decline in market share. This strategy seems best if she decides to
exit the market, but it gives her the opportunity to milk the market before exiting.
In reviewing the student responses the instructor should note the following:
1. On question three, the student overlooks the continued importance of convenient,
quick delivery. The other food services do not provide this service.
2. Students tend to hedge on question five. They should be pressured into putting
together a service strategy as opposed to describing alternative choices only.
There are a number of positions Kershaw may take. What is important, however, is to
look for consistency in the strategies that students provide.

D. Teaching Strategy
This case is best assigned as a take-home assignment. Have the students focus on
responding to the questions at the end of the case. Tell them to pay particular attention to
the last question. The first four questions all lead up to the last one where students
should describe a service strategy for pizza operations of BSB, Inc. Tell students you
want them to settle on a specific strategy they can support.
In class, start with the first question and cycle through to the final question, which
describes their service strategies. It is helpful to try to get two or three different strategies
on the board to compare and contrast approaches. It is important that students see that
there are a number of good alternative strategies and not just one best one.
A thorough discussion of this case will take 45 minutes to an hour, especially
if alternative strategies are discussed.

Operations Management: Answers to Problems (11th Edition) by Krajewski and Malhotra

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