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Operations Mngt > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

What are key inputs used to answer the questions of how much capacity is needed and when it is needed?

A

Forecasts

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2
Q

Because of ____, some organizations prefer to delay capacity investment until demand materializes.

A

Uncertainties

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3
Q

Organizations that add _____ in anticipation of growth often discover that it actually attracts growth

A

Capacity

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4
Q

3 factors that influence the frequency of capacity choices:

A
  1. Stability of Demand
  2. Rate of Technological change
  3. Competitive Factors
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5
Q

Capacity often refers to an upper limit on the ____ of output

A

Rate

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6
Q

What is Design Capacity?

A

The maximum output rate/service capacity an operation, process, or facility is designed for under ideal conditions

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7
Q

What is Effective Capacity?

A

Design capacity minus allowances

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8
Q

What are the Allowances of Effective Capacity?

A
  • Personal time
  • Preventive Maintenance
  • Scheduling problems
  • Changing the product mix
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9
Q

Actual Output cannot exceed what?

A

Effective capacity

Is often less because of machine breakdowns, absenteeism, and material shortages

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10
Q

____ is the ratio of actual output to effective capacity

A

Efficiency

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11
Q

What is the Efficiency Equation?

A

(Actual Output/ Effective Capacity) x 100%

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12
Q

____ is the ratio of actual output to design capacity

A

Capacity Utilization

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13
Q

What is the Utilization Equation?

A

(Actual Output/ Design Capacity) x 100%

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14
Q

What is Capacity Cushion?

A

An amount of capacity in excess of expected demand when there is some uncertainty about demand

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15
Q

Typically, the greater the degree of demand uncertainty…

A

The greater the amount of cushion used

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16
Q

What does a tracking strategy do?

A

It adds capacity in relatively small increments to keep pace with increasing demand

similar to a following strategy

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17
Q

What does a following strategy do?

A

Builds capacity when demand exceeds current capacity

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18
Q

What are Long-term Capacity needs?

A

1) Forecasting demand over a time horizon

2) Converting those forecasts into capacity requirements

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19
Q

Short-term Capacity needs are less concerned with what?

A

Less concerned with cycles or trends

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20
Q

What are Short-term Capacity needs more concerned with?

A

Seasonal variations or variations from average

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21
Q

_____ can place a severe strain on a system’s ability to satisfy demand at some times and yet result in idle capacity at other times

A

Deviations

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22
Q

What are examples of causes of irregular variations?

A
  • Major equipment breakdown
  • Strong Storms
  • Foreign Political turmoil
  • Oil Shortages
  • Discovery of Health Hazards
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23
Q

What are two key reasons for misjudgment of capacity needs?

A

1) Overly optimistic projections of demand and growth

2) Focusing exclusively on sales and revenue potential

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24
Q

What is a reasonable approach to determining capacity requirements? (3 steps)

A

1) To obtain a forecast of future demand
2) Translate demand into both the quantity and the timing of capacity requirements
3) Decide what capacity changes are needed

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25
Q

What are the 3 factors in planning service capacity?

A

1) Locations near customer pool
2) Inability to store services
3) Degree of volatility of demand

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26
Q

How does Demand Volatility present problems for capacity planners?

A

Tends to be higher for services than goods, not only in time of demand, but also in the amount of time required to service customers

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27
Q

Demand Management Strategies can be used to do what?

A

To offset capacity limitations

Ex: Pricing, promotions, discounts

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28
Q

What 6 factors determine if a company should outsource or produce a product in house?

A

1) Available Capacity
2) Expertise
3) Quality Considerations
4) Nature of Demand
5) Cost
6) Risks

29
Q

The long-term nature of capacity decisions and the risks inherent in long-term forecasts suggest potential benefits from designing ______

A

Flexible Systems

30
Q

At the ______ phase, it can be difficult to determine both the size of the market and the organization’s eventual share of that market

A

Introduction Phase

31
Q

In the _____ phase, the overall market may experience rapid growth

A

Growth Phase

32
Q

In the ____ phase, the size of the market levels off, and organizations tend to have stable market shares

A

Maturity Phase

33
Q

In the ___ phase, an organization is faced with underutilization of capacity due to declining demand

A

Decline Phase

34
Q

A _____ is an operation in a sequence of operations whose capacity is lower than the capacities of other operations

A

Bottleneck Operation

35
Q

At the ideal level, cost per unit is the _____ for that production unit

A

Lowest

36
Q

What are Economies of Scale?

A

If the output rate is less than the optimal level

Increasing the output rate results in decreasing average unit costs

37
Q

What are Diseconomies of Scale?

A

If the output rate is more than the optimal level

38
Q

With Diseconomies of Scale, increasing the output rate will result in?

A

Increasing the average unit costs

39
Q

With Economies of Scale, increasing the output rate will result in?

A

Decreasing the average unit csots

40
Q

What are the 3 reasons for Economies of Scale?

A
  • Fixed costs are spread over more units (reduces fixed cost per unit)
  • Construction costs increase at a decreasing rate
  • Processing costs decrease as output rates increase because operations become more standardized
41
Q

What are the 4 reasons for Diseconomies of Scale?

A
  • Distribution costs increase
  • Complexity increases cost
  • Inflexibility can be an issue
  • Additional levels of bureaucracy exist
42
Q

A _____ is something that limits the performance of a process or system in achieving its goals

A

Constraint

43
Q

_____ management is often based on the work of Eli Goldratt, Eli Schragenheim, and William Dettmer

A

Constraint Management

44
Q

What are the 7 categories of constraints?

A

1) Market
2) Resource
3) Material
4) Financial
5) Supplier
6) Knowledge
7) Policy

45
Q

The 5 steps to resolve contraint issues:

A

1) Identify the most pressing constraint
2) Change the operation to achieve the maximum benefit (ST solution
3) Make sure other portions of the process are supportive
4) Explore and evaluate ways to overcome the constraint
5) repeat process until level of constraints are acceptable

46
Q

_____ Analysis focuses on relationships between cost, revenue, and volume of output

A

Cost-Volume Analysis

47
Q

The purpose of cost-volume analysis is ______

A

To estimate the income of an organization under different operating conditions

48
Q

____ tend to remain constant regardless of volume of output

A

Fixed Costs

Ex: Rental Costs, property taxes

49
Q

___ vary directly with volume of output

A

Variable Costs

Ex: Material and Labor Costs

50
Q

What is the Break-even point?

A

The volume at which total cost and total revenue are equal

51
Q

What is the Contribution Margin?

A

The difference between revenue per unit and variable cost per unit

52
Q

What is an Indifference Point?

A

The quantity at which a decision maker would be indifferent between two competing alternatives

53
Q

When the following 6 assumptions are satisfied, cost-volume analysis can be a valuable tool for comparing capacity alternatives:

A

1) One product involved
2) Everything produced can be sold
3) Variable cost per unit remains constant regardless of volume
4) Fixed costs do not change with volume changes
5) Revenue per unit is the same regardless of volume
6) Revenue per unit > Variable cost per unit

54
Q

____ refers to the difference between cash inflows and outflows

A

Cash Flow

55
Q

___ expresses in current value the sum of all future cash flows

A

Present Value

56
Q

The 3 most commonly used methods of financial analysis are:

A

1) Payback
2) Present Value
3) Internal Rate of Return (IRR)

57
Q

What is the Payback method?

A

Focuses on the length of time it will take for an investment to return its original cost

58
Q

Payback method does not ___

A

Account for the Time Value of Money

59
Q

What is the Present Value (PV) method?

A

Summarizes the initial cost of an investment, its estimated annual cash flows, and any expected salvage value

Taking into account the TVOM, interest rates

60
Q

What is the Internal Rate of Return (IRR)?

A

Identifies the rate of return that equates the estimated future returns and the initial cost

61
Q

Decision Theory involves what three things?

A

1) Identifying a set of possible future conditions that could influence results
2) Listing alternative courses of action
3) Developing a financial outcome for each alternative-future condition combination

62
Q

2 Strategies for determining the timing and degree of capacity expansion:

A

1) Expand-early Strategy
2) Wait-and-see Strategy

63
Q

What are the 3 intents of the Expand-early strategy?

A

1) Achieve Economies of Scale
2) Expand Market Share
3) Preempt competitors from expanding

64
Q

What are 2 risk of the Expand-early strategy?

A

1) Oversupply
2) Underutilized Equipment

65
Q

What is the Wait-and-see Strategy?

A

To expand capacity only after demand materializes, perhaps incrementally

66
Q

What are 2 advantages of the Wait-and-See Strategy?

A

1) Lower chances of oversupply
2) higher capacity utilization

67
Q

What are 2 risks of the Wait-and-See Strategy?

A

1) Loss of market share
2) Inability to meet demand

68
Q

_____ can be the result of the need to replace aging equipment with newer ones

A

Capacity Disposal Strategies

Operations Mngt (8 decks)

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