Chapter 3

Question 1

What is Capacity?

Answer 1

1. the number of units a facility can hold, produce, receive, store in a period of time
2. determines the fixed costs
3. determines if demand will be satisfied

Question 2

What are the 3 time horizons of capacity?

Answer 2

1. Long-range planning
2. Intermediate-range planning (aggregate planning)
3. Short-range planning (scheduling)

Question 3

What is Design capacity?

Answer 3

it is the maximum theoretical output of a system and is normally expressed as a rate

Question 4

What is Effective capacity?

Answer 4

It is the capacity a firm expects to achieve given current operating constraints and is often lower than design capacity

Question 5

What is capacity Utilization?

Answer 5

It is the percent of design capacity actually achieved

Question 6

What is capacity Efficiency?

Answer 6

It is the percent of effective capacity actually achieved

Question 7

What is the formula of capacity Utilization?

Answer 7

actual output / design capacity

Question 8

What is the formula of capacity Efficiency?

Answer 8

actual output / effective capacity

Question 9

What is bottleneck time?

Answer 9

It is the time of the slowest workstation in a production system

Question 10

What is throughput time?

Answer 10

It is the time it takes a unit to go through production from start to end

Question 11

What is the 5 step process of recognizing and managing limitations?

Answer 11

1. Identify constraints
2. Develop a plan for overcoming constraints
3. Focus resources on accomplishing step 2
4. Reduce effects of constraints by offloading work or expanding capability
5. Once overcome, go back to step 1 and find new constraints

Question 12

List and explain the steps of bottleneck management:

Answer 12

1. Release work orders at the pace set by the bottleneck
2. Lost time at the bottleneck represents lost time at the whole system
3. Increasing the capacity of a non-bottleneck station is a mirage
4. Increasing the capacity of a bottleneck station increases the capacity of the whole system

Question 13

What are the features of location decisions?

Answer 13

• long-term decisions
• difficult to reverse
• affect fixed and variable costs
• objective: maximize benefit of location to firm

Question 14

What are the features of cost focus?

Answer 14

• revenue varies little between locations
• location is a major cost factor
• location affects shipping and production costs
• location costs vary greatly between locations

Question 15

What are the features of revenue focus?

Answer 15

• costs vary little between market areas
• location is a major revenue factor
• location affects amount of customer contact
• location affects volume of business

Question 16

In the context of location methods, what are the features of the factor rating methos?

Answer 16

• lists relevant factors
• assigns importance weight to each factor (such as 0-1)
• develops scale for each factor (such as 1-100)
• scores each location using factor scale
• multiplies scores by weights for each factor & total
• selects location with maximum total score

Question 17

How do you do location break-even analysis?

Answer 17

It is a method of cost-volume analysis used for industrial locations.

• determine fixed and variable costs for each location
• plot total cost for each location
• select location with lowest total cost for expected production volume
• must be above break-even
• place existing locations on a coordinate grid
• calculate X & Y coordinates for ‘center of gravity’