Krajewski TIF Chapter 7

Chapter 7 Constraint Management

Chapter

7

Constraint Management

TRUE/FALSE 1. Capacity is the maximum rate of output of a process. Answer: True Reference: Introduction Difficulty: Easy Keywords: capacity, maximum, output 2. Capacity can be expressed by output or input measures. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: capacity, input, output 3. Input measures of capacity are inherently more accurate ac curate than output measures of capacity. Answer: False Reference: The Theory of Constraints Difficulty: Moderate Keywords: input, output, measure, capacity 4. Utilization is the degree to which equipment, space, or labor is currently being used. Answer: True Reference: The Theory of Constraints Difficulty: Easy Keywords: utilization, degree, used 5. Operating processes close to their capacity can result in low customer satisfaction and even losing money despite high sales levels. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: capacity, satisfaction 6. A bottleneck is an operation that has the lowest effective capacity of any operation in the process. Answer: True Reference: Introduction Difficulty: Moderate capacity Keywords: bottleneck, effective, capacity 153


7. The Theory of Constraints method is also referred to as the drum-beater-rope method. Answer: False Reference: The Theory of Constraints Difficulty: Easy Keywords: TOC, theory, constraints, drum, buffer, rope 8. Any work center or machine that has less capacity than other work centers ce nters in the same plant is referred to as a bottleneck. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, capacity 9. A business school with plenty of classroom space that hires adjunct faculty for a semester to meet unusually high student demand for courses is an example of elevating a bottleneck. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: elevate, bottleneck, TOC 10. A bottleneck process has the lowest capacity and the longest total time from the start to the finish. Answer: True Reference: Identification and Management of Bottlenecks Difficulty: Moderate capacity Keywords: bottleneck, process, capacity 11. Takt time is the time required to change or readjust a process or operation from making one service or product to making another. another. Answer: False Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: setup, process, takt 12. A competent operations manager should first eliminate all of the bottlenecks from the process. Answer: False Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: bottleneck, process 13. Short term capacity planning should be driven by identification and management of bottlenecks Answer: True Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: capacity, bottleneck

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7. The Theory of Constraints method is also referred to as the drum-beater-rope method. Answer: False Reference: The Theory of Constraints Difficulty: Easy Keywords: TOC, theory, constraints, drum, buffer, rope 8. Any work center or machine that has less capacity than other work centers ce nters in the same plant is referred to as a bottleneck. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, capacity 9. A business school with plenty of classroom space that hires adjunct faculty for a semester to meet unusually high student demand for courses is an example of elevating a bottleneck. Answer: True Reference: The Theory of Constraints Difficulty: Moderate Keywords: elevate, bottleneck, TOC 10. A bottleneck process has the lowest capacity and the longest total time from the start to the finish. Answer: True Reference: Identification and Management of Bottlenecks Difficulty: Moderate capacity Keywords: bottleneck, process, capacity 11. Takt time is the time required to change or readjust a process or operation from making one service or product to making another. another. Answer: False Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: setup, process, takt 12. A competent operations manager should first eliminate all of the bottlenecks from the process. Answer: False Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: bottleneck, process 13. Short term capacity planning should be driven by identification and management of bottlenecks Answer: True Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: capacity, bottleneck

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14. One reason economies of scale drive down cost is the spreading of fixed costs. Answer: True Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: economies, scale, fixed, cost 15. A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in demand or temporary loss of production capacity. Answer: False Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion 16. Capacity decisions should be made separate from strategic decisions. Answer: False Reference: Managing Constraints Across the Organization Difficulty: Moderate Keywords: capacity, decision, strategy 17. A process’s capacity requirement is what the process capacity should be for some future time period to meet customer demand, allowing for the desired capacity cushion. Answer: True Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement, customer, demand 18. Cash flow is the difference between the flows of funds into and out of an organization over a period of time. Answer: True Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow, time 19. Waiting line models are often used for capacity planning. Answer: True Reference: Tools for Capacity Planning Difficulty: Moderate Keywords: waiting, line, capacity 20. A planning horizon is defined as the period beyond which the company does not have customer orders. Answer: False Reference: A Systematic Approach to Long-term Capacity Decisions Difficulty: Moderate Keywords: time, horizon

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MULTIPLE CHOICE 21. Long-term capacity plans deal with: a. investments in new facilities. b. workforce size. c. inventories. d. overtime budgets. Answer: a Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: long-term, capacity 22. Short-term capacity decisions that confront managers include production factors such as: a. capital equipment. b. additional land. c. buildings. d. workforce size. Answer: d Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: short-term, capacity 23. When a firm provides a relatively small number of standardized products and services: a. capacity cannot be determined reliably. b. input measures are typically used. c. output measures are typically used. d. utilization becomes equal to capacity. Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: output, measure, capacity 24. Input measures include such metrics as: a. the number of customers served per hour. b. the number of trucks produced per day. c. the number of machine hours available. d. the number of bills processed in a week. Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: input, measure, capacity

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25. The degree to which equipment, space, or labor is being used is commonly referred to as: a. capacity. b. output. c. utilization. d. cushion. Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: utilization, capacity 26. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3 tons per day because the third shift has devoted much of their time to preventive maintenance. What is the utilization of the plant? a. 10 tons/day b. 7.3 tons/day c. 73% d. 137% Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: utilization, capacity 27. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3 tons per day since the third shift has devoted much of their time to preventive maintenance. What is the capacity of the plant? a. 10 tons/day b. 7.3 tons/day c. 73% d. 137% Answer: a Reference: The Theory of Constraints Difficulty: Moderate Keywords: utilization, capacity 28. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials, so the mill has produced an average of 4,575 board feet per day. What is the capacity of the plant? a. 4,575 board feet/day b. 10,000 board feet/day c. 45.75% d. 219% Answer: b Reference: The Theory of Constraints Difficulty: Moderate Keywords: utilization, capacity

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29. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials, so the mill has produced an average of 4,575 board feet per day. What is the utilization of the plant? a. 4,575 board feet/day b. 10,000 board feet/day c. 219% d. 45.75% Answer: d Reference: The Theory of Constraints Difficulty: Moderate Keywords: utilization, capacity 30. The focus for a process improvement exercise should be on balancing: a. flow. b. capacity. c. workload. d. time. Answer: a Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, theory, constraints, flow 31. Consider consecutive processes ABC, where process A has a capacity of 20 units per hour, process B has a capacity of 25 units per hour, and process C has a capacity of 30 units per hour. Where would an operations manager NOT want any inventory? a. in front of process A. b. in front of process B. c. in front of an assembly process. d. in front of a shipping point. Answer: b Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, theory, constraints, inventory 32. Use the process flow diagram to determine which of these events has the greatest net benefit.

Station A 1 worker 8 minutes a. b. c. d.

Station B 1 worker 7 units/hr

Station C 1 worker 6 units/hr

reducing the flow time at Station A from 8 to 7 minutes. increasing the capacity at Station B to 8 units per hour. increasing the capacity at Station C to 7 units per hour. reducing the flow time at Station D from 9 to 8 minutes. Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, theory, constraints

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Station D 1 worker 9 minutes


33. Use the process flow diagram to determine which of these events has the greatest net benefit.





reducing the flow time at Station A from 10 to 8 minutes. increasing the capacity at Station B to 12 units per hour. increasing the capacity at Station C to 10 units per hour. reducing the flow time at Station D from 12 to 10 minutes. Answer: d Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, theory, constraints

34. Use the process flow diagram to determine which of these events has the greatest net benefit.




reducing the flow time at Station A from 8 to 7 minutes. increasing the capacity at Station B to 12 units per hour. increasing the capacity at Station C to 9 units per hour. reducing the flow time at Station D from 6 to 5 minutes. Answer: a Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, theory, constraints

35. Work should be released into the system: a. when a customer order is received. b. when the first step in the process is idle. c. when a customer order is completed. d. when the bottlenecks need work. Answer: d Reference: The Theory of Constraints Difficulty: Easy Keywords: TOC, theory, constraints, bottleneck

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36. The second step in Theory of Constraints application, “exploit the bottleneck (s),” means that: a. the analyst should create a schedule that maximizes the throughput of the bottlenecks. b. the analyst should repeat the analysis process to look for other bottlenecks. c. the analyst should consider increasing capacity of the bottleneck. d. the analyst should schedule non-bottleneck resources to support the bottleneck. Answer: a Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, TOC, theory, constraints 37. The third step in Theory of Constraints application, “subordinate all other decisions to Step 2,” means that: a. the analyst should wait for authorization before proceeding with any system-wide changes. b. the analyst should schedule non-bottleneck processes to support the bottleneck schedule. c. the analyst should seek to increase capacity of only the bottleneck resources. d. the analyst should seek to increase capacity of both the bottleneck and non-bottleneck resources. Answer: b Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, TOC, theory, constraints 38. The fourth step in Theory of Constraints application, “elevate the bottleneck (s),” means that: a. the analyst should create a schedule that maximizes the throughput of the bottlenecks. b. the analyst should repeat the analysis process to look for other bottlenecks. c. the analyst should consider increasing capacity of the bottleneck. d. the analyst should schedule non-bottleneck resources to support the bottleneck. Answer: c Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, TOC, theory, constraints 39. The fifth step in Theory of Constraints application, “do not let inertia set in,” means that: a. the analyst should create a schedule that maximizes the throughput of the bottlenecks. b. the analyst should repeat the analysis process to look for other bottlenecks. c. the analyst should consider increasing capacity of the bottleneck. d. the analyst should schedule non-bottleneck resources to support the bottleneck. Answer: b Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, TOC, theory, constraints

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40. Bal Seal discovered that it was okay for some workers to have nothing to do at times. The reason for this is that: a. these workers were pure production workers. b. these workers worked at bottleneck processes. c. these workers were analyzing processes. d. these workers worked at non-bottleneck processes. Answer: d Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, TOC, theory, constraints 41. There are three consecutive steps in a customer service process. The first two steps are each capable of serving 25 customers per hour while the third step can process only 20 customers per hour. Which of the following statements regarding this system is true? a. The entire system is capable of processing 25 customers per hour. b. There are floating bottlenecks in the system. c. If the first two steps are run at full capacity, then the third step has a waiting line. d. The first and second steps are bottlenecks for the system. Answer: c Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: capacity, bottleneck Keywords: capacity, expansionist, strategy 42. The time required to change a machine from making one product or service to the next is called: a. takt time. b. setup time. c. queue time. d. hold time. Answer: b Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: setup 43. Which of the following statements regarding setups is TRUE? a. Unusually high setup times result in higher utilization. b. Processes are generating output throughout the entire setup process. c. A machine used in a line process would probably have fewer setups than a batch process. d. A TOC analyst would not be concerned with setup times on non-bottleneck machines. Answer: d Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: setup, TOC, bottleneck

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44. A company makes four products that have the following characteristics: Product A sells for $50 but needs $20 of materials and $20 of labor to produce; Product B sells for $75 but needs $40 of materials and $20 of labor to produce; Product C sells for $100 but needs $50 of materials and $30 of labor to produce; Product D sells for $150 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Work Center W X Y Z

Processing Time (min/unit) A B C

D

6 9 4 10

12 8 9 11

1 10 3 0

3 4 12 7

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. If market demand for each product is 80 units per week, which work center is of greatest concern to the operations manager? a. Work center W. b. Work center X c. Work center Y d. Work center Z Answer: b Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: TOC, bottleneck 45. A company makes four products that have the following characteristics: Product A sells for $50 but needs $20 of materials and $20 of labor to produce; Product B sells for $75 but needs $40 of materials and $20 of labor to produce; Product C sells for $100 but needs $50 of materials and $30 of labor to produce; Product D sells for $150 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Work Center W X Y Z


D

6 9 4 10

12 8 9 11

1 10 3 0

3 4 12 7

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. If market demand for each product is 80 units per week, which product should be scheduled first? a. Product A. b. Product B. c. Product C. d. Product D. Answer: c Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: TOC, bottleneck

162




D

6 9 4 10

12 8 9 11

1 10 3 0

3 4 12 7

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. If market demand for each product is 80 units per week, in what sequence should products be scheduled for production? a. D. C. B. A b. D, C, A, B c. C, D, A, B d. C, D, B, A Answer: d Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: TOC, bottleneck, sequence 47. A company makes four products that have the following characteristics: Product A sells for $50 but needs $20 of materials and $20 of labor to produce; Product B sells for $75 but needs $40 of materials and $20 of labor to produce; Product C sells for $100 but needs $50 of materials and $30 of labor to produce; Product D sells for $150 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Work Center W X Y Z


D

6 9 4 10

12 8 9 11

1 10 3 0

3 4 12 7

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. If market demand for each product is 80 units per week, what is the optimal product mix? a. 71 A, 80B, 80C, 80 D b. 80A, 72B, 80C, 80D c. 80A, 80B, 60C, 80D d. 80A, 80B, 80C, 70D Answer: a Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: TOC, bottleneck, mix

163




D

8 12 8 10

10 6 5 5

4 9 12 9

12 10 14 5

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. Which work center is of greatest concern to the operations manager? a. Work center W b. Work center X c. Work center Y d. Work center Z Answer: c Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: TOC, bottleneck 49. A company makes four products that have the following characteristics: Product A sells for $75 but needs $20 of materials and $20 of labor to produce; Product B sells for $90 but needs $45 of materials and $20 of labor to produce; Product C sells for $110 but needs $50 of materials and $30 of labor to produce; Product D sells for $135 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Work Center W X Y Z


D

8 12 8 10

10 6 5 5

4 9 12 9

12 10 14 5

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand is 50 As, 60 Bs, 70Cs, and 80Ds per week. Which product should be scheduled first? a. Product A. b. Product B. c. Product C. d. Product D. Answer: a Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: TOC, bottleneck

164




D

8 12 8 10

10 6 5 5

4 9 12 9

12 10 14 5

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. In what sequence should products be scheduled for production? a. A, D, C, B b. A, D, B, C c. D, A, B, C d. D, A, C, B Answer: a Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: TOC, bottleneck, sequence 51. A company makes four products that have the following characteristics: Product A sells for $75 but needs $20 of materials and $20 of labor to produce; Product B sells for $90 but needs $45 of materials and $20 of labor to produce; Product C sells for $110 but needs $50 of materials and $30 of labor to produce; Product D sells for $135 but needs $75 of materials and $40 of labor to produce. The processing requirements for each product on each of the four machines are shown in the table. Work Center W X Y Z


D

8 12 8 10

10 6 5 5

4 9 12 9

12 10 14 5

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. What is the optimal product mix? a. 37 A, 60 B, 70 C, 80 D b. 50 A, 51 B, 70 C, 80 D c. 50 A, 60 B, 62 C, 80 D d. 50 A, 60 B, 70 C, 60 D Answer: b Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: TOC, bottleneck, mix

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52. The transition from economies of scale to diseconomies of scale: a. is more likely to occur in a service operation. b. is more likely to occur in a manufacturing operation. c. is more likely to occur when utilization is low. d. contains the point at which average unit costs are at their lowest. Answer: d Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: economies, diseconomies, scale 53. At higher output rates, processes tend to: a. reduce bottlenecks, which results in cost savings. b. increase bottlenecks, which results in cost savings. c. shift to line processes, which results in cost savings. d. shift to batch processes, which results in cost savings. Answer: c Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: process, output, cost, savings 54. Large, infrequent jumps in capacity are characteristic of companies that: a. have an expansionist strategy. b. have a wait-and-see strategy. c. have low utilization. d. have high utilization. Answer: a Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: expansionist, capacity, strategy 55. Which one of the following factors usually motivates a smaller capacity cushion? a. Unevenly distributed demands b. High capital intensity c. High penalty costs for overtime usage d. Requests for quick customer services Answer: b Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion, intensity 56. Which one of the following factors usually calls for a larger capacity cushion? a. Uncertain demand b. High capital intensity c. More reliable equipment d. High worker flexibility Answer: a Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion 166


57. Which one of the following statements about capacity is best? a. Companies with flexible flow processes tend to have small-capacity cushions. b. Companies with high capital costs tend to have large-capacity cushions. c. Companies that have considerable customization tend to have larger-capacity cushions. d. Constant demand rates require larger-capacity cushions. Answer: c Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, capital, cushion 58. Which one of the following statements concerning capacity cushions is best? a. Large-capacity cushions are used more often when future demand is level and known. b. Small-capacity cushions are used extensively in capital-intensive firms. c. Capacity cushions are used primarily in manufacturing organizations, not in service organizations. d. Small cushions are used in organizations where the products and services produced often change. Answer: b Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion, capital, intensity 59. If a system is well balanced, which one of the following changes usually calls for a larger-capacity cushion? a. Higher capital intensity b. Higher worker flexibility c. Higher inventories d. Requests for fast delivery times Answer: d Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: system, balanced, cushion, capacity 60. If a system is well balanced, which one of the following changes usually calls for a smaller-capacity cushion? a. Higher customization b. More of a flexible-flow strategy c. Higher yield losses d. Higher capital intensity Answer: d Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion, capital, intensity

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61. The single milling machine at Stout Manufacturing was severely overloaded last year. The plant operates eight hours per day, five days per week, and 50 weeks per year. Management prefers a capacity cushion of 15 percent. Two major types of products are routed through the milling machine. The annual demand for product A is 3000 units and 2000 units for product B. The batch size for A is 20 units and 40 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 Stout does not resort to any short-term capacity options? a. No new machines b. 1 or 2 new machines c. 3 or 4 new machines d. More than 4 new machines Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement Table 7.1 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. 62. Using Table 7.1, what is the total number of hours required of Mark I equipment for the next year? a. Fewer than 29,000 hours b. Between 29,000 and 30,000 hours c. Between 30,000 and 31,000 hours d. More than 31,000 hours Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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63. Use the information in Table 7.1. The company works 250 days per year and operates two shifts, each covering 8 hours. If a 15 percent capacity cushion is maintained, how many hours of capacity can the company expect from each of its Mark I machines? a. Fewer than 3000 b. Between 3000 and 3500 c. Between 3501 and 4000 d. More than 4000 Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement 64. The Southeast 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 of these products are produced at the same workstation, called the Automatic Lathe. Currently, the company has 12 automatic lathes, and financial constraints prevent any expansion for the next year. It works 250 days per year with two 8-hour shifts and desires a 25 percent capacity cushion. Which one of the following alternatives will allow next year’s demand to be fully covered? a. Do nothing. b. Increase the capacity cushion to 30 percent. c. Increase the batch size of product B to 300 units. d. Decrease the capacity cushion by 1 percent. Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement, option

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65. 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 There currently are 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? a. Add six additional machines. b. Add five additional machines. c. Add four additional machines. d. Add three additional machines. Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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66. The lock box department at Bank 21 handles the processing of monthly loan payments to the bank, monthly and quarterly premium payments to a local insurance company, and bill payments for 85 of the bank’s largest commercial customers. The payments are processed by machine operators, with one operator per machine. An operator can process one payment in 0.25 minute. Setup times are negligible in this situation. A capacity cushion of 20 percent is needed f or the operation. The average monthly (not annual) volume of payments processed through the department currently is 400,000. However, it is expected to increase by 20 percent. The department operates eight hours per shift, two shifts per day, 260 days per year. How many machines (not operators) are needed to satisfy the new total processing volume? (Round up to the next whole integer.) a. Fewer than 7 b. 7 c. 8 d. More than 8 Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement

Table 7.2 High Tech, Inc. is producing two types of products: A and B. Both are produced at the same sawing 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.

Product A B

Time Standard Processing Setup .20 2.0 .15 3.0

Batch Size 40 50

Demand Forecasts (000 units/yr) Pessimistic Expected Optimistic 200 240 300 160 180 200

The sawing machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager wants to maintain a 10 percent capacity cushion.

67. Using the information from Table 7.2, what is the minimum total number of hours required of sawing equipment for the next year? a. Fewer than 85,000 hours b. More than 85,000 but fewer than 95,000 c. More than 95,000 but fewer than 105,000 d. More than 105,000 hours Answer: a Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement

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68. Using the information from Table 7.2, how many hours of capacity can the company expect from each of its sawing machines? a. Fewer than 3500 hours b. More than 3500 hours but fewer than 3700 hours c. More than 3700 hours but fewer than 3900 hours d. More than 3900 hours Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement 69. Using the information from Table 7.2, what is the minimum number of machines needed (assuming no reliance on short-term options)? a. Fewer than or equal to 22 b. More than 22 but fewer than or equal to 25 c. More than 25 but fewer than or equal to 28 d. More than 28 Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement 70. Using the information from Table 7.2, what is the maximum number of machines needed (assuming no reliance on short-term option)? a. Fewer than or equal to 25 b. More than 25 but fewer than or equal to 28 c. More than 28 but fewer than or equal to 31 d. More than 31 Answer: d Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement 71. Using the information from Table 7.2, if the operation currently has 18 machines and the manager is willing to expand capacity by 20 percent through short-term options, what is the capacity gap (in terms of number of machines) if you assume the optimistic demand forecasts? a. Fewer than or equal to 10 b. More than 10 but fewer than or equal to 12 c. More than 12 but fewer than or equal to 14 d. More than 14 Answer: a Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Hard Keywords: capacity, requirement

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72. A company’s production facility, consis ting of two identical machines, currently caters only to product A. The annual demand for the product is 4000 units. Management has now decided to introduce another product, B, which uses the same facilities as that of product A. Product B has an annual demand of 2000 units. In view of the uncertainties involved in producing two products, management desires to have an overall 10 percent capacity cushion. Given the following additional information, how many more machines are required? (Assume 8 hours/shift, 2 shifts/day, 250 days/year, and that no overtime is allowed).

a. No additional machines are necessary. b. One additional machine is necessary. c. Two additional machines are necessary. d. More than two additional machines are necessary. Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement 73. The Northern Manufacturing Company is producing products A and B, using the same machine called MASAC27A. Demand forecasts for next year and other production-related information are provided in the following table.

The company works 250 days per year and operates 2 shifts each day, each shift covering 8 hours. If 25 percent of capacity cushion is maintained throughout the year, how many machines (MASAC27A) does the company need next year to meet the demand? (Round your answer up to the next whole machine.) a. Fewer than 11 machines b. 11 machines c. 12 machines d. More than 12 machines Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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Table 7.3 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: Product A Product B Demand forecast (units/year) 4,000 12,000 Batch size (units/batch) 80 150 Standard processing time (hr/unit) 2.5 2 Standard setup time (hr/batch) 18 24 Both products A and B are produced at the same operation called MASAC27A. 74. Using the information in Table 7.3, what is the total number of hours required for MASAC27A equipment for the next year? a. 34,000 hours b. 34,285 hours c. 36,820 hours d. 312,000 hours Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement 75. Use the information in Table 7.3 to help answer this question. Additionally, the company works 250 days every year and operates 2 shifts, each of which covers 8 hours. If a 25 percent capacity cushion is maintained, how many machines does the company need next year to fully cover the demand? a. Fewer than 13 machines b. 13 machines c. 14 machines d. More than 14 machines Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement 76. Use the information in Table 7.3 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? a. Do nothing. b. Increase the capacity cushion to 30 percent. c. Increase the batch size of product B to 300 units. d. Decrease the capacity cushion by 1 percent. Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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77. Musk L. Flexor owns a hot tub store that is experiencing significant growth. Flexor is trying to decide whether to expand its capacity, which currently is at $750,000 in sales per quarter. He is thinking about expanding to the $850,000 level. The before-tax profit from additional sales is 20 percent. Sales are seasonal, with peaks in the spring and summer quarters. Forecasts of capacity requirements, expressed in ($000) sales per quarter, for next year (year 2) are:

Demand in year 3 and beyond is expected to exceed $850,000 per quarter. Flexor is considering expansion at the end of the fourth quarter of this year (year 1). How much would before-tax profits in year 2 increase because of this expansion? a. Less than $28,000 b. More than $28,000 but less than $32,000 c. More than $32,000 but less than $36,000 d. More than $36,000 Answer: b Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, profit

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78. Sleep Tight Motel has the opportunity to purchase an adjacent plot of land. Building on this land would increase their capacity from the current sales level of $515,000/year to $600,000/year. Sleep Tight experiences a 20 percent before-tax profit margin. It wishes to estimate the additional beforetax profits that the expansion will produce. Using the following information, how much more before tax cash flow would be realized just in year 10 alone?

a. Less than or equal to $20,000 b. Greater than $20,000 but less than or equal to $25,000 c. Greater than $25,000 but less than or equal to $30,000 d. Greater than 30,000 Answer: a Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow 79. Innovative Inc. is experiencing a boom for the products it has introduced recently. The estimated annual sales projected for the next five years are given in the following table. The current capacity is equivalent to only $100 million sales. The company is considering the alternative of expanding capacity to an equivalent of $250 million sales. Assume a 25 percent pretax profit margin. What is the increase in total pretax cash flow (summed over all years) that would be enjoyed because of the expansion?

a. Less than or equal to $40 million b. More than $40 million but less than or equal to $70 million c. More than $70 million but less than or equal to $100 million d. More than $100 million Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow 176


80. 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? a. Less than $15,000 b. More than $15,000 but less than $16,000 c. More than $16,000 but less than $17,000 d. More than $17,000 Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow Table 7.4 Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected for the next five years follow. The current capacity is equivalent to $300,000 sales. Assume a 20 percent pretax profit margin.

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81. Using the information in Table 7.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), how much would pretax cash flow in year 1 increase because of this expansion? a. Less than $3000 b. More than $3000 but less than $5000 c. More than $5000 but less than $7000 d. More than $7000 Answer: a Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow 82. Using the information in Table 7.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), how much would pretax cash flow in year 5 increase because of this expansion? a. Less than $7000 b. More than $7000 but less than $10,000 c. More than $10,000 but less than $13,000 d. More than $13,000 Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow 83. Using the information in Table 7.4, if Lee expands the capacity to an equivalent of $360,000 sales now (year 0), and then expands the capacity to an equivalent of $400,000 sales at the beginning of year 4, how much would pretax cash flow increase in total for all years (years 1 through 5)? a. Less than $30,000 b. More than $30,000 but less than $40,000 c. More than $40,000 but less than $50,000 d. More than $50,000 Answer: c Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: cash, flow 84. When future demand is uncertain and sequential decisions are involved in capacity planning, a manager should use a: a. waiting line model. b. cash flow analysis. c. decision tree. d. gap analysis. Answer: c Reference: Tools for Capacity Planning Difficulty: Moderate Keywords: decision, tree, capacity

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85. Which of the following descriptions about waiting line models is best? a. They account for major events such as competitor actions. b. They account for the random, independent behavior of many customers. c. They assume that each branch can give the highest expected payoff. d. They deal with the certainty and stability in demand. Answer: b Reference: Tools for Capacity Planning Difficulty: Moderate Keywords: waiting, line, model 86. What information would managers use to choose the best cost-effective capacity to balance customer service with the cost of adding capacity? a. Decision trees b. Economies of scale c. Capacity cushion d. Waiting line models Answer: d Reference: Tools for Capacity Planning Difficulty: Moderate Keywords: capacity, cushion

FILL IN THE BLANK 87. ____________ is the maximum rate of output for a process. Answer: Capacity Reference: Introduction Difficulty: Easy Keywords: capacity, maximum, output 88. ____________ is the degree to which equipment, space, or labor is currently being used. Answer: Utilization Reference: The Theory of Constraints Difficulty: Easy Keywords: utilization, degree, use 89. ____________ capacity is the maximum output that a process or facility can achieve under ideal conditions. Answer: Peak Reference: The Theory of Constraints Difficulty: Moderate Keywords: peak, capacity, maximum, output 90. A(n) ____________ is an operation that has the lowest effective capacity of any operation in the process, and thus limits the system’s output. Answer: bottleneck Reference: The Theory of Constraints Difficulty: moderate Keywords: bottleneck, TOC, output 179


91. ____________ is the total time taken from the start to the finish of a process. Answer: Throughput time Reference: Identification and Management of Bottlenecks Difficulty: Easy Keywords: throughput, time 92. Variability of a firm’s workload may create ____________. Answer: floating bottlenecks Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: workload, variability, floating, bottleneck 93. With TOC, ____________ are scheduled to maximize their throughput of products while adhering to promised completion dates. Answer: bottlenecks Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: TOC, bottleneck 94. Instead of producing products with the highest profit margins, operations managers should focus on the ____________ generated at the ____________ . Answer: profit (margin), bottleneck Reference: Identification and Management of Bottlenecks Difficulty: Moderate Keywords: TOC, bottleneck, profit 95. Capacity decisions should be linked closely to ____________ and ____________ throughout the organization. Answer: processes, value chains Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, decision, strategy, process 96. ____________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in demand or temporary losses of production capacity. Answer: Capacity cushion Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, cushion, reserve 97. If demand is increasing, and you also prefer to increase the time between capacity increments, then the size of increments should ____________. Answer: increase Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: increase, time, capacity, increments

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98. A process’s ____________ is what its capacity should be for some future time period to meet the demand of its customers, allowing for the desired capacity cushion. Answer: capacity requirement Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

SHORT ANSWERS 99. Explain why a bottleneck limits system output. Answer: A bottleneck, by definition, is a process that has less capacity than all other processes in the system. Just as a chain is as strong as its weakest link, the rest of a production system can produce only as much as the slowest process. The bottleneck limits capacity by serving to slow the rest of the system down. Running all other processes at their maximum capac ity will result in inventory buildup in front of the bottleneck. Reference: The Theory of Constraints Difficulty: Moderate Keywords: bottleneck, output, TOC 100.

Define utilization and give a service process example of it. Answer: Utilization is expressed as a percent and is the degree to which equipment, space, or labor is currently being used. Examples will vary. Reference: The Theory of Constraints Difficulty: Easy Keywords: utilization, capacity

101. Describe a process from your own personal experience at home or work that suffers from a lack of sufficient throughput. Apply the first four TOC steps to address the situation, assuming you have complete authority to do so. Answer: Examples will vary. The steps of TOC are (1) identify the system bottleneck(s); (2) exploit the bottlenecks; (3) subordinate all other decisions to step 2; (4) elevate the bottleneck(s); and (5) do not let inertia set in. Reference: The Theory of Constraints Difficulty: Moderate Keywords: TOC, steps 102.

Discuss the relationship between setup time and utilization. Answer: Setup time is the time required to adjust a process when switching from making one product to another and is unproductive time in the sense that no product is being built during the setup. Utilization is the ratio of the average output rate to the maximum capacity. As output rate increases, the resource is more productive and utilization rises. Setups enable output but do not create it, so the faster a setup can be performed, the more of the total time is productive, thus increasing utilization. Reference: The Theory of Constraints Difficulty: Easy Keywords: setup, utilization

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103.

Give four principal reasons economies of scale can occur when output increases. Answer: The four reasons are spreading fixed costs, reducing construction costs, cutting costs of purchased materials, and finding process advantages. Reference: Capacity Planning Over Longer Time Horizons Difficulty: Moderate Keywords: economies, scale, output

104. 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? Answer: The appropriate size of the capacity cushion varies by industry. Large cushions are necessary when future demand is uncertain, resource flexibility is low, product mix changes, uncertainty exists regarding suppliers, and employee absenteeism and penalty costs for overtime and subcontracting exist. Small-capacity cushions reduce costs and expose problems in the system. Capacity cushions are linked to competitive priorities, quality management, capital intensity, resource flexibility, inventory, scheduling, and location. Obviously, many of these decisions cut across functional boundaries. Reference: Capacity Timing and Sizing Strategies Difficulty: Hard Keywords: capacity, cushion 105.

What are the four steps involved in making capacity decisions? Answer: The steps are estimate future capacity requirements, identify gaps by comparing requirements with alternatives, develop alternative plans for filling the gaps, and evaluate alternatives, both qualitatively and quantitatively, and make a final choice. Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, decision, steps

106. Define each of the following capacity strategies: expansionist, wait-and-see, and follow-theleader. Answer: Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller and more frequent jumps. Follow-the-leader means to expand when others do. Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: capacity, strategy, wait, follow 107.

What is a waiting line model, and what information can it provide? Answer: Waiting line models use probability distributions to estimate delay times, line length, and utilization. Reference: Tools for Capacity Planning Difficulty: Moderate Keywords: waiting, line, model, capacity

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PROBLEMS 108. Lucy’s Pancake House, a no -frills diner along a major interstate, has discovered that if precious employee time is not wasted on frivolous duties such as cleaning work surfaces, properly storing ingredients, and pest control, they can achieve an average output rate of 25 customers per hour. If the diner was designed to accommodate a maximum of 30 customers per hour, what is the utilization? Answer:

Utilization  Utilization 

Average Output Rate Maximum capacity 25 30

 100% 

 100%

83.3%

Reference: The Theory of Constraints Difficulty: Easy Keywords: utilization, capacity

109. Schmidt Industries makes four different snake traps; the Harlan, the Gaylen, the Leah and the Matthew. The Harlan sells for $200 and has $40 in parts and $40 in labor; the Gaylen sells for $150 and requires $30 in parts and $30 in labor; the Leah sells for $100 and has $20 in parts and $20 in labor; and the Matthew sells for $75 but requires only $10 of parts and $10 of labor. Schmidt Industries has four machines (we’ll call them A, B, C, and D for convenience) that are used in the production of each of these products. Each of these machines is available for 40 hours a week and there is no setup time required when shifting from the production of one product to any other. The processing requirements to make one unit of each product are shown in the table. Processing Time on Each Machine in Minutes Model Machine A Machine B Machine C Machine D Harlan 10 15 15 5 Gaylen 10 10 10 10 Leah 5 10 15 10 Matthew 5 5 5 10 Schmidt Industries has monthly fixed costs of $5000 and has a demand forecast of 80 Harlans, 60 Gaylens, 40 Leahs and 20 Matthews for the coming month. How many of each of the four models should Susan, the operations manager, schedule for production this month?

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Answer: The processing requirements for the demand forecast result in a need for:

Machine A : 80 10  60  10  40  5  20  5  1700  2400 Machine B : 8 0  15  60  10  40  10  20  10  2300  2400 Machine C :80  15  60  10  40  15  20  10  2500



2400 Bottleneck

Machine D : 80  5  60 10  40  10  20  10  1600  2400 The contribution margin per bottleneck minute is:

Harlan : (200 - 40 - 40)/15 = $8/min Gaylen :(150 - 30 - 30)/10 = $9/min Leah : (100 - 20 - 20)/15 = $4/min Matthew : (75 - 10 - 10)/5 = $11/min Products should be produced in Matthew, Gaylen, Harlan, and Leah order. The product mix is 20 Matthews (using 100 minutes of Machine C); 60 Gaylens (using 600 minutes of Machine C); 80 Harlans (using 1200 minutes of Machine C); and 33 Leahs (using up the remaining 500 minutes of Machine C time) Reference: Identification and Management of Bottlenecks Difficulty: Hard Keywords: capacity, bottleneck The single milling machine at Fred’s Manufacturing was severely overloaded last year. The 110. 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? Answer:  Dp  ( D / Q)s  product 1  Dp  ( D / Q)s product 2 M  N 1  (C / 100) 

where M = number of machines required, D = number of units forecast per year, p = processing time in hours per unit, N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time.

M 

 4000(.5)  (4000/ 20)2  product A  3000(.8)  (3000/30)8 product B 20001  (20/100) 

Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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 3.5  4

machines.


111. The Union Manufacturing Company is producing two types of products: A and B. The demand forecasts, batch size, and time standards for the Mark I operation follow:

The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20 percent capacity cushion is maintained, how many new Mark I machines are required if Union does not resort to any short-term capacity options? Answer:  Dp  ( D / Q)s  product1  Dp  (D / Q )s product2 M  N 1  (C /100)  where M = number of machines required, D = number of units forecast per year, p = processing time (in hours per unit), N = total number of hours per year that the process operates, C = desired capacity cushion, Q = number of units in each batch, and s = setup time. 1000(3.2)  (1000/ 20)10  product A  4000(4.5)  (4000/10)20 product B M   9.28  10 machines. 40001  (20/100)  Reference: A Systematic Approach to Long-Term Capacity Decisions Difficulty: Moderate Keywords: capacity, requirement

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112. 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.

Product A B

Time Standard Processing Setup .30 1.0 .25 2.0

Batch Size 200 100

Demand Forecasts (000 units/yr) Pessimistic Expected Optimistic 100 120 150 190 210 230

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 need ed (assuming no reliance on short-term

options)?

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Krajewski TIF Chapter 7

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