Capacity Planning and Measurement

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Questions and Answers

Which factor does NOT contribute to the challenges in service capacity planning?

Ability to store services (correct)

Proximity to customers

Speed of delivery

Volatility of demand

Services can be produced in one period and stored for use in a later period.

False

What becomes a major concern in service capacity planning due to the nature of service delivery?

Customer waiting time

The inability to _______ services presents a significant challenge in capacity planning.

store Signup and view all the answers

Match the following aspects of service planning with their descriptions:

Proximity to Customers = Ensures convenience for service users Capacity Requirements = Determined by demand forecasts and processing time Volatility of Demand = Indicates the unpredictability of service needs Customer Waiting Time = Critical factor influencing service satisfaction Signup and view all the answers

What is a primary benefit of effective capacity planning?

Enables the organization to meet future demands Signup and view all the answers

Capacity decisions should only focus on current demand rather than future trends.

False Signup and view all the answers

Name one major consideration when developing capacity alternatives.

Cost of implementation Signup and view all the answers

Capacity decisions can affect an organization's __________ to meet competition.

competitiveness Signup and view all the answers

Match the following capacity factors with their implications:

Increased capacity = Higher initial costs Under capacity = Potential loss of sales Excess capacity = Higher operating costs Balancing capacity = Minimized costs Signup and view all the answers

Which of the following factors can complicate the measurement of capacity?

Open interpretation of capacity terms Signup and view all the answers

Having appropriate capacity makes management easier.

True Signup and view all the answers

What is a common challenge organizations face regarding capacity planning?

Fluctuating demand Signup and view all the answers

What is the main focus of long-term capacity planning considerations?

Overall level of capacity, such as facility size Signup and view all the answers

Flexible systems are not beneficial in capacity planning due to their complexity.

False Signup and view all the answers

What is the impact of union contracts on effective capacity?

They limit the number of hours and type of work an employee may do. Signup and view all the answers

Capacity increases are often acquired in fairly large ______ rather than smooth increments.

chunks Signup and view all the answers

Which strategy can help manage unevenness in capacity requirements?

Design systems with flexibility Signup and view all the answers

Match the following terms with their descriptions:

Capacity chunks = Acquired in fairly large increments Mature products = More predictable capacity requirements Flexible systems = Adaptable to variable demand Optimal operating level = Lowest cost per unit output Signup and view all the answers

New products generally have lower risk associated with capacity requirements than mature products.

False Signup and view all the answers

What is the ideal or optimal level of operation in production units?

It is the level where the cost per unit of output is the lowest. Signup and view all the answers

Study Notes

Capacity Planning

Capacity planning is crucial for meeting future product and service demands, as it sets output limits.
Capacity decisions impact operating expenses; ideally, capacity and demand match, minimizing costs. This is difficult if demand differs from predictions, leading to over or under capacity.
Capacity relates to initial costs; larger capacity usually leads to larger costs.
Capacity decisions are long-term commitments often difficult and costly to change.
Capacity decisions affect competitiveness; excess capacity, or the ability to readily add capacity, can be a competitive edge influencing delivery speed.
Capacity matching improves ease of management.

Defining and Measuring Capacity

Capacity is essentially an upper limit on output. Accurate capacity measurement is nuanced.
Design capacity is the maximum output potential under ideal conditions.
Effective capacity considers factors like product mix, scheduling, maintenance, and quality impacting potential output.
Efficiency is the actual output divided by the effective capacity.
Utilization is the actual output divided by design capacity.

Determinants of Effective Capacity

Facilities: Size, location, transportation, room for expansion, and layout all impact capacity.
Products/Services: Uniform output allows for better standardization increasing capacity. Mixed products have varied output rates.
Processes: Output quality influences process capacity. Inspection and rework (for flawed products) impact production rates.
Human Considerations: Job tasks, varying activities, worker skills, training, and motivations all have a significant relationship to capacity. Absenteeism and turnover negatively impact effective capacity.
Operations: Scheduling conflicts, equipment differences, inventory issues, and materials all impact capacity.
External Forces: Regulations on products and equipment, paperwork associated with government agencies can limit capacity.

Developing Capacity Alternatives

Design Flexibility into Systems: Designing flexible systems is beneficial for dealing with long-term uncertainty and unpredictable future demand.
Differentiate New and Mature Products/Services: Mature products are more predictable, while new products carry more risk, favoring flexible capacity planning.
Big Picture Approach: Interconnectedness of system parts should be considered during capacity decisions.
Capacity Chunks: Capacity is often acquired in large steps, making matching perfect capacity difficult.
Smoothing Capacity Requirements: Capacity discrepancies should be managed for the best results.
Identification Optimal Operating Level: Identifying the production level where unit costs are lowest for optimum performance.

Planning Service Capacity

Proximity to customers is vital for service capacity planning.
Service capacity cannot be stored.
Planning must account for demand volatility.
Waiting time is a critical concern for service.

Evaluating Capacity Alternatives

Calculating processing requirements involves accurate demand forecasts, processing time, and workdays/shifts per year.
Cost-volume analysis considers the relationships between cost, revenue, and output.
Fixed costs remain constant regardless of output level; variable costs change with output.
Break-even point occurs when total costs equal total revenue. Identifying break-even point helps determine required volume for profitability.

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Description

This quiz explores the essentials of capacity planning and measurement, focusing on its importance in meeting future product and service demands. You'll learn about design capacity, effective capacity, and how capacity decisions influence competitiveness and operational expenses.