Capacity Management and Decision-Making

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Questions and Answers

How do capacity decisions influence a company's operational efficiency?

They solely decrease the number of products offered.

They can lead to increases in operating costs. (correct)

They necessitate frequent changes in management.

They remove the need for inventory management.

What is one significant reason capacity decisions are considered strategic for organizations?

They impact the ability to meet future demands. (correct)

They determine the location of the organization.

They automatically increase revenue.

They influence employee satisfaction directly.

Which of the following best describes the impact of capacity decisions on future demands?

They are irrelevant to customer needs.

They enhance the forecasting accuracy for future outputs. (correct)

They provide insights on marketing strategies.

They do not significantly influence future sales projections.

What might be a consequence of poor capacity decision-making?

Inability to meet customer demands effectively. Signup and view all the answers

What is one of the key strategic considerations in making capacity decisions?

The impact on operating costs. Signup and view all the answers

What is the first step in evaluating alternatives in decision making?

Conduct financial analyses Signup and view all the answers

Which factor is crucial when determining the best alternative to pursue for the long term?

Key qualitative issues Signup and view all the answers

After selecting the best alternative based on analysis, what is the subsequent step?

Implement the selected alternative Signup and view all the answers

What is an important consideration when conducting financial analyses of alternatives?

Long-term market stability Signup and view all the answers

Which of the following is NOT typically assessed when evaluating alternatives?

Personal preferences of the decision-maker Signup and view all the answers

What is a consequence of over capacity in operations?

Operating costs that are too high Signup and view all the answers

How does under capacity affect a business's resources?

Resources may become strained Signup and view all the answers

What potential loss can occur due to under capacity in a business?

Loss of customers Signup and view all the answers

Which of the following describes a risk associated with over capacity?

Excessive inventory levels Signup and view all the answers

How might a business mitigate the effects of operating under capacity?

Investing in additional resources Signup and view all the answers

What best defines design capacity?

The total potential output rate of a facility without adjustments. Signup and view all the answers

Effective capacity is calculated by subtracting which of the following from design capacity?

Allowances for personal time and maintenance. Signup and view all the answers

Which of the following statements about capacity and cost is true?

Capacity is typically a major determinant of initial cost. Signup and view all the answers

If a facility has a design capacity of 100 units but has an effective capacity of 80 units, what might account for the difference?

The effective capacity includes allowances for personal time. Signup and view all the answers

What term describes the maximum output rate a facility is designed to produce?

Design capacity. Signup and view all the answers

Which of the following is NOT categorized as a type of constraint?

Insurance Signup and view all the answers

What category of constraint is primarily concerned with the availability of raw materials?

Material Signup and view all the answers

Which category of constraint relates to a company's ability to operate in the marketplace?

Market Signup and view all the answers

Which of the following categories includes both financial limitations and human resources?

Resource Signup and view all the answers

What is the primary focus of the Knowledge or Competency category?

Expertise and skills in the workforce Signup and view all the answers

Study Notes

Capacity Challenges

Overcapacity leads to high operating costs.
Undercapacity strains resources and risks customer loss.

Importance of Capacity Decisions

Crucial for meeting future product and service demand.
Directly influences operating costs.
Major factor in determining initial investment costs.

Definitions of Capacity

Design Capacity: Maximum output rate or service potential of an operation, process, or facility.
Effective Capacity: Actual output capacity after accounting for allowances like personal time and maintenance.

Steps in Capacity Decision-Making

Conduct financial analyses to evaluate each alternative capacity option.
Assess key qualitative factors for every alternative.
Choose the most beneficial long-term alternative.
Implement the selected capacity decision.

Categories of Constraints

Market Constraints: Demand fluctuations and customer preferences.
Resource Constraints: Availability of production inputs.
Material Constraints: Supply chain limitations for necessary materials.
Financial Constraints: Budgetary limitations impacting capacity expansion.
Supplier Constraints: Reliability and capacity of suppliers.
Knowledge or Competency Constraints: Skill gaps affecting operational efficiency.

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Description

This quiz covers important concepts related to capacity challenges and decision-making in operations management. It includes definitions of design and effective capacity, as well as the processes involved in evaluating capacity options. Understand how capacity impacts costs and customer satisfaction to enhance your operational strategies.