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29 Cards in this Set

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What is the importance of capacity decisions?

7 points
1. impacts ability to meet future demands
2. affects operating costs
3. major determinant of initial costs
4. involves long-term commitment
5. affects competitiveness
6. affects ease of management
7. impacts long-range planning
What is the equation for efficiency?
efficiency =
Actual output / Effective capacity
What is the equation for utilization?
utilization = Actual output /
Design capacity
What is capacity?
Capacity can be defined as the ability to hold,
receive, store, or accommodate
 it is the upper limit or ceiling on the load that an
operating unit can handle
Describe strategic capacity planning
Strategic capacity planning is an approach for
determining the overall capacity level of capital
intensive resources, including facilities,
equipment, and overall labor force size
What are the basic questions in capacity planning?
 What kind of capacity is needed?
 How much is needed?
 When is it needed?
What is "design capacity"?
 maximum output rate or service capacity an
operation, process, or facility is designed for
What is effective capacity?
Design capacity minus allowances such as
personal time, maintenance, and scrap
What is "actual output" for capacity?
rate of output actually achieved--cannot
exceed effective capacity.
What are the determinants of effective capacity?
Product and service factors
Process factors
Human factors
Operational factors
Supply chain factors
External factors
what are the steps for capacity planning?
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4 Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results
Where is the best operating level for capacity?
At the minimum average cost per unit point.
What are the key decisions in capacity planning?

What is capacity cushioning?
1. Amount of capacity needed
2. Timing of changes
3. Need to maintain balance
4 Extent of flexibility of facilities

Capacity cushion – extra capacity intended to offset uncertainty
How do you go about Developing Capacity Alternatives?
1. Design flexibility into systems
2. Take stage of life cycle into account
3. Take a “big picture” approach to capacity
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity
6. Identify the best operating level
What is the equation for the capacity utilization rate?
capacity utilization rate =
capacity used / best operating level
What is "economies of scale"?

"diseconomies of scale"?
Economies of scale
 If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs

Diseconomies of scale
 If the output rate is more than the optimal
level, increasing the output rate results in
increasing average unit costs
How do you plan service capacity?
Need to be near customers
 Capacity and location are closely tied

Inability to store services
 Capacity must be matched with timing of

Degree of volatility of demand
 Peak demand periods
How would you "determine" capacity requirements?
 Forecast sales within each individual
product line.

 Calculate equipment and labor
requirements to meet the forecasts.

 Project equipment and labor availability
over the planning horizon.
Question: Are we really producing two
different types of salad dressing from the
standpoint of capacity requirements?
Answer: No, it’s the same product just
packaged differently.
1. What capacity problems were encountered when a new drug was introduced to the market??
1. high capital cost of capacity
2. opportunity cost of restricting investments in other facilities
3. uncertainty over patent infringment
4. competitor's response
5. 45% probability of launching the product
6. losing sales by not having sufficient capacity to meet customer demand
2. List some practical limits to economies of scale; that is, when should a plant stop growing?

name other indicators
A plant should stop growing when its long-run average cost curve hits the inflection point.

other indicators include:
excess capacity
-capacity imbalance: input vs. output
- market shifts
3. What are some capacity balance problems faced by the following organizations or facilities?

a. An airline terminal.
b. A university computing lab.
c. A clothing manufacturer.
airline terminal: Waiting areas, distances from boarding gates, ground crew requirements, landing strips.

A university computing lab: The number of computer workstations, the size of each workstation (room for student papers, etc.), the mix of different computer types (Mac or PC), the number of printers, the capacity of the network access, study space for students waiting..

clothing manufacturer:
Many manufacturers now use highly decentralized shops to make clothes. This means that capacity of multiple sites must be accounted for in planning production.
4. What are some major capacity considerations in a hospital? How do they differ from those of a factory?
-size and composition of nursing staff (RN vs LPN)
- balance between operating room and ICUs and ERs
-how many beds
-hospitals can add more capacity in short run thorugh more beds/staff
-hospitals face more uncertainty
5. Management may choose to build up capacity in anticipation of demand or in response to developing demand. Cite the advantages and disadvantages of both approaches.
building up capacity = risk taking stance
-firm will caputre large amount of market share
-appropriate in high growth areas

demand develops = risk averse stance
-market share will most likely be lost
-best for small firms who can't afford to invest in risky prospects
____ are Independent software programs that propagate themselves to
disrupt the operation of computer networks or destroy data and
other programs.
Malicious software programs are referred to as _____and include a variety
of threats, such as computer viruses, worms, and Trojan horses.
______ is a rogue software program that attaches itself to other software
programs or data files in order to be executed, usually without user knowledge
or permission.
computer virus
_____, which are independent
computer programs that copy themselves from one computer to other computers
over a network. (Unlike _____, they can operate on their own without
attaching to other computer program files and rely less on human behavior in
order to spread from computer to computer. This explains why ______ spread much more rapidly than _____.)
worms,virus, worms, virus
A ______ is a software program that appears to be benign but then
does something other than expected. The _____ is not itself a virus because it does not
replicate, but it is often a way for viruses or other malicious code to be introduced
into a computer system.
trojan horse x 2