Unit 1: Business Model and Strat
These are designed-in characteristics of a product or service, such as color, friendliness, or expertise.
Attributes
This type of capacity reflects the actual output of the system, accounting for variability and waste.
Effective Capacity
To change the behavior of a system, you must change its __________
Structure
For a non-binding constraint, the shadow price is always ______.
zero
This is the longest step in a process and determines the overall cycle time
bottleneck
Business models ask: How do we make money in this business, and what is the underlying __________ __________?
economic logic
Starbucks wants to improve its morning opening routine. The team lists activities such as brewing coffee, running diagnostics on espresso machines, counting the register, and cleaning the counters.
Classify two of these as front-room and two as back-room activities.
Front room examples:
Brewing and serving coffee
Taking orders at the register
Back room examples:
Running espresso machine diagnostics
Counting the register / preparing cash drawer
This part of the supply chain includes inbound logistics and purchasing.
Source
A bakery wants to maximize profit from cupcakes and muffins. Baking time is limited to 600 minutes and frosting time is limited to 300 minutes.
Cupcakes require 3 minutes baking and 2 minutes frosting.
Muffins require 4 minutes baking and 1 minute frosting.
Write the two resource constraints.
3C+4M≤600
2C+1M≤300
If an objective coefficient stays within its allowable range, this important aspect of the solution does not change.
Optimal solution corner
High-touch customer-facing activities typically pair with __________ volume and __________ variety backroom operations
low volume and high variety
An airline competes on providing the most luxurious cabin experience in the market.
Identify its order winner and an order qualifier, using Unit 2 definitions.
Order winner: High-performance design (luxury experience)
Order qualifier: Reliability and safety (all airlines must provide these at baseline)
A startup purchases raw materials from a supplier, assembles products in-house, and uses UPS to ship items to customers. Identify which steps correspond to Source, Make, and Deliver in the Plan-Source-Make-Deliver framework.
Source = purchasing raw materials
Make = assembling the products in-house
Deliver = shipping items via UPS
What is prescriptive analytics, because the firm must allocate scarce resources (consultant hours) to maximize revenue under constraints?
prescriptive analytics, because the firm must allocate scarce resources (consultant hours) to maximize revenue under constraints
A craft shop makes candles (C) and soaps (S).
Candles: 3 hours labor, 2 hours packaging, profit $8
Soaps: 1 hour labor, 2 hours packaging, profit $6
Labor available = 120 hours
Packaging available = 100 hours
Formulate the complete linear program.
Maximize:
Z=8C+6SZ=8C+6S
Subject to:
3C+1S≤120(labor)
2C+2S≤100(packaging)
C,S≥0
Strategy is about patterns of decisions related to _______, _______, _______, and _______
activities, resources, decisions, tradeoffs
This metric category includes delivery speed, reliability, and product design time
Time
A retailer experiences a sudden spike in demand. One week later, the wholesaler over-orders. Two weeks after that, the factory doubles production, leading to excess inventory. Identify two structural elements that caused this bullwhip effect.
Acceptable answers include:
Information delays
Processing/shipping delays
Independent decision-making
Information asymmetry
Separate forecasting by each tier
Your LP solution shows painting time is binding and carpentry is non-binding. The shadow price for painting is $2.75 per hour. If someone offers you 10 extra hours of painting time for $20 total, should you buy it?
Yes. Each hour adds $2.75 of profit → 10 hrs adds $27.50 in value. Since it costs only $20, you should buy it.
In a luxury hotel’s BMC, identify one block on the left-hand side and explain how misalignment in that block could destroy value even if WTP is extremely high.
Any left-side block (Key Activities, Key Resources, Key Partners).
Example: If Key Resources include low-skill staff or unreliable systems, poor execution increases TC, shrinking value captured and reducing value delivered despite high WTP.
A healthcare clinic aims to provide relational, high-touch service but hires only low-cost staff, automates all interactions, and limits appointment time to 5 minutes.
Using Unit 1 logic, identify two misalignments between customer expectations and internal capabilities, and explain their consequences.
Possible correct points:
High-touch relational expectations conflict with automated, low-touch customer-facing activities.
High relational expectations require high-skill resources, not low-cost staff.
A 5-minute appointment contradicts the relational expectation for customization and time.
Consequences: Misalignment reduces value delivered, increases execution gaps, and lowers customer perception relative to WTP.
A company speeds up a non-bottleneck step, expecting system capacity to rise. Instead, capacity stays the same and inventory piles up. According to the Theory of Constraints, improving a non-bottleneck creates a _________ because it has _________ effect on the system.
a mirage because it has no real effect on system capacity
A U.S. apparel company moves production from Vietnam to Mexico so it can be closer to U.S. consumers and shorten lead times. The company continues to outsource production to a third-party factory.
Identify the sourcing and location strategies.
Location strategy = nearshoring
Work execution strategy = outsourcing
A Solver report shows that labor hours are binding and have a shadow price of $6 per hour. The allowable increase is 40 hours and allowable decrease is 10 hours.
If management adds 30 hours of labor and subtracts 5 hours of material time (non-binding), explain the net effect on profit using sensitivity rules.
Profit increases by 30 × $6 = $180 because the added labor is within the allowable increase (40 hours), so the shadow price holds.
The decrease of 5 material hours has no effect on profit because material time is non-binding (shadow price = 0), so removing some unused capacity does not change the optimal solution or objective value
Tables (T) and chairs (C): Profit=6T+8C
Binding constraints at optimality:
Carpentry: 4T+2C=600
Painting: 3T+4C=6403T
The allowable increase in carpentry is 60 hours; shadow price = $4/hr.
Someone offers 50 more carpentry hours for $300.
Should the company accept?
50 hours is within allowable increase → value = 50 × 4 = $200
Cost = $300 → not worth it