Deck 5: Strategic Capacity Management

Question 1

The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's short-range competitive strategy.

Answer 1

False

Question 2

Making adjustments to eliminate the variance between planned and actual output is tied into intermediate-range capacity planning.

Answer 2

False

Question 3

The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops.

Answer 3

True

Question 4

Capacity can be defined as the amount of available resource inputs relative to requirements for output over a particular period of time.

Question 5

A production facility works best when it focuses on a fairly limited set of production objectives.

Question 6

Long-range capacity planning requires top management participation.

Question 7

Overtime and personnel transfers are solutions to capacity problems in the intermediate term.

Question 8

The ultimate in plant flexibility is a one-hour-changeover-time plant.

Question 9

At some point, the size of a growing plant can become too large and diseconomies of scale become a capacity planning problem.

Question 10

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.

Question 11

Best operating level is the volume of output at which average unit cost is minimized.

Question 12

The problem of keeping demand sufficiently high to keep a large factory busy is a sales issue and not a diseconomy of scale.

Question 13

A piece of equipment with twice the capacity of another piece typically costs twice as much to purchase and to operate.

Question 14

Capacity can be defined as the ability to hold, receive, store, or accommodate.

Question 15

The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's long-range competitive strategy.

Question 16

Best operating level is usually a multiple of the level of capacity for which a process was designed.

Question 17

When evaluating capacity, managers need to consider both resource inputs and product outputs.

Question 18

Capacity planning is generally viewed in three time durations: immediate, intermediate, and indeterminate.

Question 19

A production facility develops virtuosity and works best when it focused on a widely varied set of production objectives.

Question 20

The capacity utilization rate is found by dividing best operating level by capacity used.

Question 21

Capacity flexibility means having the ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another.

Question 22

The capacity cushion is the ratio of capacity used to the best capacity level.

Question 23

When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion.

Question 24

In a decision tree, the only time probabilities are applied to a decision node is when the decision is being made by someone else such as you customer or your competitor.

Question 25

The larger the capacity cushion, the better.

Question 26

In practice, achieving a perfectly balanced plant is usually desirable but impossible.

Question 27

A decision tree problem does not need probabilities or payoffs to generate a solution.

Question 28

Because services cannot be stored for later use, service managers consider time as one of their supplies or resources.

Question 29

The ability to rapidly and inexpensively switch production from one product to another enables what are sometimes referred to as:

A)Economies of scale
B)Economies of size
C)Economies of shape
D)Economies of scope
E)Economies of shipping

Question 30

The probability of each occurrence at a decision tree chance node is the reciprocal of the number of possibilities at the chance node.

Question 31

A capacity cushion is the amount of capacity less than expected demand.

Question 32

In practice, achieving a perfectly balanced plant is usually both impossible and undesirable.

Question 33

The smaller the capacity cushion, the better.

Question 34

Outsourcing is a common source of external capacity.

Question 35

The frequency of adding to productive capacity should balance the costs of upgrading too frequently and the costs of upgrading too infrequently.

Question 36

Economies of scope exist when multiple products can be produced at a lower cost in combination than they can separately.

Question 37

In decision tree analysis, the time value of money is ignored because the only concern is with cash costs.

Question 38

In solving a decision tree problem, calculations start at the ends of the "branches" of the tree and work backward to the base of the tree.

Question 39

Low rates of capacity utilization in service organizations are never appropriate.

Question 40

Sharing capacity is a common source of external capacity.

Question 41

The capacity focus concept can be put into practice through a mechanism called which of the following?

A)Best operating level (BOL)
B)Plant within a plant (PWP)
C)Total quality management (TQM)
D)Capacity utilization rate (CUR)
E)Zero changeover time (ZXT)

Question 42

At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000, with a probability of 90%; the expected benefit of selecting machine B is $80,000, with a probability of 50%; and the expected benefit of selecting machine C is $60,000, with a probability of 75%?

A)Machine A
B)Machine B
C)Machine C
D)You would be indifferent between machines A and C.
E)You would be indifferent between machines A and B.

Question 43

Capacity planning involving consideration of production scheduling and inventory position is characterized by which one of the following time durations?

A)Intermediate range
B)Long range
C)Short range
D)Current
E)Upcoming

Question 44

Precise capacity design or the rate of service utilization (ρ), is application specific.

A)It could be close to 100% for a sports arena.
B)It could be as low as 0.5 for hospital emergency room.
C)As the degree of uncertainty in demand increases, higher ρ may be appropriate.
D)A, B and C are correct.
E)Only A and B are correct.

Question 45

What is an important difference between capacity planning in services and capacity planning in manufacturing operations?

A)Time
B)Location
C)Demand volatility
D)Utilization affects service
E)All of these

Question 46

If the actual output of a piece of equipment during an hour is 500 units and its best operating level is at a rate of 400 units per hour, which of the following is the capacity utilization rate?

A)0.75
B)1.00
C)1.25
D)1.33
E)100

Question 47

In a decision tree problem involving capacity planning, there was a random outcome node with three random outcomes (A,B, and C) which followed a decision node.The probabilities for A, B and C: P(A)=0.4, P(B) = 0.6 and P(C) = 0.2.Payoff following A,B and C respectively are $10000, $5000 and $2000.Expected value of that random outcome node is:

A)$7400
B)$7000
C)$17000
D)Cannot be determined since there is something wrong with the data given.
E)$5666.

Question 48

Capacity planning that involves hiring, layoffs, some new tooling, minor equipment purchases, and subcontracting is considered as which one of the following planning horizons?

A)Intermediate range
B)Long range
C)Short range
D)Current
E)Upcoming

Question 49

If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity utilization rate?

A)0.75
B)1.00
C)1.33
D)2.33
E)300

Question 50

In designing a general service facility, capacity should be such that the target rate of service utilization (ρ), in order to get the best general purpose design, should be

A)less than 0.6 (or 60%), so that your system would be within the zone of service with maximum possible utilization within that.
B)more than 0.6 (or 60%) so that your system would have a good utilization
C)about 0.7 (70%) so that your system would be in the zone of service with maximum possible utilization within that.
D)more than 1.0 (100%) so that the servers are fully utilized, even if the customers had to wait a little
E)between 0.9 (90%) and 1.0 (100%) so that the utilization of the system is ideal.

Question 51

Which of the following is not a step used in determining production capacity requirements?

A)Forecasting to predict product sales
B)Forecasting raw material usage
C)Projecting availability of labor
D)Calculating equipment and labor needs
E)Projecting equipment availability

Question 52

Capacity planning involving acquisition or disposal of fixed assets such as buildings, equipment or facilities is considered as which one of the following planning horizons?

A)Intermediate range
B)Long range
C)Short range
D)Current
E)Upcoming

Question 53

Which of the following models uses a schematic model of the sequence of steps in a problem and the conditions and consequences of each step?

A)Probability indexing
B)Johnson's sequencing rule
C)Decision trees
D)Activity system maps
E)Decision mapping

Question 54

When deciding to add capacity to a factory, which of the following need not be considered?

A)Maintaining system balance
B)The frequency of capacity additions
C)Use of external capacity
D)Immediate product demand
E)Availability of raw materials

Question 55

If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity cushion?

A)25 percent
B)100 units per hour
C)75 percent
D)125 percent
E)133 percent

Question 56

Compared with a service operation, a manufacturing operation's capacity is which of the following?

A)More dependent on time and location
B)Subject to more volatile demand fluctuations
C)Utilization more directly impacts quality
D)Demand can be smoothed by inventory policies
E)More capable of reacting to demand fluctuations

Question 57

The way to build in greater flexibility in your workers is to do which of the following?

A)Pay higher wages to motivate a willingness to do a variety to tasks.
B)Provide a broader range of training.
C)Provide a wide variety of technology to augment workers skills.
D)Institute a "pay for skills" program.
E)Use part-time employees with specialized skills as needed.