Chapter 5 Constraint Management

Question 1

What is Capacity?

Answer 1

Amount of resource inputs available relative to output requirements (demand) at a particular time

Question 2

Why is capacity important?

Answer 2

• Want sufficient capacity to meet customer demand in a timely manner
• Affects the ease or difficulty of scheduling outputs and operating costs
• Can affect competitiveness
• May require long term commitment of resources
• Want good ROI

Question 3

What is Vertical Integration?

Answer 3

The amount of the supply chain that is brought under the ownership of the company.

Question 4

When is Vertical Integration Attractive?

Answer 4

• High volume
• Firm has required skills
• Product has importance to the future of the firm
• Promising

Question 5

When is Outsourcing needed?

Answer 5

• Available
• Patents, expertise
• Quality considerations
• Nature of demand
• Lead times
• Stability of technology
• Carbon footprints
• Cost

Question 6

Examples of Capacity Measures

Answer 6

• Truck manufacturer-machine hours per shift or number of trucks per shift
• Hospital-number of beds or number of patients treated per day
• Restaurant-number of seats or customers served per day

Question 7

Capacity Measurement - Theoretical Capacity

Answer 7

Based on clock hours
Example:
4machines x 8hour shift x 5days per week = 160

Question 8

Capacity Measurement - Demonstrated Capacity

Answer 8

Average Historical Output
Example:
Last six periods output in units = 580, 565, 575, 570, 590, 560
Average output in units: 573

Question 9

Elements of Rated Capacity

Answer 9

Available time
Utilization
Efficiency

Question 10

What is the Formula of Rated Capacity?

Answer 10

Rated Capacity = available time x utilization x capacity

Question 11

Elements of Utilization

Answer 11

Hours actually worked

Hours of available time

Question 12

What is the Formula for Utilization?

Answer 12

Utilization Rate% = hours actually worked / hours of available time x 100%

Question 13

Elements of Efficiency

Answer 13

Standard hours of output (work produced)

Hours actually worked

Question 14

What is the Formula for Efficiency?

Answer 14

Efficiency % = standard hours of work produced / hours actually worked x 100%

Question 15

What is Capacity Cushion?

Answer 15

Extra capacity used to offset demand uncertainty

Question 16

What is the formula for Capacity Cushion?

Answer 16

Capacity Cushion = 100% - Utilization

Question 17

Short Term Capacity Changes

Answer 17

• Inventories – build up before short term
• Back orders
• Employment – hire more or lay-off
• Workforce Utilization – and idle time
• Sub-contracting
• Maintenance – lay off some

Question 18

Long Term Capacity Changes

Answer 18

• Expand, update, modify existing facilities
• Acquire other companies, facilities, or resources
• Develop sites, buildings, buy equipment
• Subcontract in the long term
• Increase workforce
• Decreasing long term capacity

Question 19

Evaluate Alternatives

Answer 19

Cashflow
NPV - Net Present Value
Payback periods
decision tree

Question 20

What is a Decision Tree?

Answer 20

Wide range of decision particularly valuable when demand is uncertain and sequential decisions are involved.

Question 21

Three Steps for decision trees

Answer 21

Diagram Tree
Estimation-probabilities of outcomes and financial consequences
Evaluation and selection-calculate expected values and select best

Question 22

Psychological Features of Queues

Answer 22

Keep customers busy
Keep customers informed
Treat customers fairly
Start the service as soon as possible
Exceed the customer's expectations

Question 23

Last Decision Steps

Answer 23

Assess key qualitative issues for each alternative
Select alternative(s) to pursue
Implement the alternative chosen
Audit and review actual results