Lesson 4 - Capacity Planning

Question 1

Capacity

Answer 1

upper limit or ceiling on the load that an operating unit can handle.
Goal: match long-term supply capabilities with predicted
level of long-term demand

Question 2

Overcapacity

Answer 2

too high operating cost

Question 3

Undercapacity

Answer 3

loss of customers, strained resources

Question 4

Design Capacity

Answer 4

maximum output rate an operation /process/facility is designed for. (Under
ideal conditions)

Question 5

Effective Capacity

Answer 5

Design Capacity minus allowances such as personal time (lunch break,…), and maintenance (more realistic)

Question 6

Actual output

Answer 6

cannot exceed effective and is sometimes even lower due to machine breakdowns, quality problems, shortages

Question 7

Efficiency

Answer 7

(Actual Output/Effective Capacity )*100% -> can sometimes be misleading, for
example if effective is low compared to design, you might expect great efficiency while you
don’t use resources very effectively

Question 8

Determinants of Capacity

Answer 8

Facilities (design, location, size and expansion possibility), Products or Services
(standardization & uniformity), Processes (output quality, quantity capability), Human
considerations (motivation, skill & experience required, management policy(overtime)),
operational factors (shortages of components required, scheduling problems), supply chain
(effect on suppliers), external forces (quality & performance standards)

Question 9

Utilization

Answer 9

(Actual Output/Design Capacity)*100% -> increasing utilization depends on
increasing effective capacity through correcting quality problems, improve bottlenecks

Question 10

Strategy Formulation - Leading

Answer 10

build capacity in anticipation of future demand increases (might be good for long
lead times)

Question 11

Strategy Formulation - Following

Answer 11

build capacity when demand exceeds current capacity

Question 12

Strategy Formulation - Tracking

Answer 12

similar but adds capacity in small increments to keep pace with increasing
demand

Question 13

Forecasting

Answer 13

Planning decisions involve short-term (variations in requirements due to seasonal or other
fluctuations) and long-term considerations (level of capacity: facility size)

Question 14

bottleneck

Answer 14

operation in a sequence of operations whose
capacity is lower than capacities of other operations, whose capacity then limits the system’s
capacity

Question 15

Cost-Volume Analysis

Answer 15

focus on relation between cost, revenue and volume of output

Question 16

Fixed Cost

Answer 16

remain constant regardless of volume (heating, rental cost,S&A)

Question 17

Variable Cost

Answer 17

vary directly with volume of output (material&labour costs)

Question 18

Break-even-point

Answer 18

volume at which TC=TR

Question 19

Indifference point

Answer 19

quatitity at which decision maker would be indifferent
between two competing alternatives (where both profits are same)

Question 20

Step costs

Answer 20

Costs that increase stepwise as volume increases: possibly
multiple break-even points

Question 21

Total Cost

Answer 21

VC+FC

Question 22

Profit

Answer 22

RQ-(FC+vQ)

Question 23

Waiting-Line Analysis

Answer 23

Balance costs of having customers wait and cost of providing additional capacity