Deck 5: Strategic Capacity Management

Question 1

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

Answer 1

True
Explanation: At some point, the size of a plant becomes too large and diseconomies of scale become a problem.

Question 2

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 2

True
Explanation: 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.

Question 3

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

Answer 3

False
Explanation: These are tied into short range capacity planning-less than one month.This is tied into the daily or weekly scheduling process and involves making adjustments to eliminate the variance between planned and actual output.This includes alternatives such as overtime, personnel transfers, and alternative production routings.

Question 4

Long-range capacity planning requires top management participation.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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

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

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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.

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

Outsourcing is a common source of external capacity.

Question 26

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

Question 27

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 28

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 29

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

Question 30

The smaller the capacity cushion, the better.

Question 31

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

Question 32

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

Question 33

The larger the capacity cushion, the better.

Question 34

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

Question 35

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 36

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

Question 37

Sharing capacity is a common source of external capacity.

Question 38

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

Question 39

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 40

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

Question 41

If demand for product A were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 75,000 units per month, how much of product A might you plan to acquire through outsourcing? _______________

Question 42

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 43

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, what is the capacity utilization rate? ____________________

Question 44

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 45

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 46

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 47

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 48

If demand for product A were forecast at 1,000,000 units for the coming year and your factory has trained labor and equipment sufficient to produce 150,000 units per month, is the capacity cushion positive or negative? ____________________

Question 49

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 50

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 51

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.

Question 52

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 53

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 54

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 55

If demand for product A were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 4,500 units per week, how many similar machines might you plan to acquire? ___________________

Question 56

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 57

A chance node on a decision tree has four possible outcomes worth $10,000, $20,000, $30,000, and -$100,000, respectively.The probabilities of these outcomes occurring are assessed as 10%, 25%, 50%, and 15%, correspondingly.What is the expected value of this chance node? _________________________

Question 58

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 59

A chance node on a decision tree has four possible outcomes, each worth $100,000.The probabilities of the outcomes occurring are assessed as 10%, 27%, 43%, and 20%.What is the expected value of this chance node? ____________________

Question 60

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 61

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, what is the capacity cushion? __________________

Question 62

What is a capacity cushion, and why would a firm have one?

Question 63

Why does volatility of demand have a higher effect on a service delivery system than on a manufacturing system?

Question 64

Describe the relationship between capacity utilization and quality in a service operation.