Sales & Operations Planning Self Assessment – Flashcards
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1. Which of the following are policies or guidelines established to note where restrictions or changes in operating procedures take place? a. Time fences b. Planning periods c. Planning horizon d. Bottleneck management
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Answer: A Explanation: The time fences bound the frozen, slushy and liquid periods. Each of these period will have different rules determining what can and cannot be done in terms of changing the MPS.
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2. Which of the following is not a matched pair in the hierarchy of planning steps?: a. Business Planning and Resource Planning b. Master Production Scheduling and Rough Cut Capacity Planning c. MRP and CRP. d. Production Planning and Resource Planning.
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Answer: A
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3. Which of the following manufacturing strategies can be used to enable demand to be satisfied by creating and depleting inventory holdings? I. Level Strategy II. Chase Strategy III. Hybrid Strategy a. I only b. II only c. I & III only d. I, II and IIIWhich of the following manufacturing strategies can be used to enable demand to be satisfied by creating and depleting inventory holdings? Which of the following manufacturing strategies can be used to enable demand to be satisfied by creating and depleting inventory holdings? . Level Strategy . Chase Strategy . Hybrid Strategy
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Answer: C Explanation: The chase strategy matches production to demand at all times - therefore no finished goods inventory buildup is never created. A level strategy uses inventory to create the balance; the hybrid uses inventory and periodic capacity changes to create the balance.
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4. A make-to-order company has maintained an 8-week customer leadtime for the past year. It now wishes to reduce this leadtime to 4 weeks over the next 20 weeks. By how much must its output levels change to achieve this reduction using a level production strategy? a. Increase output by 20% b. Reduce output by 20% c. Increase output by 25% d. Reduce output by 25%
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Answer: A Explanation: To reduce the queue we must INCREASE output. To reduce the queue by 4 weeks over the next 20 we must produce the equivalent of 24 weeks production over the next 20 weeks. The increase, therefore is to 24/20 of the current level of production, or increase the current level by 4/20 = 20%
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5. What is defined as "A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain"? a. Business Planning b. Sales and Operations Planning c. Supply Chain Management d. Product Management
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Answer: B
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6. Which of the following manufacturing strategies will avoid the creation of finished goods inventory? I. Level Strategy II. Chase Strategy III. Hybrid Strategy a. I only b. II only c. I & III only d. I, II and III
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Answer: B A chase strategy will match production to sales at all times, thereby eliminating unsold goods inventory. Both of the other two will use inventory to create a balance between sales and production.
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7. A company needs to reduce its inventory of finished goods from 4 months to 2 months. Its forecasted sales are remaining steady at 2000 per month over the next 5 months. The production plan, therefore, should call for what quantity to be produced per month over the next 5 months? a. 1200 b. 2000 c. 2400 d. 6000
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Answer: A Answer: Production per period = (sales + change in inv.)/(no. of periods) = {2000 +(4-2) x 2000 }/5 = 6000/5 = 1200.
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8. The Sales and Operations Planning process for a make-to-stock company creates a production plan, a sales plan and what other plans? a. Cash flow and resources b. Manpower and machinery c. Resources and inventory d. Recruitment and training
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Answer: C
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9. A chase production strategy a. Maintains a minimal level of inventory b. Adjusts inventory to maintain a balance between supply and demand c. Minimises capacity change costs d. Ensures a high level of customer service.
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Answer: A A chase strategy will match production to sales at all times, thereby eliminating unsold goods inventory. Both of the other two will use inventory to create a balance between sales and production.
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10. Which of the following is the decision-making group in the Sales & Operations Planning process? a. Board of Directors b. Plant department managers c. Senior management d. Materials and production managers
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Answer: C
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11. Which of the following would be considered long term capacity decisions? I. Build a new plant II. Buy new machines III. Work overtime A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: A Working overtime would be considered a short-term solution to a capacity constraint.
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12. A resource plan is used to: A) develop the load by product family. B) establish build schedules by product. C) plan the use of energy in a company. D) develop long range plans for equipment, facilities, and capital.
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The correct answer is: D Resource planning is used for the long range planning of facilities, equipment, and capital. The calculations are made based on the capacity and load of key resources (i.e., a plant or warehouse). These calculations are done based on the forecast.
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13. A manufacturing company wants to cut its backlog from six months to three months. If the annual demand is 240 units, the production plan for this year should be for how many units of production? A) 180 B) 240 C) 300 D) 360
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The correct answer is: C The company can produce 20 units per month. The current backlog is 6 months or 120. They want to reduce the backlog to 3 months or 60. In order to reduce the backlog to 60 they will need to produce 60 more than the annual demand of 240 or 300 units.
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14. A manufacturing company would like to increase its backlog from one month to two months. The annual demand for their product is 600 units. How many units should they produce? A) 500 B) 550 C) 600 D) 650
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The correct answer is: B The company currently produces 600 units annually or 50 per month. Their current backlog is one month or 50 units. In order to increase their backlog by one month, they will need to produce 50 less than their annual demand, or 550 units.
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15. Which of the following describes a planning horizon? A) The amount of time the master schedule extends into the future B) The cumulative lead time of a part C) The amount of time the strategic plan extends into the future D) The time it takes to bring new capacity on line
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The correct answer is: A The planning horizon is the amount of time the master schedule extends into the future. The minimum length of the planning horizon should be equal to the cumulative lead time of the longest lead time part. It should go out as far as the time it takes to bring new capacity on line.
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16. A company publishes their customer backlog as 4 weeks. Which of the following best defines customer backlog? A) Overdue shipments B) Orders received but not acknowledged C) Orders shipped but not received by the customer D) Orders received but not yet shipped
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The correct answer is: D The APICS Dictionary, Tenth Edition defines customer backlog as "all the customer orders received but not yet shipped." Some industries, such as aerospace, operate with a consistent level of backlog.
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17. A resource plan can be stated in all of the following terms except: A) Labor hours B) Machine hours C) Weight D) Part numbers
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The correct answer is: D Resource planning is capacity planning at the business plan level. As such, the plan is designed to ensure long range capacity will be available. The resource plan uses high level units of measure such as labor hours, machine hours, or any other homogeneous unit to combine all items. Detailed part numbers would not be used.
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18. For make-to-stock companies, a 100% service level implies huge inventory levels. In make-to-order companies, immediate delivery would imply: A) significant expediting. B) substantial idle capacity. C) supplier lead times of zero. D) few engineering changes.
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The correct answer is: B In order for a make-to-order company to make immediate delivery, there needs to be substantial idle capacity. This would allow them to take every order and immediately manufacture the product. It would require no engineering changes and a significant level of inventory to respond quickly.
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19. Which of the following should come first in the business planning process? A) Production planning B) Sales and operations planning C) Master production schedule D) Rough-cut capacity plan
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The correct answer is: B Sales and operations planning should come first in the business planning process. The output from the sales and operations process is the production plan. The production plan then provides input to the master production schedule. The rough-cut capacity plan is done to check if the MPS is realistic.
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20. All of the following techniques are useful for increasing capacity except: A) Form teams to increase output. B) Balance lines more effectively. C) Increase throughput at bottlenecks. D) Increase queue time at critical work centers.
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The correct answer is: D Increasing the queue time at critical work centers will do nothing to change the capacity level at the work center. In fact, the increased queue will most likely cause capacity to decrease due to increased clutter at the work center.
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21. Once a company has agreed to the production plan, it is manufacturing's responsibility to : A) create the capacity plan. B) change the master schedule to meet demand. C) meet the plan. D) beat the plan.
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The correct answer is: C Once the production plan has been agreed to by the manufacturing, marketing, and finance areas, then it is manufacturing's job to "hit the plan." A production plan provides the necessary guidance to all departments. This prevents the plan from becoming a wish list. For example, if marketing would like additional production to support a promotion, the production plan would cause a discussion regarding tradeoffs; that is, what will not be produced if the increase in production forces required capacity to exceed available capacity.
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22. In resource planning, a bill of resources is based on which of the following? A) One unit of each product B) One unit of the typical product C) The lot size of each product D) The lot size of the typical product
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The correct answer is: B The bill of resources bases the capacity measure (e.g. labor hours) on one typical unit of product. From this, the product family's projected output is multiplied by the bill of resources, to extend the resources required to "manufacture" the product family.
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23. A company is trying to determine the need for an additional manufacturing facility. The best tool to use for calculating the need and the sizing would be: A) sales plan. B) production plan. C) resource plan. D) demand plan.
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The correct answer is: C A resource plan is a capacity plan developed at the business plan level. It establishes, measures and adjusts the levels of long range capacity. The resource plan is generally driven from the production plan but may, in some cases, be driven from the business plan, especially if there is a need to go out beyond the production plan horizon (e.g. international entry and expansion).
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24. If the production plan shows that certain key resources will be over capacity, one option is to find suppliers who will produce the products associated with the overloaded resource. This process of finding a supplier to manufacture a product that was previously done internally is called: A) capacity enhancement. B) infinite loading. C) decomposing. D) outsourcing.
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The correct answer is: D Outsourcing is the process of having suppliers provide goods and services that were previously done internally. For many industries, outsourcing the manufacture has become a standard part of their companies. An example is the high tech industries where outsourced manufacturers produce the products which are designed and specified by the customer. The outsource manufacturers are able to just manufacture efficiently versus being good at designing and manufacturing.
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25. Every company should have a set of functional plans synchronizing activities across functions that specify production levels, capacity levels, staffing levels, funding levels, etc. to achieve the intermediate goals and objectives of the organization. This plan would be called the: A) business plan. B) strategic plan. C) tactical plan. D) operational plan.
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The correct answer is: C The tactical plan is the functional plan which synchronizes activities across functions in order to meet the goals and objectives necessary to support the company's strategic plan. From the tactical plan, each functional area would then establish the operational plan to meet each functions' goals and objectives to support the tactical plans. The key point is that at each level, the plans tie into each other so the company's goals and objectives are aligned.
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26. The customer service measure, on time delivery, would be used in a company to: A) determine the forecast error. B) evaluate the performance of suppliers. C) select the least costly transportation mode. D) evaluate manufacturing performance. The correct answer is: D
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The correct answer is: D The ability of manufacturing to deliver to customers on time is a key measurement in most companies. While the measure cannot be used alone as a measure of manufacturing performance, it is a key measure to ensure customers are satisfied. The measure clearly would not be used to determine forecast error, evaluate suppliers (although as a supplier measure, on time delivery would be a measure) or select the least costly mode of transportation.
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27. The production forecast: A) is generated based on production lead times. B) represents the product group forecast in two level master scheduling. C) is primarily used with master production scheduled items. D) forecasts the group available-to-promise multiplied by option percentages.
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The correct answer is: D The production forecast is not based on production lead times and does not represent the product group forecast. It is used with two level master scheduling and represents the available-to-promise at the group level multiplied by the option percentage.
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28. Which of the following sources of demand should be considered in production planning? I. Order backlog from customers II. Scheduled receipts III. Interplant transfer of parts A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: B All sources of demand should be considered as part of the production planning process, including the customer order backlog, service parts requirements, and interplant demand. Any demand which will have an impact on the production plans must be considered.
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29. A company discovers that their forecast is overstated. As a result, which of the following would be overestimated? I. Factory load II. Factory capacity III. Component parts IV. Subassembly parts A) I, II, and III B) I, III, and IV C) II, III, and IV D) I, II, III, and IV
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The correct answer is: B Because the forecast is an integral part of the planning, the overestimation of the forecast will have an impact on the future factory load because the load would be planned based on the forecast. The resulting master production schedule will also be overestimated, which will cause the MRP system to plan for too many component parts and subassemblies. The capacity, however, is calculated based on the ability of the factory to produce, regardless of the forecast.
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30. Which of the following statements is true if there is a significant variation between actual and planned demand? I. Safety stock will be higher II. Potential for stockouts will be greater III. Mean absolute deviation will be lower A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: A When demand is uncertain, the variation between forecast demand and actual demand will be high, causing the mean absolute deviation to be high. Since safety stock is a function of forecast error, safety stock will also be higher than normal.
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31. Of all the problems which can occur with forecasting, the most critical problem for management is: A) forecast error. B) unpredictable trend. C) controlling bias. D) short-term variations.
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The correct answer is: C According to Vollmann, Berry, and Whybark, in Chapter 16 of Manufacturing Planning and Control Systems, the most critical problem for management is to control bias. "It is often easier to live with large errors (large MAD) if that's what it takes to reduce bias." Bias is the consistent deviation of the forecast in one direction. If the forecast is not corrected and the bias continues, then the foundation for the business plan will be weak.
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32. The person responsible for driving the sales and operations process should be the: A) Vice-President Manufacturing. B) President. C) Vice-President of Sales. D) Chief Financial Officer.
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The correct answer is: B The person responsible for the Sales and Operations process should be the person responsible for the profit and loss of the business- the president, CEO, or general manager.
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33. In a sales and operations meeting , the focus of the meeting should be: A) the previous month's activities. B) future months' plans. C) missed customer orders. D) individual department issues.
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The correct answer is: B The purpose of the sales and operation planning meeting is to develop plans to address future months sales and the operational output needed to meet the demand. It is senior management's "handle" on managing the business.
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34. Before beginning a sales and operations planning process, it is best to: A) prepare pilot data consisting of a few product families. B) be sure the forecast is at least 95% accurate. C) ensure all product SKU's are included. D) provide responsibilities to everyone involved.
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The correct answer is: A Before developing a "full blown" sales and operation planning process, it is best to develop a pilot program using a few test product families. This would allow any problems to surface before involving the whole business.
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35. For each product family, the number of units that can possibly be produced each month should be determined. This should be done by: A) engineering study. B) calculating the rated capacity. C) recent past history. D) capacity requirements planning.
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The correct answer is: C The recent past history of production output by product family would be a good indication of the ability of the business to meet the demand.
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36. Which of the following data should be used to express the sales plan? A) Order receipt dates B) Customer requested dates C) Order promise dates D) Available-to-promise dates
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The correct answer is: B For sales planning purposes, it would be best to use the customer requested dates to plan operations. This would provide a more accurate picture of when the production output would be necessary to meet demand.
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37. In developing a sales and operation planning process, measurements must be created to be published and reviewed at each meeting. Which of the following measures would NOT be a likely measure for sales and operations planning? A) Sales versus plan B) Shipment dollars versus plan C) Actual production versus production plan D) Work center capacity utilized versus plan
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The correct answer is: D The sales and operation planning meeting is a high level meeting meant to address the demand and production output to meet the demand. As such, the work center capacity is a micro measure more appropriate to a tactical level.
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38. If a company would like to build up inventory to meet an expected seasonal demand, the inventory increase would first be loaded to the: A) production plan. B) master schedule. C) materials requirement plan. D) supplier schedule.
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The correct answer is: A The production plan would be developed to include the seasonal build up. It would provide senior managers with the ability to review the plan, make changes if necessary, and reach consensus regarding the plan. Once accepted, the schedule and all other operations would follow from the production plan.
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39. In order to properly manage the business, a key responsibility of the management team is to control performance of the business to the plan. In order to accomplish this task, it is important that the production plan is widely understood in the company. To accomplish this, senior managers must: A) not change the plan. B) send emails to everyone regarding the plan. C) punish those departments that miss the plan. D) communicate clear expectations of the plan.
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The correct answer is: D The important aspect of the production planning process is that each functional area agrees to the overall plan for the business. The production plan is then disseminated widely to the company so everyone clearly understands what is expected from them to meet the plan. Changes that occur in the business, and subsequently in the plan, should be made at the production plan level and incorporated into the departmental plans. This ensures that the business goals are tied together and one department is not acting on its own
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40. The production plan needs to be expressed in meaningful units that everyone understands. It also needs to be expressed in a manageable number of units. The best number of product groups or families would be: A) less than 5. B) five to fifteen. C) fifteen to twenty five. D) twenty five to fifty.
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The correct answer is: B While the number will vary by firms, it is generally accepted through experience that the best number would be 5 to 15 families. This provides senior managers with a manageable number.
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41. Which of the following should occur if a sales and operations process is working properly? A) Time will be spent on the problems which occurred in the previous month. B) Middle managers will have solved the issues before the meeting. C) Senior managers will provide reasons for the near misses. D) Customer service will improve.
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The correct answer is: B If the sales and operations process is working properly, the meeting should be one where future plans are discussed and finalized. The various problems which occur in the daily operation of the business should be worked out and resolved prior to the meeting. This can be accomplished at a mid manager pre-meeting. Senior managers can then just review the solutions. A sales and operations process will generally improve customer service, if in fact, it needs to be improved.
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42. Which of the following would NOT be a key operating objective? A) Inventory dollars B) Shipment dollars C) Factory location selection D) Work force stabilization
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The correct answer is: C Determining the need for a new factory and where it should be located would be a strategic decision and not an operating objective. While the long term data from a production plan would indicate the need for another factory, the site selection process is a long, complicated strategic decision encompassing many factors.
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43. How often should the forecast be updated in the sales and operations process? A) Weekly B) Monthly C) Quarterly D) Annually
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The correct answer is: B The forecast should be updated monthly to reflect the actual sales versus the forecast and to add in the new month at the end of the horizon. The forecast and sales plan needs to be continually updated as the rest of the operations rely on the forecast for decision making.
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44. There are a multitude of customer measures in use today. Which of the following would best describe what should be measured? A) Internal measures that support the plan B) Order fill rate C) Line fill rate D) Customers' expectations
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The correct answer is: D The only reason to develop customer service measures is to ensure the company's customers are happy with the performance. The measure the organization abides by should reflect those things that are most important to the customer. This would imply that the company must determine the most important measure for its customers and ensure those are the most important measures used in the business.
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45. Which of the following would be the best way to cope with the uncertainty of demand? A) Improve the forecasting process. B) Reduce all the lead times in the company. C) Increase safety stock. D) Carefully manage the company's backlog.
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The correct answer is: B The longer the lead time to purchase and manufacture products, the more uncertain the demand becomes. If the lead times were reduced to the point that any product could be manufactured on demand from the customer, then the uncertainty would be eliminated. Additionally, forecasted demand would no longer be necessary. Continual emphasis must be placed on reducing lead times, both from the supplier and in manufacturing. Techniques such as setup reduction, consigned vendor inventory, lean manufacturing, and supplier partnerships provide the capability to reduce lead times.
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46. Which of the following best defines a backorder? A) Product which has been allocated, but not charged to a manufacturing order B) An unfilled customer order or commitment C) The last order on a shipment D) The pickup of freight on a return trip
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The correct answer is: B A backorder is an unfilled customer order which will be shipped at a later date.
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47. Which of the following are objectives of production planning? I. Ensure top management involvement II. Measure actual work center output versus plan III. Establish the level of manufacturing output IV. Integrate manufacturing with other business activities A) I, II, and III B) I, II, and IV C) I, III, and IV D) II, III, and IV
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The correct answer is: C The four objectives of production planning are: 1) To integrate business planning to detailed operation planning activities 2) To ensure top management involvement 3) To communicate the production plan 4) To drive the master schedule Measuring actual versus plan output is a production control activity.
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48. Which of the following statements are true regarding production planning? I. It is senior management's responsibility. II. The master scheduler should "disaggregate" the production plan to the master schedule. III. It focuses corporate production goals. A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: D All of the statements are true with regard to the production plan.
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49. Which of the following would likely occur with a chase strategy? I. Relatively low inventories II. Turbulent employment levels III. Overtime costs would increase in peak periods IV. Capacity change costs would be zero A) I, II, and IV B) I, II, and III C) II, III, and IV D) I, III, and IV
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The correct answer is: B With a chase strategy, inventories are kept level while the production plan varies with sales. This would cause low, stable inventories and turbulent employment levels. In addition, overtime would be required during peak periods. Capacity change costs would occur in the chase strategy.
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50. Which of the following represents functional goals in a business? I. Sales want no missed deliveries and a broad product line. II. Engineering wants a shorter product development time. III. Finance wants to minimize investment in equipment and inventory. IV. Manufacturing wants long production runs to minimize unit costs. A) I, II, and III B) I, III, and IV C) I, II, and IV D) II, III, and IV
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The correct answer is: B All of the answers support the functional goals in a business except engineering, which would like more development time.
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51. Which of the following trade-offs would be considered by top management when evaluating the production plan? I. Co-operative production agreements II. Machine scheduling III. Inventory levels A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: B Top management would consider inventory levels and co-operative production agreements. However, top management would not be involved in machine scheduling.
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52. A backlog can be best defined as: A) the manufacturing queue on the floor. B) all the customer orders received but not yet shipped. C) a delay in order taking caused by slow computer response time. D) None of the above
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The correct answer is: B It is common in long lead time products such as airplanes, to have large backlogs which manufacturing works to.
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53. Which of the following are principles of production planning? I. Production planning is a top management responsibility. II. The master production schedule requirements should equal the production plan. III. Facility requirements are planned using the production plan. A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: D All three answers are principles of production planning. The sum of the master production schedule will equal the production plan.
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54. The production plan responsibility rests with: A) material manager. B) top management. C) V.P. of Manufacturing. D) V.P. of Finance.
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The correct answer is: B Top management is responsible for the production plan as it "drives" the entire business.
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55. The negative aspects of the chase strategy in production planning includes which of the following? I. Production levels will fluctuate with sales. II. Inventory will remain stable. III. Capacity utilization will fluctuate. A) I and II B) I and III C)II and III D) I, II, and III
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The correct answer is: B Because the production levels fluctuate, labor, capacity usage, equipment usage, and other resource usage will fluctuate. On the positive side, inventory will remain stable
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56. Which of the following will result from the level strategy of production planning? I. Production occurs at exactly the same rate as the sales forecast for each period. II. Inventory will generally build. III. The labor force and capacity usage remains stable. A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: C Using the level strategy, the production rate remains stable and fluctuations in demand will be absorbed in inventory.
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57. Which of the following need to be considered in determining the detail required for capacity planning? I. Quality of the information versus the cost of acquiring it II. Length of time to change capacity III. Training period for new employees A) I and II B) I and III C) II D) I, II, and III
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The correct answer is: D All of the answers should be considered in determining whether a detailed capacity plan is necessary or whether a rough cut capacity plan will suffice.
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58. A bill of resources is a: A) display of past capacity requirements based on released orders. B) list of the cumulative standard hours per unit. C) listing of required capacity and key resources needed to manufacture one unit. D) chart of the final assembly completions and planned order completions by date.
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The correct answer is: C A bill of resources displays the required capacity and key resources needed to manufacture one unit of a product or family.
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59. Which of the following statements is correct regarding the production-sales-inventory report? A) It is only presented in table format. B) It represents either cumulative or per period data. C) It shows production lead times. D) It does not show cumulative production variances.
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The correct answer is: B The production-sales-inventory report can be shown in graph form (making A incorrect); production lead times are not shown (making C incorrect) and it can show cumulative production variances (making D incorrect). The PSI report can represent either cumulative or per period data.
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60. Which of the following would generally be considered a critical resource? I. Special components made from composites II. Financing in a highly leveraged company III. Common raw materials IV. Skilled labor for key operations A) I, II, and IV B) I, II, and III C) II, III, and IV D) I, II, III, and IV
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The correct answer is: A Special alloy components could be critical particularly if using rare materials. In a company with a high debt load, financing could be difficult or very expensive. Additionally, the skilled labor needed in key operations would also be critical.
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61. Which of the following are correct regarding time fences? I. Time fences divide the planning horizon into firm, slushy, and free periods. II. During the firm period, changes can be readily made. III. During the free period, measurable assets have not been committed. IV. The slushy period will allow some changes but commitments to materials have generally been made. A) I, II, and IV B) I, III, and IV C) II, III, and IV D) I, II, III, and IV
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The correct answer is: B The three time fences are firm, slushy, and free (sometimes referred to as liquid). The firm planning period does not allow for changes unless approved at the highest management level due to significant cost impacts. The slushy period allows some minor changes and the free period allows changes easily.
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62. Which of the following should be considered during the production planning process? I. Component requirements II. Capacity availability III. Manufacturing labor needs A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: C In production planning, component availability would not be determined, as MRP would handle this. However, capacity would be checked at a rough cut level and manufacturing labor needs could be determined. Component availability might be checked at the production planning level if it were a scarce component.
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63. When capacity required exceeds available capacity, actions which could be taken include which of the following? I. Complete orders sooner II. Change the schedule III. Acquire additional equipment A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: C It is impossible to complete orders sooner without more capacity to do so. The only alternatives are to change schedules or obtain more capacity through subcontract or additional equipment.
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64. Capacity utilization is calculated as: A) actual output divided by design capacity. B) actual output divided by effective capacity. C) actual output divided by demonstrated capacity. D) actual output divided by standard labor hours.
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The correct answer is: A Actual output is the rate of output achieved while design capacity is the maximum output attainable. Effective capacity is the maximum output attainable with limitations such as mechanical problems, changeovers, product mix, etc. Utilization is calculated by dividing actual output by design capacity.
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65. When evaluating the production plan, top management would consider which of the following? I. Inventory build II. Production level by month III. Work center capacity IV. Potential outsourcing plans A) I, II, and III B) I, II, and IV C) II, III, and IV D) I, II, III, and IV
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The correct answer is: B The production plan is top management's handle on the business and is not a detailed plan. Therefore, work center capacity would not be evaluated. The inventory build, the production level by month, and the possible outsourcing plans certainly would be evaluated by top management in running the business.
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66. You look at a company's production plan and notice that the production each month is the same and the inventory is fluctuating. This is called a (an): A) chase strategy. B) inventory strategy. C) capacity strategy. D) level strategy.
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The correct answer is: D A level strategy allows the fluctuation in demand to be absorbed in the inventory. Production is maintained at a flat or level rate each month.
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67. Which of the following functions should be involved with the development of the production plan? I. Marketing II. Manufacturing III. Finance A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: D The development of the production plan should be a cross functional process. Since the production plan is the main tool used to run the business, it is important that the cross functional input occurs.
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68. Which of the following best describes the term customer backlog? A) Orders promised after the customer wants them B) Orders received but not yet shipped C) Orders shipped but not yet billed D) Orders received but not entered into system
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The correct answer is: B The definition of customer order backlog is those orders which have been received but not yet shipped. The backlog should constantly be monitored against the competition to ensure the backlog is not the result of poor processes. This would allow a competitor to win business based on lead time.
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69. Which of the following techniques are useful in increasing the capacity? I. Form teams to address throughput. II. Expand the bottleneck work centers to increase throughput. III. Increase the queues to provide work centers with enough work. A) I and II B) I and III C) II and III D) I, II, and III
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The correct answer is: A Expanding the capacity can be done in many ways. Productivity teams can be formed to address throughput, and they should address the throughput at the bottleneck work centers first. Additionally, overtime can be worked or subcontractors can be hired. Increasing the queues will not increase the capacity but will only serve to exacerbate the problem. In fact, increasing the amount of work which is on the floor will actually decrease the throughput.
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70. Which of the following are inputs to the Sales and Operations Planning process? I. Anticipated demand II. Capacities III. New product design IV. Financial resources required A) I, II, and III B) I, III, and IV C) II, III, and IV D) I, II, III, and IV
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The correct answer is: D The Sales and Operations Planning process requires inputs on all the above from their representative functions/departments. This allows the company plans to be coordinated at the highest levels before manufacturing begins to execute the plans.
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71. The Sales and Operations Planning process for a make-to-stock company creates a production plan, a sales plan and what other plans? a.Cash flow and resources b.Manpower and machinery c.Resources and inventory d.Recruitment and training
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Answer: C The S&OP process compares levels of production to levels of sales and thereby creates a planned level of inventory (or, in the case of a make to order company, the planned level of backlog). The production plan is validated through the Resource plan, which will create a statement of level of resources to be put in place to support all of the other plans.
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72. Which of the following statements about production strategy is false? a.A chase strategy maintains a minimal level of inventory b.A level strategy adjusts inventory to maintain a balance between supply and demand c.A hybrid strategy adjusts capacity and inventory to maintain a balance between supply and demand. d.A level strategy is the least expensive to operate.
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Answer: D Statement A is true - a chase strategy aims to match supply with demand by adjusting capacity and capacity utilisation. It does not create any finished goods inventory. Statement B is true - a level strategy does use inventory buildups and depletions to balance supply and demand. Statement C is true - a hybrid strategy adjusts capacity periodically and use inventory buildups and depletions to balance supply and demand. Statement D is false - if it were true neither of the other two would ever be used.
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73. In which of the following scenarios would a make to stock policy be most appropriate? a.The customer expects delivery within days of placing an order. b.A wide range of product options exists. c.The product has a stable demand. d.Inventory carrying costs are low
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Answer: C A make to stock policy is most appropriate where a narrow range of products are offered, the demand is stable and the customer expects delivery in less time than the producer can make it. Of the above options, A is not necessarily true because we are not told the production leadtime; B is false because it talks of a WIDE range of production options; C is true - it is one of the criteria - and while D is important, it will merely dictate the amount of inventory that can be put into stock. The best answer of the options given is C. (Note that this is an example of a question type that is very easy to get wrong by simply changing the question, or qualifying the question in some way. Be sure that in selecting your option you adhere to the question asked!)
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74. A company needs to eliminate its inventory of finished goods over the next 5 months. Its forecasted sales are reducing by 100 per month from its current level of 800 per month over the next 5 months. Its current inventory is 500 units. How many units should it produce during the 5-month period? a.1600 b.2000 c.2400 d.2800
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Answer: B Total Production = Total Demand plus/minus Inventory Change. Total Demand = 700 + 600 + 500 + 400 + 300 = 2500. (sales reducing at 100 per month from the current level of 800 per month. Inventory Change = -500. Total Production = 2500 - 500 = 2000
