Aligning Capacity To Demand

Question 1

What is level capacity plan?

Answer 1

Strategy for maintaining the capacity of an operation at a fixed level

Question 2

What is chase demand?

Answer 2

A strategy that creates flexibility in an operations capacity to match increases and decreases in demand. Takes the form of a lag or lead approach.

Question 3

What is managed demand?

Answer 3

Strategy to influence the demand to match it to capacity - usually through price adjustments

Question 4

What are the three characteristics of capacity?

Answer 4

a) must be defined in reference to a temporal (time) dimension.
b) must be defined by either an input or output measure
C) must reflect the nature of the transaction with the operation

Question 5

What is capacity?

Answer 5

Scale of the operation

Question 6

What are the advantages of LCP?

Answer 6

a) stable employment
b) high utilisation of assets
c) aligned to high volume/low variety/low variation of demand operations with low unit costs

Question 7

What happens in service/production ops when demand is above the capacity line in LCP?

Answer 7

Service - service failure/queueing

Production - use inventory

Question 8

Why is LCP the easiest capacity management strategy?

Answer 8

Requires the operation to hold it’s capacity fixed or level - unwavering from a continuous production level. Ignores changes in demand.

Question 9

What does LCP rely on to be effective?

Answer 9

Good forecasting and understanding of demand.

Question 10

Draw a LCP diagram.

Answer 10

Draw the diagram.

Question 11

What type of businesses is LCP good for?

Answer 11

Capital intensive businesses where assets or facility utilisation is a priority (or too expensive to adjust).

Question 12

What are the disadvantages of LCP?

Answer 12

a) Requires the management of inventories (in production operations)
b) Danger of under/over production in production operations
c) In service operations can lead to service failure or wastage.

Question 13

What is chase demand?

Answer 13

approach to flex the capacity of the operation to fit the demand. Takes a significant level of flexibility in the operations resources and design.

Question 14

What are the two variants of chase demand

Answer 14

A) Lead Approach

B) Lag Approach

Question 15

Define lead approach variant of Chase Demand

Answer 15

Capacity is always kept ahead of demand (you have some resource wastage but it is limited).

Question 16

Define lag approach variant of chase demand

Answer 16

Capacity is alway kept behind the demand changes so you have some service failure or inventory usage but limited.

Question 17

Draw the lead variant of chase demand

Answer 17

Draw the diagram

Question 18

Draw the lag variant diagram for chase demand

Answer 18

Draw the diagram

Question 19

What kind of operations is chase demand normally used?

Answer 19

Service operations as consumption and production tends to be simultaneous and the inability to store outputs as inventory in the same manner as production operations.

Question 20

Benefits of CD

Answer 20

Flex/Reduce/Less Waste

a) Operation is more Flexible to changes in demand
b) Reduction in over/under production
c) less waste in terms of resources

Question 21

Limitations of CD

Answer 21

Costly/Quality suffers/Zero hours contracts

A) Increased costs to provide flexibility of resources
B) Can reduce levels of quality control
C) Zero hours contracts - negative connotations

Question 22

What does MD do?

Answer 22

Influences the demand in a way that flattens out the demand or moves demand to periods of capacity availability.

Question 23

What’s the common approach to MD?

Answer 23

Price adjustment.

Question 24

What do you need for MD to be effective?

Answer 24

Need to understand the shape of demand and price elasticity of demand. Need to also understand the system wide effects of price adjustments.

Question 25

What kind of operations are MD best suited to?

Answer 25

Operations that experience high seasonality or demand that fluctuates Ona more predictable basis (short term).

Question 26

What are the benefits of MD?

Answer 26

Reduces Cost of creating capacity flexibility Improves Utilisation Reduces service failure (waiting and queueing.

Question 27

What are the disadvantages of MD

Answer 27

A) Requires High levels of planning and forecasting - can be costly B) Detailed understanding of price elasticity of customer demand C) Discounting may have unintended consequences (may permanently devalue the product) D) May create permanent loss of business

Question 28

How might CD be enhanced?

Answer 28

A) Sharing capacity b/w operations B) Cross training employees C) Use of part time employees (zero hours contracts) D) Increase customer participation in the process

Question 29

How might LCP/MD be enhanced?

Answer 29

A) Offer price incentives (increase price to reduce demand/discount to increase demand) B) Offer complementary services (if discounting is inappropriate) C) Use reservation systems - to forecast demand D) Create customer awareness of your capacity - highlighting where there might be busy periods.

Question 30

When does inventory occur?

Answer 30

Mismatch of demand with supply

Question 31

What are the three types of inventory?

Answer 31

a) Raw Materials b) Work in progress or intermediate goods c) finished goods

Question 32

What are the advantages of inventory?

Answer 32

a) Inventory can be used to mitigate supply and/or demand uncertainty - supply can be impacted because of transport timeframes and demand can be impacted by uncertain weather. b) Can provide process flexibility and efficiency - WIP can be used to configure products to order (process flex). Inventory also maximises efficiency by ensuring WIP and Raw materials are on hand to feed the processes. Example - car plants. Inventory helps to max utilisation. C) Can reduce costs. When the benefits of increased orders exceeds the costs of holding inventory. D) Can increase in value. For example fuel price hedging by airlines.

Question 33

What are the disadvantages of inventory?

Answer 33

A) Costs money to store and manage and ties up capital. Cost of ordering/storing/managing inventory is typically 25% of the value of the good per year. B)Requires space to store. C) Can deteriorate over time - example food or rubber seals. Companies holding inventory for a long time can risk obsolescence. Also risk of theft (shrinkage). D) Can hide problems in the process. Japanisation of manufacturing led to lean and JIT. Allowed orgs to determine if there were underlying factors such as excessive demand unpredictability, poor quality, unreliable processes/suppliers, or process constraints masked by excessive inventory.

Question 34

Define actual output

Answer 34

Actual Output = effective capacity - avoidable loss

Question 35

Define effective capacity

Answer 35

Effective capacity is design capacity - planned loss

Question 36

Define efficiency

Answer 36

Efficiency is actual output/effective capacity

Question 37

Definite utilisation

Answer 37

Utilisation is actual output / design capacity