Exam 6: Capacity Planning

Kristen made a batch of chocolate chip cookie dough and then had to clean the utensils and mixing bowl before she made a batch of oatmeal raisin cookie dough.The time spent cleaning the bowl and utensils is an example of setup time.

When a firm makes a long-term capacity decision,selecting the base case alternative means doing nothing and losing orders from any demand that exceeds current capacity,or incurring costs due to excess capacity.

The single milling machine at Fred's Manufacturing was severely overloaded last year.The plant operates 8 hours per day,5 days per week,and 50 weeks per year.Management prefers a capacity cushion of 20 percent.Two major types of products are routed through the milling machine.The annual demand for product A is 4000 units and 3000 units for product B.The batch size for A is 20 units and 30 units for B.The standard processing time for A is 0.5 hours/unit and 0.8 for B.The standard setup time for product A is 2 hours and 8 hours for product B.How many new milling machines are required if Fred's does not resort to any short-term capacity options?

Waiting line models are often used for capacity planning.

The ________ concept states that the average unit cost of a service or good can be reduced by increasing its output rate.

Larry's Wickets,Inc.is producing two types of products: A and B.Both are produced at the same machining operation.Because of demand uncertainties,the operations manager obtained three demand forecasts (pessimistic,expected,and optimistic).The demand forecasts,batch sizes (units/batch),processing times (hr/unit),and setup times (hr/batch)follow. The machines operate on two 8-hour shifts,5 days per week,and 50 weeks per year.The manager wants to maintain a 20 percent capacity cushion. a.What is the minimum number of hours required of the machining equipment for the next year? b.How many hours of capacity can the company expect from each machine? c.What is the minimum number of machines needed (assuming no reliance on short-term options)? d.What is the maximum number of machines needed (assuming no reliance on short-term options)?

Table 6.1 The Union Manufacturing Company is producing two types of products: A and B.The demand forecasts,batch size,and time standards follow: Both products are produced on the same machine,called Mark I. -Use the information in Table 6.1.How many Mark I machines are required to produce Union Manufacturing's for the year's production?

What factors should be considered when selecting the appropriate capacity cushion? How does the choice of capacity cushion relate to other decisions in operations management? To other functional areas?

Up,Up & Away is a producer of kites and windsocks.Relevant data concerning their production for the upcoming fiscal year are as follows: Assume: 1 shift/day,8 hours/shift,5 days/week,and 50 weeks/year; They currently have four machines,and management wants a capacity cushion of 20 percent. Which of the following alternatives will enable Up,Up & Away to meet all of the upcoming year's demand using the minimum number of machines?

Table 6.7 The B.Sharp Company has a rapidly growing product line that requires two work centers,X and Y for manufacture.Work Center X has a current capacity of 50,000 units per year,and Work Center Y is capable of 55,000 units per year.This year (year 0),sales of the product line are expected to reach 50,000 units.Growth is projected at an additional 3,000 units each year through year 3.Pre-tax profits are expected to be $60 per unit throughout the 3-year planning period.Two alternatives are being considered: -Use the information in Table 6.7.What is the pre-tax cash flow (net present value)for alternative #2 compared to the base case of doing nothing for the next five years?

Capacity is the maximum rate of output of a process.

Capacity planning requires a demand forecast for an extended period of time into the future.What concerns would you have regarding an extended forecast as a capacity planner?

Long-term capacity decisions that confront managers include all of the following except:

Table 6.6 Burdell Labs is a diagnostic laboratory that does various tests (blood tests,urine tests,etc. )for doctors' offices in the Indianapolis area.Test specimens are picked up at the doctors' offices and are transported to the testing facility,with uniform arrivals throughout the day.All tests go through two testing centers in the testing facility,Test Center A and Test Center B.A has a current capacity of 1,000 units per week,and B is capable of 1,500 units per week.The facility operates 50 weeks per year.This year (year 0),test volumes are expected to reach 1,000 units per week.Growth per week is projected at an additional 200 units through year 5 (i.e. ,1,200 per week in year #1,1,400 per week in year #2,etc. ).Pre-tax profits are expected to be $5 per test throughout the 5-year planning period.Two alternatives are being considered: -Expand both Test Centers A and B at the end of year 0 to a capacity of 2,000 units per week,at a total cost for both Test Centers of $300,000;

Table 6.3 The North Bend Manufacturing Company is producing two types of products,A and B.Demand forecasts for next year and other production-related information are provided in the following table: Both products A and B are produced at the same operation called MASAC27A. -Use the information in Table 6.3 to help answer this question.Currently,the company has 12 MASAC27A machines,and financial constraints prevent any expansion for the next year.Which one of the following alternatives will allow next year's demand to be fully covered?

John Owen owns a drugstore that is experiencing significant growth.Owen is trying to decide whether to expand its capacity,which currently is $200,000 in sales per quarter.Sales are seasonal.Forecasts of capacity requirements,expressed in sales per quarter for the next year,follow. Owen is considering expanding capacity to the $250,000 level in sales per quarter.The before-tax profit margin from additional sales is 15 percent.How much would before-tax profits increase next year because of this expansion?

An expansionist capacity strategy minimizes the risks of overexpansion due to overly optimistic demand forecasts.

As the desired capacity cushion increases,the processing hours required for a year's demand decrease.

The time required to change a machine from making one product or service to the next is called:

A printing company works on three types of printing jobs,each of which could be produced on the same model printing machine.The predicted annual demands and typical order sizes are shown in the table.The company has 2000 production hours available each year and requires a 10% capacity cushion to allow for preventive maintenance,breakdowns,and other unforeseen circumstances.They have floor space for five printing machines.If the time needed to set up a printing machine to switch from one job to the next is identical for all three job types,what must their setup time be to achieve their required output?