Operations And Supply Chain Management 14 Edition By Jacobs - Test Bank

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TRUE

A dictionary definition of capacity is “the ability to hold, receive, store, or accommodate.”

TRUE

When looking at capacity, operations managers need to look at both resource inputs and product outputs.

TRUE

Capacity is a relative term; in an operations management context, it may be defined as the amount of resource inputs available relative to output requirements over a particular period of time.

FALSE

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

FALSE

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size—that best supports the company’s long-range competitive strategy.

FALSE

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size—that best supports the company’s long-range competitive strategy.

TRUE

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size—that best supports the company’s long-range competitive strategy.

FALSE

Best operating level is the level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized.

TRUE

Best operating level is the level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized.

TRUE

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

TRUE

Where productive resources (such as buildings, equipment, or facilities) take a long time to acquire or dispose of, long-range capacity planning requires top management participation and approval.

FALSE

These are solutions to capacity problems in the short range—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.

FALSE

The correct answer is long range, intermediate range, and short range.

TRUE

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.

FALSE

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. This is partially due to lower operating and capital cost, because a piece of equipment with twice the capacity of another piece typically does not cost twice as much to purchase or operate.

FALSE

While this can be viewed as a sales issue, it is one brought on by the large scale of operations and is thus also a diseconomy of scale.

TRUE

The concept of a focused factory holds that a production facility works best when it focuses on a fairly limited set of production objectives.

FALSE

A firm should not expect to excel in every aspect of manufacturing performance: cost, quality, delivery speed and reliability, changes in demand, and flexibility to adapt to new products. Rather, it should select a limited set of tasks that contribute the most to corporate objectives.

FALSE

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.

FALSE

Perhaps the ultimate in plant flexibility is the zero-changeover-time plant.

TRUE

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.

TRUE

Economies of scope exist when multiple products can be combined and produced at one facility at a lower cost than they can be produced separately.

TRUE

See Exhibit 5.2 and the narrative on “Frequency of Capacity Additions.”

TRUE

In some cases, it may be cheaper to not add capacity at all, but rather to use some existing external source of capacity. Two common strategies used by organizations are outsourcing and sharing capacity.

TRUE

In some cases, it may be cheaper to not add capacity at all, but rather to use some existing external source of capacity. Two common strategies used by organizations are outsourcing and sharing capacity.

FALSE

A capacity cushion is the amount of capacity in excess of expected demand.

FALSE

See the decision tree examples in the text. Without probabilities and payoffs, a decision tree is not capable of generating a solution.

TRUE

In solving a tree problem, we work from the end of the tree backward to the start of the tree.

FALSE

See the decision tree example in the text. This is only true in the unusual event that all the possibilities at each node have an equal chance of occurring.

FALSE

Decision trees are composed of decision nodes with branches to and from them. Usually, squares represent decision points and circles represent chance events. Branches from decision points show the choices available to the decision maker; branches from chance events show the probabilities for their occurrence.

FALSE

Hospital emergency rooms and fire departments should aim for low utilization because of the high level of uncertainty and the life-or-death nature of their activities.

FALSE

This is not necessarily true, except in the instance of a firm whose competitive advantage is low cost or price. For a firm competing on speed of delivery or innovative ability, for example, a larger capacity cushion will allow more flexibility and enable an appropriate response to unplanned orders.

FALSE

This is false for the firm whose competitive advantage is low cost or price. For a firm competing on speed of delivery or innovative ability, for example, a larger capacity cushion will allow more flexibility and enable an appropriate response to unplanned orders.

FALSE

A capacity cushion is an amount of capacity in excess of expected demand.

TRUE

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.

FALSE

In solving decision tree problems, we work from the end of the tree backward to the start of the tree. As we work back, we calculate the expected values at each step. In calculation of the expected value, the time value of money is important if the planning horizon is long.

FALSE

In practice, achieving such a “perfect” design is usually both impossible and undesirable.

TRUE

In practice, achieving such a “perfect” design is usually both impossible and undesirable.

TRUE

Unlike goods, services cannot be stored for later use. As such, in services managers must consider time as one of their supplies.

Flexible manufacturing systems and simple, easily set-up equipment permit rapid low-cost switching from one product to another, enabling what are sometimes referred to as economies of scope.

Intermediate range: monthly or quarterly plans for the next 6 to 18 months. Here, capacity may be varied by such alternatives as hiring, layoffs, new tools, minor equipment purchases, and subcontracting.

Long range: greater than one year. Where productive resources (such as buildings, equipment, or facilities) take a long time to acquire or dispose of, long-range capacity planning requires top management participation and approval.

300 units of output divided by 400 units best operating level = 0.75.

500 units of output divided by 400 units best operating level = 1.25.

A capacity cushion is an amount of capacity in excess of expected demand.

The capacity focus concept can be operationalized through the mechanism of plant within a plant (PWP).

Flexible workers have multiple skills and the ability to switch easily from one kind of task to another. They require broader training than specialized workers.

Many issues must be considered when adding or decreasing capacity. Three important ones are maintaining system balance, frequency of capacity additions or reductions, and the use of external capacity. In many cases, the size of a plant may be influenced by factors other than the internal equipment, labor, and other capital expenditures. A major factor may be the cost to transport raw materials.

In determining capacity requirements, we must address the demands for individual product lines, individual plant capabilities, and allocation of production throughout the plant network. Typically this is done according to the following steps:

1. Use forecasting techniques to predict sales for individual products within each product line.
2. Calculate equipment and labor requirements to meet product line forecasts.
3. Project labor and equipment availabilities over the planning horizon.

A decision tree is a schematic model of the sequence of steps in a problem and the conditions and consequences of each step.

Service capacity is more time-and location-dependent (than manufacturing capacity); it is subject to more volatile demand fluctuations, and utilization directly affects service quality. Also, unlike goods, services cannot be stored for later use.

EMV of machine A = 0.9 x 45,000 = 40,500; EMV of machine B = 0.5 x $80,000 = $40,000; and EMV of machine C = 0.75 x 60,000 = $45,000. Since $45,000 > $40,500 > $40,000, you would select machine C.

Although capacity planning in services is subject to many of the same issues as manufacturing capacity planning, and facility sizing can be done in much the same way, there are several important differences. Service capacity is more time and location dependent, it is subject to more volatile demand fluctuations, and utilization directly affects service quality.

Short range: 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.

$100,000

Because the sum of the probabilities for this (or any) event node is 1.0, and because the outcomes are each worth $100,000, the chance node is worth $100,000.

positive

150,000 x 12 > 1,000,000; hence, the capacity cushion is positive.

4 (four)

Current one-machine capacity = 4,500 x 52 = 234,000. Capacity gap = 1,000,000 – 234,000 = 766,000. Total need divided by capacity of one machine = 766,000 divided by 234,000 = 3.27, or 4 additional machines.

100,000 units

You can produce 75,000 units x 12 months = 900,000 units. The shortfall is 1,000,000 – 900,000 or 100,000 units.

$6,000

The sum of $10,000 x 0.10 + $20,000 x 0.25 + $30,000 x 0.50 – $100,000 x 0.15 = $6,000.

0.75, or 75%

300 divided by 400 = 0.75, or 75%.

100 units or 0.33, or 33%

400 units best operating level – 300 units output = 100 units capacity cushion or; 100 divided by 300 = 33% capacity cushion.

The capacity cushion is an amount of excess capacity over expected demand maintained by a firm. Capacity cushion is discussed in the text beginning on page 103. A satisfactory response to this question will indicate that firms typically hold capacity cushions when demand is more rapidly variable than capacity adjustments can be. For example, in many service operations, it is not possible to inventory finished goods; they must be produced to demand. To be able to meet peak demand, therefore, service operations must have a cushion of capacity over average demand. Electric utilities, where demand varies considerably over a 24-hour period, are a good example of this. Other reasons for a capacity cushion include expected rapid growth and a desire to service expanded demand rapidly.

The impact of demand volatility on services is discussed in the text on page 109. A successful response to this question will mention the following three issues: (1) a service cannot be inventoried and thus must be produced as demanded; (2) customers interact directly with the service delivery system and each may have unique needs or will require different levels of service; and (3) consumer behaviors can magnify volatility of demand very significantly in service operations.

The relationship between capacity utilization and service quality is discussed in the text beginning on page 109. A good response will note that higher levels of capacity utilization may result in waiting lines and hurried or overwhelmed service personnel causing perceptions of service quality to decline. An excellent response will include the observation that the optimal utilization rates are context specific, with the optimal rates depending on the degrees of uncertainty (or variability in arrivals and service times). For example, a low rate of capacity utilization is appropriate where the stakes are very high, as in hospital emergency rooms or fire departments.