Section 1 Capacity

Operations Management, 11e Supplement 7 Capacity and Constraint Management Section 1 Capacity 1) Utilization is the number of units a facility can hold, receive, store, or produce in a period of time. Answer: FALSE Diff: 2 Key Term: Utilization Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 2) Design capacity is the theoretical maximum output of a system in a given period under ideal conditions. Answer: TRUE Diff: 2 Key Term: Design capacity Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 3) Capacity decisions are based on technological concerns, not demand forecasts. Answer: FALSE Diff: 1 Key Term: Capacity Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 4) Expected output is sometimes referred to as rated capacity. Answer: TRUE Diff: 2 Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 5) Price changes are useful for matching the level of demand to the capacity of a facility. Answer: TRUE Diff: 2 Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-1 6) A useful tactic for increasing capacity is to redesign a product in order to facilitate more throughput. Answer: TRUE Diff: 2 Key Term: Capacity Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 7) What is sometimes referred to as rated capacity? A) efficiency B) utilization C) effective capacity D) expected output E) design capacity Answer: D Diff: 2 Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 8) Effective capacity is the: A) maximum output of a system in a given period. B) capacity a firm expects to achieve given the current operating constraints. C) average output that can be achieved under ideal conditions. D) minimum usable capacity of a particular facility. E) sum of all of the organization's inputs. Answer: B Diff: 2 Key Term: Effective capacity Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 9) Which of the following represents an aggressive approach to demand management in the service sector when demand and capacity are not particularly well matched? A) lower resort hotel room prices on Wednesdays B) appointments C) reservations D) first-come, first-served rule E) none of the above Answer: A Diff: 3 Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-2 10) Utilization will always be lower than efficiency because: A) effective capacity is less than design capacity. B) effective capacity is greater than design capacity. C) effective capacity equals design capacity. D) expected output is less than actual output. E) expected output is less than rated capacity. Answer: A Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 11) The Academic Computing Center has five trainers available in its computer labs to provide training sessions to students. Assume that the design capacity of the system is 1900 students per semester and that effective capacity equals 90% of design capacity. If the number of students who actually got their orientation session is 1500, what is the efficiency of the system? A) 1350 students B) 1710 students C) 78.9% D) 87.7% E) 90% Answer: D Diff: 2 Key Term: Efficiency AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 12) Christopher's Cranks uses a machine that can produce 100 cranks per hour. The firm operates 12 hours per day, five days per week. Due to regularly scheduled preventive maintenance, the firm expects the machine to be running during approximately 95% of the available time. Based on experience with other products, the firm expects to achieve an efficiency level for the cranks of 85%. What is the expected weekly output of cranks for this company? A) 5100 B) 5700 C) 4845 D) 969 E) 6783 Answer: C Diff: 2 Key Term: Efficiency AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-3 13) The staff training center at a large regional hospital provides training sessions in CPR to all employees. Assume that the capacity of this training system was designed to be 1200 employees per year. Since the training center was first put into use, the program has become more complex, so that 1050 now represents the most employees that can be trained per year. In the past year, 950 employees were trained. The efficiency of this system is approximately ________ and its utilization is approximately ________. A) 79.2 percent; 90.5 percent B) 90.5 percent; 79.2 percent C) 87.5 percent; 950 employees D) 950 employees; 1050 employees E) 110.5 percent; 114.3 percent Answer: B Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 14) Which of the following represents a common way to manage capacity in the service sector? A) appointments B) reservations C) changes in staffing levels D) first-come, first-served service rule E) "early bird" specials in restaurants Answer: C Diff: 2 Key Term: Capacity Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 15) Adding a complementary product to what is currently being produced is a demand management strategy used when: A) demand exceeds capacity. B) capacity exceeds demand for a product that has stable demand. C) the existing product has seasonal or cyclical demand. D) price increases have failed to bring about demand management. E) efficiency exceeds 100 percent. Answer: C Diff: 2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-4 16) An organization whose capacity is on that portion of the average unit cost curve that falls as output rises: A) has a facility that is below optimum operating level and should build a larger facility. B) has a facility that is above optimum operating level and should reduce facility size. C) is suffering from diseconomies of scale. D) has utilization higher than efficiency. E) has expected output higher than rated capacity. Answer: A Diff: 2 AACSB: Reflective thinking skills Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 17) ________ is the number of units a facility can hold, store, receive, or produce in a period of time. Answer: Throughput or Capacity Diff: 2 Key Term: Capacity Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 18) ________ is actual output as a percent of design capacity. Answer: Utilization Diff: 2 Key Term: Utilization Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 19) ________ is actual output as a percent of effective capacity. Answer: Efficiency Diff: 2 Key Term: Efficiency Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 20) In the service sector, scheduling customers is a type of ________ management, while scheduling the workforce is a type of ________. Answer: demand; capacity Diff: 2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-5 21) What is the fundamental distinction between design capacity and effective capacity? Provide a brief example. Answer: Design capacity is the theoretical maximum output of a system in a given period under ideal conditions. Effective capacity, on the other hand, is the capacity that a firm expects to achieve given the current operating constraints. Effective capacity is often lower than design capacity because the facility may have been designed for an earlier version of the product or a different product mix than is currently being produced. Most firms operate at less than design capacity because they don't want to be stretching their resources to the limit. As an example, a restaurant might have 100 seats, but it only opens up 60 every night because it cannot find enough qualified servers. Diff: 2 Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 22) Distinguish between utilization and efficiency. Answer: Both are ratios, not item counts. Both use actual output in the ratio numerator. Utilization is the ratio of actual output to design capacity, so it measures output as a fraction of ideal facility usage. Efficiency is the ratio of actual output to effective capacity, so it measures output as a fraction of the practical or current limits of the facility. Utilization will be lower than efficiency. Diff: 2 Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 23) Why is the capacity decision important? Answer: The capacity decision is important for several reasons. First, capacity costs represent a large portion of fixed costs. Second, a facility of the wrong size means that costs are not as low as they could be. If a facility is too large, and portions of it remain idle, the firm's costs are too high because of the higher fixed costs. If a plant is too small, costs are again higher than they might be due to inefficiencies of working in cramped and crowded spaces. Further, a facility too small may lead to lost sales, perhaps even lost markets. Diff: 2 Key Term: Capacity AACSB: Reflective thinking skills Objective: LO1 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 24) A good capacity decision requires that it be tightly integrated with the organization's strategy and investments. But there are four other special "considerations" to making a good capacity decision. Identify them. Answer: (1) Forecast demand accurately. (2) Match technology increments and sales volume. (3) Find the optimum operating size (volume). (4) Build for change. Diff: 3 Key Term: Capacity Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-6 25) Identify the six tactics for matching capacity to demand. Answer: 1. Making staffing changes (increasing or decreasing the number of employees or shifts), 2. Adjusting equipment (purchasing additional machinery or selling or leasing out existing equipment), 3. Improving processes to increase throughput, 4. Redesigning products to facilitate more throughput, 5. Adding process flexibility to better meet changing product preferences, and 6. Closing facilities. Diff: 3 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 26) The staff training center at a large regional hospital provides training sessions in CPR to all employees. Assume that the capacity of this training system was designed to be 1800 employees per year. Since the training center was first put in use, the program has become more complex, so that 1400 now represents the most employees that can be trained per year. In the past year, 1350 employees were trained. Calculate the efficiency and the utilization of this system. Answer: Efficiency = 1350 / 1400 = .964 or 96.4 percent; utilization = 1350 / 1800 = .75 or 75 percent Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 27) An executive conference center has the physical ability to handle 1,100 participants. However, conference management personnel believe that only 1,000 participants can be handled effectively for most events. The last event, although forecasted to have 1,000 participants, resulted in the attendance of only 950 participants. What are the utilization and efficiency of the conference facility? Answer: Design Capacity = 1,100 participants Effective Capacity = 1,000 participants Actual Output = 950 participants Utilization = Efficiency = = = 86.4% = = 95.0% Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-7 28) A fleet repair facility has the capacity to repair 800 trucks per month. However, due to scheduled maintenance of their equipment, management feels that they can repair no more than 600 trucks per month. Last month, two of the employees were absent several days each, and only 400 trucks were repaired. What are the utilization and efficiency of the repair shop? Answer: Design Capacity = 800 trucks Effective Capacity = 600 trucks Actual Output = 400 trucks Utilization = Efficiency = = = 50.0% = = 66.7% Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 29) The efficiency of a factory is 75% and its utilization 50%. If effective capacity is 1000 find design capacity. Answer: Output = Efficiency Effective Capacity = Utilization Design Capacity. Solving gives .75(1000) = .50 (Design Capacity), Design Capacity = 1500 Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes 30) A factory produces 1000 units a month. If design capacity is 3000 and efficiency is 50% find utilization and effective capacity. Answer: Output = Utilization Design Capacity gives 1000 = utilization 3000, utilization = 33.33%. Next use output = efficiency effective capacity to get 1000 = .5(effective capacity), effective capacity= 2000 units. Diff: 2 AACSB: Analytic skills Objective: LO2 Learning Outcome: Explain options for managing bottlenecks and managing capacity in service and manufacturing processes S7-8