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Capacity and
ConstraintManagement
PowerPoint presentation to accompanyHeizer and Render
Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition
PowerPoint slides by eff Heyl
77
© 2014 Pearson Education, Inc.
! "
P P # E M E N $
! "
P P # E M E N $
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O%tline & Contin%ed
► pplyin& E*pected +onetary alueE+ to Capacity /ecisions
►
pplyin& In$est(ent nalysis toStrate&y-/ri$en In$est(ents
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#earning Ob'ectives
(hen yo% complete this s%pplementyo% sho%ld be able to )
*+ efine capacity-+ etermine desi&n capacity, e##ecti$e
capacity, and utiliation
.+ Perform ottleneck analysis/+ Comp%te reak-e$en
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#earning Ob'ectives
(hen yo% complete this s%pplementyo% sho%ld be able to )
0+ etermine t!e e*pected (onetary$alue o# a capacity decision
1+ Comp%te net present $alue
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Capacity
► "!e t!rou&!put, or t!e nu(er o# unitsa #acility can !old, recei$e, store, orproduce in a period o# ti(e
► /eter(ines#i*ed costs
► /eter(ines i#
de(and 'ille satis#ied
► "!ree ti(e !orions
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Planning Over a $ime Horizon
i&ure S7.1
+odi#y capacity 5se capacity
Inter(ediate-ran&eplannin&a&&re&ateplannin&
Sucontract dd personnel dd e6uip(ent Build or use in$entory dd s!i#ts
S!ort-ran&eplannin&sc!edulin&
Sc!edule osSc!edule personnel llocate (ac!inery8
9on&-ran&e
plannin&
dd #acilities
dd lon& lead ti(e e6uip(ent 8
8 /i##icult to adust capacity as li(ited options e*ist
Options for 2d'%sting Capacity$ime Horizon
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esign and Effective Capacity
► /esi&n capacity is t!e (a*i(u(t!eoretical output o# a syste(
► ;or(ally e*pressed as a rate► E##ecti$e capacity is t!e capacity a #ir(
e*pects to ac!ie$e &i$en current
operatin& constraints►
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"tilization and Efficiency
"tilization is the percent of designcapacity act%ally achieved
Efficiency is the percent of effective
capacity act%ally achieved
5tiliation > ctual output?/esi&n capacity
E##iciency > ctual output?E##ecti$e capacity
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts
/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts
/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts
/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls
5tiliation > 14:,000?201,300 > 7).4@
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts
/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls
5tiliation > 14:,000?201,300 > 7).4@
E##iciency > 14:,000?17,000 > :4.3@
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S7 - 14© 2014 Pearson Education, Inc.
3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#ts
/esi&n capacity > 7 * ) * : * 1,200 > 201,300 rolls
5tiliation > 14:,000?201,300 > 7).4@
E##iciency > 14:,000?17,000 > :4.3@
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#tsE##iciency > :4.3@E##iciency o# ne' line > 7@
E*pected E##ecti$e CapacityE##iciency
> 17,000.7 > 1)1,20 rolls
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3a4ery E5ample
ctual production last 'eek > 14:,000 rollsE##ecti$e capacity > 17,000 rolls/esi&n capacity > 1,200 rolls per !our Bakery operates 7 days?'eek, ) - : !our s!i#tsE##iciency > :4.3@E##iciency o# ne' line > 7@
E*pected E##ecti$e CapacityE##iciency
> 17,000.7 > 1)1,20 rolls
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Capacity and !trategy
► Capacity decisions i(pact all 10decisions o# operations (ana&e(ent
as 'ell as ot!er #unctional areas o#t!e or&aniation
► Capacity decisions (ust e
inte&rated into t!e or&aniationAs(ission and strate&y
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Capacity Considerations
1. orecast de(and accurately
2. +atc! tec!nolo&y incre(ents and
sales $olu(e). ind t!e opti(u( operatin& sie
$olu(e
4. Build #or c!an&e
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Economies and iseconomies
of !cale
Econo(ieso# scale
/isecono(ieso# scale
1,)00 s6 #tstore 2,300 s6 #tstore
:,000 s6 #tstore
;u(er o# s6uare #eet in store
1,)00 2,300 :,000
$ e r a & e u n i t c
o s t
-
s a l e s p e r s 6 u a r e # o o t .
i&ure S7.2
© 2014 Pearson Education, Inc.
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Managing emand
► /e(and e*ceeds capacity
► Curtail de(and y raisin& prices, sc!edulin&lon&er lead ti(e
►
9on& ter( solution is to increase capacity► Capacity e*ceeds de(and
► Sti(ulate (arket
► Product c!an&es
► dustin& to seasonal de(ands
► Produce products 'it! co(ple(entaryde(and patterns
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Complementary emand
Patterns
4,000
),000
2,000
1,000
+ + S < ; / + + S < ; /
S a l e s i n u n i t s
"i(e (ont!s
Co(inin& t!et'o de(andpatterns reducest!e $ariation
Sno'(oile(otor sales
et skien&inesales
i&ure S7.)
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$actics for Matching Capacityto emand
1. +akin& sta##in& c!an&es
2. dustin& e6uip(ent
►
Purc!asin& additional (ac!inery► Sellin& or leasin& out e*istin& e6uip(ent
). I(pro$in& processes to increase t!rou&!put
4. %edesi&nin& products to #acilitate (ore t!rou&!put
. ddin& process #le*iility to (eet c!an&in& productpre#erences
3. Closin& #acilities
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!ervice&!ector emand
and Capacity Management► /e(and (ana&e(ent
► ppoint(ent, reser$ations, CS rule
► Capacity(ana&e(ent► ull ti(e,
te(porary,part-ti(esta##
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3ottlenec4 2nalysis and the
$heory of Constraints► Eac! 'ork area can !a$e its o'n uni6ue
capacity
► Capacity analysis deter(ines t!e t!rou&!putcapacity o# 'orkstations in a syste(
► bottlenec4 is a li(itin& #actor or constraint
► ottleneck !as t!e lo'est e##ecti$e capacityin a syste(
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3ottlenec4 2nalysis and the
$heory of Constraints► "!e bottlenec4 time is t!e ti(e o# t!e
slo'est 'orkstation t!e one t!at takes
t!e lon&est in a production syste(► "!e thro%ghp%t time is t!e ti(e it takes
a unit to &o t!rou&! production #ro( startto end
2 (in?unit 4 (in?unit ) (in?unit
B C
i&ure S7.4
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Capacity 2nalysis
► "'o identical sand'ic! lines
► 9ines !a$e t'o 'orkers and t!ree operations
► ll co(pleted sand'ic!es are 'rapped
Drap?/eli$er
)7. sec?sand'ic!
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Capacity2nalysis
Drap?/eli$er
)7. sec
=3 sand'ic!es per!our
► "!rou&!put ti(e is )0 1 20 20 )7.> 122. seconds
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Capacity 2nalysis
► Standard process #or cleanin& teet!
► Cleanin& and e*a(inin& F-rays can !appensi(ultaneously
C!eckout
3 (in?unit
C!eck in
2 (in?unit
/e$elopsF-ray
4 (in?unit : (in?unit
/entist"akesF-ray
2 (in?unit
(in?unit
F-raye*a(
Cleanin&
24 (in?unit
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Capacity2nalysis
► ll possile pat!s (ust e co(pared► Bottleneck is t!e !y&ienist at 24 (inutes
► Gourly capacity is 30?24 > 2. patients► F-ray e*a( pat! is 2 2 4 : 3 > 27
(inutes► Cleanin& pat! is 2 2 4 24 : 3 > 43
(inutes► 9on&est pat! in$ol$es t!e !y&ienist cleanin&
t!e teet!, patient s!ould co(plete in 43(inutes
Chec4o%t
1 min6%nit
Chec4 in
- min6%nit
evelops7&ray
/ min6%nit 8 min6%nit
entist$a4es7&ray
- min6%nit
0 min6%nit
7&raye5am
Cleaning
-/ min6%nit
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$heory of Constraints
► i$e-step process #or reco&niin& and(ana&in& li(itations
!tep *) Identi#y t!e constraints
!tep -) /e$elop a plan #or o$erco(in& t!e constraints
!tep .) ocus resources on acco(plis!in& Step 2
!tep /H %educe t!e e##ects o# constraints y o##loadin&
'ork or e*pandin& capaility!tep 0)
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3ottlenec4 Management
1. %elease 'ork orders to t!e syste( at t!epace o# set y t!e ottleneck► /ru(, Bu##er, %ope
2. 9ost ti(e at t!e ottleneck represents lostti(e #or t!e '!ole syste(
). Increasin& t!e capacity o# a non-ottleneckstation is a (ira&e
4. Increasin& t!e capacity o# a ottleneckincreases t!e capacity o# t!e '!ole syste(
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3rea4&Even 2nalysis
► "ec!ni6ue #or e$aluatin& process ande6uip(ent alternati$es
►
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3rea4&Even 2nalysis
► i*ed costs are costs t!at continue e$eni# no units are produced
► /epreciation, ta*es, det, (ort&a&e
pay(ents► ariale costs are costs t!at $ary 'it!
t!e $olu(e o# units produced
► 9aor, (aterials, portion o# utilities► Contriution is t!e di##erence et'een
sellin& price and $ariale cost
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3rea4&Even 2nalysis
► %e$enue #unction e&ins at t!e ori&inand proceeds up'ard to t!e ri&!t,increasin& y t!e sellin& price o# eac!
unit► D!ere t!e re$enue #unction crosses
t!e total cost line is t!e reak-e$en
point
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P r o # i t c
o r r i d
o r
9
o s s
c o r r i d
o r
3rea4&Even 2nalysis
"otal re$enue line
"otal cost line
ariale cost
i*ed cost
Break-e$en point"otal cost > "otal re$enue
=00
:00
700
300
00
400
)00
200
100
0 100 200 )00 400 00 300 700 :00 =00 10001100
C o s t i n d o
l l a r s
olu(e units per periodi&ure S7.
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3rea4&Even 2nalysis
► Costs and re$enue are linear#unctions
► Jenerally not t!e case in t!e real'orld
► De actually kno' t!ese costs
► ery di##icult to $eri#y► "i(e $alue o# (oney is o#ten
i&nored
2ss%mptions
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S7 - )7© 2014 Pearson Education, Inc.
3rea4&Even 2nalysis
BEP x > reak-e$en point inunits
BEP $ > reak-
e$en point indollars
P > price perunit a#ter alldiscounts
x> nu(er o# unitsproduced
TR > total re$enue> Px
F
> #i*ed costsV > $ariale costper unit
TC > total costs > F Vx
TR > TC or
Px > F Vx
3rea4&even point occ%rs when
BEP x > F
P V
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3rea4&Even 2nalysis
BEP x > reak-e$en point inunits
BEP $ > reak-
e$en point indollars
P > price perunit a#ter alldiscounts
x> nu(er o# unitsproduced
TR > total re$enue> Px
F
> #i*ed costsV > $ariale costper unit
TC > total costs > F Vx
BEP $ > BEP x P = P
>
>
F
( P – V )/ P
F
P – V
F
1 – V / P
Pro#it > TR - TC
> Px F Vx
> Px F Vx
> P - V x F
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3rea4&Even E5ample
i*ed costs > K10,000 +aterial > K.7?unit/irect laor > K1.0?unit Sellin& price > K4.00 per unit
BEP K > > F
1 V ? P
K10,000
1 L1.0 .7?4.00M
> > K22,:7.14K10,000
.4)7
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3rea4&Even E5ample
i*ed costs > K10,000 +aterial > K.7?unit/irect laor > K1.0?unit Sellin& price > K4.00 per unit
BEP K > > F
1 V ? P
K10,000
1 L1.0 .7?4.00M
> > K22,:7.14K10,000
.4)7
BEP x > > > ,714
F
P V
K10,000
4.00 1.0 .7
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3rea4&Even E5ample
0,000
40,000
)0,000
20,000
10,000
0 2,000 4,000 3,000 :,000 10,000
/ o l l a r s
5nits
i*ed costs
"otalcosts
%e$enue
Break-e$en
point
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3rea4&Even E5ample
M%ltiprod%ct Case
'!ere V > $ariale cost per unit P > price per unit F > #i*ed costsW > percent eac! product is o# total dollar sales
e*pressed as a deci(ali > eac! product
=
F
1−V i
Pi
÷× W
i( )
∑
Break-e$en
point in dollars BEP K
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M%ltiprod%ct E5ample
i*ed costs > K),000 per (ont!9$EM PR9CE CO!$ 2NN"2# :OREC2!$E !2#E! "N9$!
Sand'ic! K.00 K).00 =,000
/rink 1.0 .0 =,000
Baked potato 2.00 1.00 7,000
* - . / 0 1 ; 8
9$EM PR9CE
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S7 - 44© 2014 Pearson Education, Inc.
M%ltiprod%ct E5ample
i*ed costs > K),000 per (ont!9$EM PR9CE CO!$ 2NN"2# :OREC2!$E !2#E! "N9$!
Sand'ic! K.00 K).00 =,000
/rink 1.0 .0 =,000
Baked potato 2.00 1.00 7,000
* - . / 0 1 ; 8
9$EM PR9CE
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Red%cing Ris4 with9ncremental Changes
a 9eadin& de(and 'it!incre(ental e*pansion
/
e ( a n d
E*pectedde(and
;e'capacity
d tte(pts to !a$e an a$era&ecapacity 'it! incre(entale*pansion
/ e ( a n d
;e'capacity E*pected
de(and
c 9a&&in& de(and 'it!incre(ental e*pansion
/ e ( a n d
;e'capacityE*pectedde(and
i&ure S7.3
9eadin& de(and 'it! aone-step e*pansion
/
e ( a n d
E*pectedde(and
;e'capacity
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S7 - 43© 2014 Pearson Education, Inc.
Red%cing Ris4 with9ncremental Changes
a 9eadin& de(and 'it! incre(entale*pansion
E*pectedde(and
i&ure S7.3
;e'capacity
/ e ( a n d
"i(e years1 2 )
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S7 - 47© 2014 Pearson Education, Inc.
Red%cing Ris4 with9ncremental Changes
9eadin& de(and 'it! a one-stepe*pansion
E*pectedde(and
i&ure S7.3
;e'capacity
/ e ( a n d
"i(e years1 2 )
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S7 - 4:© 2014 Pearson Education, Inc.
Red%cing Ris4 with9ncremental Changes
c 9a&&in& de(and 'it! incre(entale*pansion
E*pectedde(and
/ e ( a n d
"i(e years1 2 )
;e'
capacity
i&ure S7.3
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S7 - 4=© 2014 Pearson Education, Inc.
Red%cing Ris4 with9ncremental Changesd tte(pts to !a$e an a$era&e capacity 'it!
incre(ental e*pansion
E*pectedde(and
;e'capacity
/ e ( a n d
"i(e years1 2 )
i&ure S7.3
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S7 - 0© 2014 Pearson Education, Inc.
2pplying E5pected Monetary?al%e
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EM? 2pplied to Capacityecision
▶Sout!ern Gospital Supplies capacitye*pansion
E+ lar&e plant > .4K100,000 .3K=0,000> K14,000
E+ (ediu( plant > .4K30,000 .3K10,000> K1:,000
E+ s(all plant > .4K40,000 .3K,000> K1),000
E+ do not!in& > K0
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!trategy&riven 9nvestment
►
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Net Present ?al%e
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Net Present ?al%e
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S7 - © 2014 Pearson Education, Inc.
NP? "sing :actors
P = = FX F
1 i N
'!ere X > a #actor #ro( "ale S7.1 de#ined as > 1?1 i N and F >#uture $alue
Portion o#"ale S7.1
"B9E S7.1 Present alue o# K1
BE2R 1A 8A *A *-A */A
1 .=4) .=23 .=0= .:=) .:77
2 .:=0 .:7 .:23 .7=7 .73=
) .:40 .7=4 .71 .712 .37
4 .7=2 .7) .3:) .3)3 .=2
.747 .3:1 .321 .37 .1=
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Present ?al%e of an 2nn%ity
n annuity is an in$est(ent '!ic!&enerates uni#or( e6ual pay(ents
S > RX
'!ere X > #actor #ro( "ale S7.2
S > present $alue o# a series o# uni#or(
annual receipts
R > receipts t!at are recei$ed e$eryyearo# t!e li#e o# t!e in$est(ent
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Present ?al%e of an 2nn%ity
Portion o#"ale S7.2
"B9E S7.2 Present alue o# and nnuity o# K1
BE2R 1A 8A *A *-A */A
1 .=4) .=23 .=0= .:=) .:77
2 1.:)) 1.7:) 1.7)3 1.3=0 1.347
) 2.373 2.77 2.4:7 2.402 2.)22
4 ).43 ).)12 ).170 ).0)7 2.=14
4.212 ).==) ).7=1 ).30 ).4))
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Present ?al%e of an 2nn%ity
▶%i$er %oad +edical Clinic e6uip(ent in$est(ent
K7,000 in receipts per #or years
Interest rate > 3@ro( "ale S7.2 X > 4.212
S > RX S > K7,0004.212 > K2=,4:4
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#imitations
1. In$est(ents 'it! t!e sa(e ;P (ay !a$edi##erent proected li$es and sal$a&e$alues
2. In$est(ents 'it! t!e sa(e ;P (ay !a$edi##erent cas! #lo's
). ssu(es 'e kno' #uture interest rates
4. Pay(ents are not al'ays (ade at t!e endo# a period
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ll ri&!ts reser$ed. ;o part o# t!is pulication (ay e reproduced, stored in a retrie$al syste(, or
trans(itted, in any #or( or y any (eans, electronic, (ec!anical, p!otocopyin&, recordin&, orot!er'ise, 'it!out t!e prior 'ritten per(ission o# t!e pulis!er.
Printed in t!e 5nited States o# (erica.
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