Guest Lecture

Question 1

Capacity leads demand

Answer 1

• Revenue is maximized
• Customers satisfied
• Capacity can absorb sudden increases in demand
• Startup problems less likely to affect supply
  BUT
• Lower utilization, thus higher costs
• Risk of permanent over-capacities
• Capital spending relatively early

Question 2

Capacity lags demand

Answer 2

• High utilization  Lower unit costs
• Turnover not maximized – Dissatisfied customers
  Basically, mirror of Capacity leads demand

Question 3

Smoothing with inventory?

Answer 3

Used for seasonal supply chains
+ Increased demand satisfaction, revenue maximization
+ Utilization of capacity increased, thus lower costs
+ Minor demand surges can be met from inventory
- Inventory increases working capital
- Risks of product deterioration and obsolescence

Question 4

How capacity and demand are measured?

Answer 4

Efficiency = Actual Output/ Effective Capacity
Utilization = Actual Output/ Design Capacity

Question 5

Finite and Infinite Loading

Answer 5

Finite loading limits the loading of each centre to their capabilties, even if that means jobs will be late.

Infinite allows the loading on each centre to exceed their capacities to ensure that jobs will not be late.

Question 6

Factors, which increase base level of capacity?

Answer 6

Low fixed costs
Need for high levels of customer service
High perishability
Inexpensive fixed capacity

Question 7

Factors which decrease base level of capacity

Answer 7

High fixed costs
Need for high capacity utilization
Ability to store output
Expensive fixed capacity

Question 8

Level: Absorb Demand

Answer 8

Keep Output level
Have excess capacity and Make to stock

but Make customer wait

Question 9

Chase: Adjust output to mathc demand

Answer 9

Annualized hours
Temporary labour
overtime
subcontract

Question 10

Ways of reconciling capacity and demand

Answer 10

Absorb Demand - level capacity
Adjust output to match demand - chase demand
Change demand - demand management