Chapter 5: Strategic Capacity Planning Flashcards
Q: What is capacity?
A: The upper limit or ceiling on the load that an operating unit can handle, usually measured in terms of output rate.
Q: What is an example of design capacity vs effective capacity?
A: A bakery can produce 30 pies/day under ideal conditions (design capacity) but only 20 pies/day under normal conditions (effective capacity).
Q: Why is long-term capacity planning important?
A: It impacts future demand, costs, and competitiveness. Poor planning can lead to overcapacity (wasted resources) or undercapacity (missed sales).
Q: What is an example of the importance of long-term capacity planning?
A: A hospital with too few beds during peak demand leads to long waiting times, while too many beds during off-peak periods result in wasted resources.
Q: What is design capacity?
A: Maximum output under ideal conditions.
Q: What is effective capacity?
A: Maximum output under normal conditions, accounting for downtime and scheduling.
Q: How do you calculate utilization for design capacity?
A: Utilization (Design) = (Actual Output / Design Capacity) × 100%
Q: How do you calculate utilization for effective capacity?
A: Utilization (Effective) = (Actual Output / Effective Capacity) × 100%
Q: What factors influence capacity?
A: Facilities, product mix, workers, operational factors, supply chain, and external factors.
Q: What is the first step in the capacity planning process?
A: Forecast demand to predict future product/service needs.
Q: What is the purpose of break-even analysis in capacity planning?
A: To determine the level of sales needed to cover fixed and variable costs.
Q: What is the formula for break-even quantity?
A: Break-even Quantity (Q) = Fixed Costs / (Price - Variable Costs)
Q: What is the leading strategy for capacity expansion?
A: Increasing capacity before demand occurs, which is high risk but offers high rewards.
Q: What is the lagging strategy for capacity expansion?
A: Adding capacity after demand is confirmed, which is safer but may miss opportunities.
Q: What is incremental expansion in capacity planning?
A: Adding small capacity chunks over time, providing flexibility but with higher costs.
Q: What are economies of scale?
A: As production increases, the cost per unit decreases due to fixed costs spread over more units.
Q: What is an example of economies of scale?
A: A large factory can buy materials in bulk at a discount, lowering costs.
Q: What are diseconomies of scale?
A: Increasing production can lead to higher costs per unit due to factors like complexity and equipment wear.
Q: What is an example of diseconomies of scale?
A: A factory grows too large, leading to scheduling issues and higher maintenance costs.
Q: What is a bottleneck operation?
A: An operation in a production process that limits overall output due to lower capacity than other operations.
Q: What is an example of a bottleneck?
A: A bakery has one oven that can bake 10 pies/hour, but other operations can handle 20 pies/hour, making the oven a bottleneck.
Q: What are unique challenges in service capacity planning?
A: Services cannot be stored and must often be provided near the customer, with demand fluctuations requiring flexible capacity.
Q: What is the solution for planning capacity in a hospital with fluctuating demand?
A: Plan capacity to handle peak demand, not just average demand, to avoid service delays during busy periods.
