Business Management Essay
3.3 Solutions to the Chapter Questions
Discussion Question 3.1
The opposite of looking at average is looking at a specific flow unit’s flow time, and the inventory status and instantaneous flow rate at a specific point in time. Because flow times change from flow unit to flow unit, it is better to look at the average over all flow units during a period of time. Similar for inventory and throughput.
Discussion Question 3.2
In practice, one often tracks inventory status periodically (each day, week, or month). Flow rate is typically also tracked periodically (even more frequently than inventory status because it directly relates to sales). It then is easy to calculate the …show more content…
Discussion Question 3.5
If GM and Toyota have same turns, and we know that turns = 1/flow time = 1/T, it follows that their average flow times are the same. We also know that Toyota's throughput is twice that of GM. Thus, from I=RT it follows that Toyota has twice the inventory of GM. Thus, the statements are inconsistent, both companies have the same flowtime but Toyota has higher inventory than GM.
Discussion Question 3.6
Yes, low inventories means few flow units are held in the buffer. In contrast, fast inventory turns means short flow times; i.e., flow units do not spend a long time in the process. As such, one can have high turns with high or low inventories (it all depends on what the throughput is).
Discussion Question 3.7
A short cost-to-cash cycle means that it does not take long to convert an input into a sold output. Clearly, this is good because we do not need to finance the input for a long time before it earns revenue (i.e., lower working capital requirements).
Short cost-to-cash cycle requires short flow times, which imply low inventories (for a given throughput), or high throughput (for a given inventory).
Exercise 3.1 (Bank)
For the bank we have Average inventory I = 10 people, Throughput R = 2 people/min (we assume a stable system).