Ch.6 Capacity

Question 1

Capability of worker/ machine/ workcenter/ plant/ org to produce output in a time period

Answer 1

Capacity

Question 2

3 Questions of
Capacity Decisions that managers face

Answer 2

1. Measures
2. Affecting Factors
3. Impact of SC

Question 3

3 Questions of
Strategic Decisions that managers face about Capacity

Answer 3

1. How much is needed?
2. When is needed?
3. What form the Capacity takes?

Question 4

Companies measure capacity in terms of

Answer 4

Inputs &/or
Outputs

Question 5

2 Measures of Capacity

Answer 5

1. Theoretical Capacity
   Max Output w/ No adjustment allowed
2. Rated Capacity
   Long-term Expected Output

e.g. billable hrs/ seats x miles/ prod.

Question 6

3 Common Capacity Strategies

Answer 6

1. Lead Capacity Strategy
   anticipated demand
   →overbuilding↑
2. Lag Capacity Strategy
   after demand materialized
   →overbuilding↓
3. Match Capacity Strategy
   balance of 1+2, avoiding periods of high under/overutilization

Question 7

7 Factors that affect Capacity

Answer 7

1. # of Line Used
2. # of Shifts Operating
3. # of Temp Workers
4. # of Storage Facilities
5. Prod. Vatiations
6. Quality Conformance
7. Quality Improvement

Question 8

6 Methods of Evaluating Capacity Alt.

Answer 8

1. Cost
2. Demand
3. Expected Value
4. Decision Trees
5. Break-Even Analysis
6. Learning Curves

Question 9

Total Cost (TC) =

Answer 9

TC = FC + VC·x

x : amt of activites
e.g. labour amt

Question 10

The Output Level at which
two capacity alts generate
equal cost

and calculate

Answer 10

The Point of Indifference (X)
. FC₁ - FC₂
X = ————
. VC₂ - VC₁

Question 11

Summary of the expected costs, revenues, profits of a capacity alt, based on several DD levels w/ diff. probability

Answer 11

Expected Value (EV)

EV = FC + VC·Probability

Question 12

In Decision Tree,

Square represents ___
Circle represents ___

Answer 12

Square → Decision pt.
Circle → Outcome pt.

Question 13

The Volume Level’s
revenue = total cost

& calculate

Answer 13

Break-Even Point BEP

BEP= FC / (R-VC)
TC = FC + VC·x
R:rev./unit

Question 14

A **Theory **of Productivity improves at a predictable rate
∵learned to do tasks efficiently

a set % reduction in inputs for
every doubling cum. output

Answer 14

Learning Curve Theory

Tₙ = T₁·nᵇ

Tₙ : Input of nth unit
T₁ : Input of 1st unit
b : ln(Learning %)/ln2

Question 15

Other considerations that affect company decisions, usually relevant to developing internal capacity & outsourcing

Answer 15

1. Strategic Importance of an Activity
2. Desired Deg of Managerial Ctrl
3. Need for Flexibility

Question 16

A theory which visualizes & manages capacity that all P/S are linked in a series of processes.
At least one process limits throughput of entire chain

Answer 16

Theory of Constraints

• Identify the constraint
• Exploit the constraint
• Subordinate everything to the constraint
• Elevate the constraint
• Find new constraint & repeat