Deck 5: Strategic Capacity Management

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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

Question 9

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

Question 10

Long-range capacity planning requires top management participation.

Question 11

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 12

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

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

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Sharing capacity is a common source of external capacity.

Question 24

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

Question 25

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

Question 26

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

Question 27

Capacity is always expressed in terms of units of output per period of time.

Question 28

Outsourcing is a common source of external capacity.

Question 29

The larger the capacity cushion, the better.

Question 30

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

Question 31

A plant within a plant is when two (or more) companies have production facilities within the same building. In other words, they co-locate.

Question 32

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

Question 33

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 your customer or your competitor.

Question 34

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

Question 35

The smaller the capacity cushion, the better.

Question 36

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 37

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

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

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

Question 40

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 41

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 42

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

A) Manufacturing capacity is more dependent on time and location.
B) Manufacturing capacity is subject to more volatile demand fluctuations.
C) Utilization rates for manufacturing capacity more directly impacts quality.
D) Demand can be smoothed by inventory policies.
E) Manufacturing capacity is more capable of reacting to demand fluctuations.

Question 43

Three important issues to be considered when adding or decreasing capacity are number of workers, the skill of those workers, and how fast workers can be added or reduced.

Question 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 choices are correct.

Question 52

Specialized workers require broader training than flexible workers.

Question 53

Service capacity planning is performed almost identically to manufacturing capacity planning. The only difference is that workers are a major capacity issue for services.

Question 54

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 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

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 57

The volatility of demand on a service delivery system is much higher than that on a manufacturing production.

Question 58

With decision trees, squares represent chance events and circles represent decision points.

Question 59

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 60

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 61

The time duration in which capacity planning is for less than one month is?

A) Immediate range
B) Short range
C) Medium range
D) Intermediate range
E) Long range

Question 62

The idea that as the plant gets larger and volume increases, the average cost per unit drops.

A) Capacity
B) Capacity utilization rate
C) Strategic capacity planning
D) Economies of scale
E) Best operating level

Question 63

The time duration in which capacity planning is monthly or quarterly is?

A) Immediate range
B) Short range
C) Medium range
D) Intermediate range
E) Long range

Question 64

The output that a system is capable of achieving over a period of time is?

A) Capacity
B) Capacity utilization rate
C) Strategic capacity planning
D) Economies of scale
E) Best operating level

Question 65

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.
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.
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 66

The measure of how close the firm's current output rate is to its best operating level (percent) is?

A) Capacity
B) Capacity utilization rate
C) Strategic capacity planning
D) Economies of scale
E) Best operating level

Question 67

Finding the overall capacity level of capital-intensive resources to best support the firm's long-term strategy is?

A) Capacity
B) Capacity utilization rate
C) Strategic capacity planning
D) Economies of scale
E) Best operating level

Question 68

The time duration in which capacity planning is greater than one year is?

A) Immediate range
B) Short range
C) Medium range
D) Intermediate range
E) Long range

Question 69

The level of capacity for which the process was designed and the volume of output at which average unit cost is minimized is?

A) Capacity
B) Capacity utilization rate
C) Strategic capacity planning
D) Economies of scale
E) Best operating level