Operations Chapter 6 – Flashcards
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When evaluating alternative capacity decisions, qualitative concerns exclude:
a) Competitive reaction
b) Cash Flow
c) Uncertainties about demand
d) Technology change
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b) Cash Flow
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Chang and Change observe that the competition is increasing the size of its warehouses. They have decided to do the same. They are following _____ strategy.
a) Theory of Constraints
b) An expansionist
c) Follow the leader
d) Wait and see
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Follow the leader
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Input measures of capacity are preferred when there
a) are service processes
b) are high-volume processes
c) are flexible flow processes
d) is low customization
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are flexible flow processes
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An expansionist capacity strategy is NOT indicated when
a) A preemptive marketing strategy is used
b) Capacity expansion is consistently ahead of demand
c) Expansion is made in large increments
d) Expansion will lead to economies of scale
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Expansion will lead to economies of scale
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A measure of the reserve capacity a process has to handle in unexpected increases in demand is the
a) capacity constraint limit
b) capacity bottleneck
c) capacity utilization rate
d) capacity cushion
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Capacity cushion
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A diseconomy of scale is realized when
a) the average cost per unit decreases as the facility's size increases
b) it becomes cheaper to produce fewer items per production period
c) average cost per unit increases as the facility's size increases
d) the average cost per unit increases as the facility's size decreases
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The average cost per unit increases as the facility's size increases
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Long-term capacity planning deals with which of the following factors?
a) Investment in new facilities
b) Inventories
c) Overtime budgets
d) Workforce
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Investment in new facilities
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Capacity
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Maximum rate of output of a process or a system
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What are the 2 parts of capacity management?
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Capacity Planning (Long term)
Constraint Management (short Term)
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Capacity Planning (Long Term)
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Economies and diseconomies of scale
Capacity timing and sizing strategies
Systematic approach to capacity decisions
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Constraint Management (Short Term)
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Theory of constraints
Identification and management of bottlenecks
Product mix decisions using bottlenecks
Managing constraints in a line process
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Long term capacity plans deal with
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investments in new facilities and equipment at the organizational level, and require top managment participation and approval because they are not easily reversed
At least 2 years in the future
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Output Measures of capacity
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Best utilized when applied to individual processes within the firm, or when the firm provides a small number of standardized services and products. High volume
Ex) car manufacturing plant-- # of cars produced per day
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Input measures of capacity
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Low Volume, flexible processes, associated with custom made items.
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Utilization
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Degree to which equipment, space, or the workforce is currently being used and is measured as the ratio of average output rate to maximum capacity
actual/planned
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4 reasons economies of scale can drive costs down while output increases
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1) Fixed Costs are spread over more units
2) Reducing construction costs (fees that don't change with size)
3) Cutting costs of purchased materials
4) Finding Process Advantages
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Diseconomies of scale
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Average cost per unit increases as the facilities size increases
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Operations managers must examine 3 dimensions of capacity strategy before making capacity decisions
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1) sizing capacity cushions
2) Timing and sizing expansion
3) Linking process capacity and other operating decisions
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Capacity Cushion
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Amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity, measures the amount by which average utilization falls below 100%
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Capital intensive industry (like paper) like a ____ capacity cushion
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low, well under 5%
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Less capital intensive industry (like hotel) likes a capacity cushion of
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high, 30-40
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Businesses with varying demand find a ____ cushion appropriate
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large
ex) grocery stores
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2 strategies of expanding capacity
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Expansionist strategy - large, infrequent jumps
Wait-and-see strategy- short, more frequent jumps
-ex) renovating existing facilities instead of building new ones
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Managers on the fast track to corporate investments tend to follow the ___ strategy
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wait and see strategy
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Intermediate strategy
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follow the leader
expand when others do
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4 step procedure to long term capacity decisions
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1) Estimate future capacity requirements
2) Identify gaps by comparing requirements with available capacity
3) Develop alternative plans for reducing the gaps
4) Evaluate each alternative and make a final choice
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Set Up Time
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Time required to change a process or operation from making one service or product to making another
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Capacity gap
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positive or negative difference between projected demand and current capacity
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Base case
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act of doing nothing and losing orders from any demand that exceeds current capacity, or incur costs because capacity is too large
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3 tools that deal formally with demand uncertainty and variability
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1) waiting-line models
2)Simulation
3) Decision Trees
