Chapter 5 Study Guide

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STUDY oUTLINE FOR CHAPTER 5
Strategic CAPACITY PLANNING for Products and services
1. How is capacity defined?
The upper limit or ceiling on the load that an operating unit can handle

2. What are the three key questions in capacity planning?
1) What kind of capacity is needed?
2) How much capacity is needed to match demand
3)When is it needed?

3. Why are capacity decisions strategic?
1)Impacted the ability of the organization to meet future demands 2) Affect operating costs
3) are a major determinant of initial cost
4) often involve long term commitment of resources
5) Can affect competitiveness
6) Affect the ease of management
7) Are more important and complex due to globalization
8) Need to be planned for in advance due to their consumption of financial and other resources

4. Write the equation for each term and explain each variable:
Utilization = Actual Output/Design Capacity
Efficiency = Actual Output/effective capacity
5. Name seven determinants of effective capacity.
1) Facilities
2) Product and service factors
3) Process factors
4) Human Factors
5) Policy Factors
6) Supply Chain factors
7) External Factors
6. Explain the term capacity cushion. How is a capacity cushion used? -Extra capacity used to offset demand uncertainty
-Capacity cushion = 100% - Utilization
-Capacity Cushion Strategy: Organizations that have greater demand uncertainty typically have greater capacity Cushion. Organizations that have standard products and services generally have greater capacity cushion 7. List the steps in the capacity planning process:

1) Estimate future capacity requirements
2) Evaluate existing capacity and facilities, identify gaps 3) Identify alternatives for meeting requirements
4) Conduct financial analyses
5) Asses key qualitative issues
6) Select the best alternative for the long term
7)...
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