E2, Ch 5: Strategic Capacity Management

Question 1

capacity

Answer 1

ability to hold, receive, store, accommodate
in business → what is needed for us to meet our goals

Question 2

capacity starts with (1)_________; size of (1)_________ makes all the difference

Answer 2

location

Question 3

capacity management

Answer 3

process of determining appropriate level of capacity to meet demand while maintaining optimal balance b/w production costs, inventory levels, customer service levels

Question 4

3 basic questions in capacity management

Answer 4

1. What type of capacity is needed?
2. How much is needed?
3. When is it needed?

Question 5

planning horizons

Answer 5

period of time over which an org plans its production

Question 6

long range planning horizons

Answer 6

2-10 years; products either taking a long time to products, innovative production, etc.

Question 7

short range planning horizons

Answer 7

> 1 month

Question 8

Industries measure in terms of ______, but industries whose product mix is uncertain (ex. hospitals) measures in terms of ______

Answer 8

outputs
inputs

Question 9

(T/F) capacity has a critical impact on response rate, inventory policies, management, and staff support requirements

Answer 9

true

Question 10

strategic capacity planning: determing overall capacity considers… (3)

Answer 10

facilities, equipment, labor force size

Question 11

is capacity is too low…
if capacity is too high…

Answer 11

firm will lose customers and encourage competitors
firms may have to cut costs

Question 12

system capacity

Answer 12

a measure of how much can we actually produce through a particular system
ex. bandwidth on a computer

Question 13

your max output is determined by…

Answer 13

the dept w/ the slowest time/least amnt of output

Question 14

throughput capacity

Answer 14

maximum output achievable within a system

Question 15

design capacity

Answer 15

maximum designed service capacity or output rate.
when something is created it is typically created/designed with certain parameters; ex. A 12oz can, a room that can fit 50 students

Question 16

effective capacity

Answer 16

maximum capacity/output rate w/ consideration of situations/circumstances.
producing at max-rate on a perfect day vs. being understaffed on an 8hr work-day

Question 17

What assumption can we make about Design and Effective Capacity?

Answer 17

Effective capacity cannot exceed Design Capacity and will be less than Design Capacity 99% of the time

Question 18

capacity utilization =

Answer 18

output / design capacity*100

how much of our capacity are we actually utilizing

Question 19

efficiency =

Answer 19

output / effective capacity*100

looking at capacity in a given circumstance

Question 20

economies of scale

Answer 20

if we can produce more units up to a certain point, we can actually make more $.
Increase production → decreasing cost per unit → increased profit

Question 21

diseconomies of scale

Answer 21

at some point, the plant becomes too large and the cost per unit is not worth the energy → begin investing too much

Question 22

economies of scope

Answer 22

somewhat EoScale but through product line diversification

Question 23

product line diversification

Answer 23

grouping products together for production to utilize fixed costs

Question 24

LEAD strategy

Answer 24

proactive approach; forecasting future demand + making investments before production begins

ex. apple released iphone 16, given wanting to produce 1 million more units, make adjustments prior

Question 25

LAG strategy

Answer 25

wait-and-see approach; company may not have capital or prefer not to make huge investment. adjusting as demand arises

Question 26

MATCH strategy

Answer 26

what you typically see in restaurants over weekends; trying to match capacity based on what they believe customers will do

Question 27

adjustment strategy

Answer 27

warrants a process/system change.
ex. CFA adds another drive-through because demand has been rising over the 18 months and they cannot add more capacity due to their location

Question 28

capacity focus

Answer 28

idea that a facility works best when concentrated on limited set of objectives

Question 29

capacity flexibility

Answer 29

ability to rapidly increase/decrease product levels or to shift rapidly from one product to another

Question 30

flexible plants

Answer 30

ability to quickly adapt to change; zero changeover time

Question 31

flexible processes

Question 32

flexible workers

Question 33

maintaining system balance

Question 34

frequency of capacity additions

Question 35

external sources of capacity

Answer 35

outsourcing or sharing
ex. fast food restaurant using doordash –> outsourcing
ex. an overflow of inventory of 2 orgs using one location –> sharing

Question 36

decreasing capacity

Answer 36

temporary or permanent reductions
ex. layoffs

Question 37

determining capacity requirements (3)

Answer 37

using forecasting to predict sales for individual products →

calculate labor and equip. req. to meet forecasts →

consider planning horizons and any potential bottlenecks to project labor/equip. Availability

Question 38

bottlenecks

Answer 38

a point in a workflow where demand for resources exceeds capacity, causing delays or halts

Question 39

best operating level

Answer 39

capacity at which average unit cost is minimized

Question 40

plant within a plant, PWP

Answer 40

area w/in facility dedicated to a specific objective (ex. product group). can be used to “operationalize focused factory concept.”

Question 41

focused factory

Answer 41

facility works best when focused on limited set of production objectives

Question 42

capacity cushion

Answer 42

capacity in excess of expected demand

=(1/avg utilization rate)-1

Question 43

short term capacity options (6)

Answer 43

1. lease extra space temporarily
2. authorize overtime
3. staff 2nd/3rd shifts w/ temp workers
4. weekend shifts
5. alternate routings (using diff stations that may have excess capacity)
6. schedule longer runs to minimize losses

Question 44

issue of TIME in planning Service Capacity

Answer 44

services cannot be stored for later use

Question 45

issue of VOLATILITY OF DEMAND in planning Service Capacity

Answer 45

much greater than in manufacturing

Question 46

issue of LOCATION in planning Service Capacity

Answer 46

service goods must be at the customer demand point and capacity located near customer

Question 47

decision tree

Answer 47

a series of calculations for alternative situations to determine best value move

Question 48

A __________ ____ is a schematic model of the sequence of steps in a problem and the conditions/consequences of each step.
In these problems, we work from the END of the … backward to the start.

Answer 48

decision tree

Question 49

Copenhagen Air can schedule 424 flights per day; today due to maintenance delays they can schedule 391 flights. On average they can schedule 366 flights.

What is the capacity utilization,
efficiency,
and capacity cushion?

Answer 49

capacity util.= 366/(424100)= 86%
eff.= 366/(391100)= 93%
cushion= (1/.86)-1= 16%

Question 50

A computer manufacturer has the following daily operations (these are the diff departments:

Parts inventory: 500 units available per day
Assembly: 300” “
Delivery: 450” “

What is the throughput (max output achievable)?

Answer 50

300

Question 51

An auto service center specializing in oil change has 2 service bays serving an average of 24 cars/8 hr business days. On average, one bay cam finish a change in 30 minutes. What is actual output and design capacity?

Answer 51

actual output= 24 oil changes
design capacity= 32 oil changes (82=16, 162)