Part 2: Ch 10-19: Page 2-470

Part 2: Ch 10-19: Page 2-470 Part 1: Ch 1-9: Page 471-838 Operations and Supply Chain Management, 2e David A.Collier, James Evans (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file. 1 / 4

1 Instructor’s Manual – OMSC2 – Collier/Evans – C10 Capacity Management This chapter introduces students to basic concepts of capacity (theoretical and effective capacity, safety capacity), economies and diseconomies of scale, setup time, short- and long-term capacity strategies, complementary seasonal demand cycles, capacity strategies, revenue management, and learning curves.Instructors may wish to assign Supplement A: Probability and Statistics and Supplement G: Simulation if the Appleton Pulp and Paper Mill case study is assigned.Three Excel spreadsheet templates – Service Capacity, Work Order Capacity, and Learning Curve are available in MindTap and illustrated in solved problems.

Questions and problems are provided in four categories:

1.Review questions 2.Discussion questions and experiential activities

• Computational problems and exercises that are intended to be solved manually, and
• Excel-based problems that may be solved using spreadsheets or the supplied spreadsheet

templates.

The chapter has three cases:

1.Appleton Pulp and Paper Mill is focused on a continuous flow process where capacities are limited at each stage of production. Students will need to develop a spreadsheet simulation model to evaluate capacity and reliability issues, and investigate the impact of capacity increases. The simulation model is available to instructors on the Instructor web site.

2.The second case, David Christopher, Orthopedic Surgeon, requires students to compute the total workload for a certain surgery mix. The students must decide whether to hire more surgeons, reduce setup and changeover time between operations, redistribute the surgery mix among surgeons, use more or less safety capacity, work on Saturday, and so on.

3.The integrative case study, Hudson Jewelers, with case assignment questions in all chapters, focuses on capacity measurement in the diamond value chain for processes such as mining, cutting and polishing, custom and standard jewelry manufacturing, and at the retail store.

KEY TERMS

Capacity is the capability of a manufacturing or service resource such as a facility, process, workstation, or piece of equipment to accomplish its purpose over a specified time period.Part 2 2 / 4

2 Many firms offer complementary goods and services, which are goods and services that can be produced or delivered using the same resources available to the firm, but whose seasonal demand patterns are out of phase with each other.Diseconomies of scale occur when the average unit cost of the good or service begins to increase as the capacity and/or volume of throughput increases.Economies of scale are achieved when the average unit cost of a good or service decreases as the capacity and/or volume of throughput increases.Effective capacity is the actual capacity that can reasonably be expected to be achieved in the long run under normal operating conditions.The experience curve states that the cost of doing any repetitive task, work activity, or project decreases as the accumulated experience of doing the job increases.A focused factory is a way to achieve economies of scale, without extensive investments in facilities and capacity, by focusing on a narrow range of goods or services, target market segments, and/or dedicated processes to maximize efficiency and effectiveness.The learning curve concept is that direct labor unit cost decreases in a predictable manner as the experience in producing the unit increases.A p-percent learning curve characterizes a process in which the time of the 2xth unit is p percent of the time of the xth unit.A reservation is a promise to provide a good or service at some future time and place.A revenue management system (RMS) consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.Safety capacity (capacity cushion), is an amount of capacity reserved for unanticipated events such as demand surges, materials shortages, and equipment breakdowns.Theoretical capacity is the maximum rate of output that can be produced in a period of time under ideal operating conditions.A work order is a specification of work to be performed for a customer or a client. 3 / 4

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REVIEW QUESTIONS

• Explain the concept of capacity.

Capacity is the capability of a manufacturing or service resource such as a facility, process, workstation, or piece of equipment to accomplish its purpose over a specified time period.

Capacity can be viewed in one of two ways:

• as the maximum rate of output per unit of time, or
• as units of resource availability.

• How are capacity decisions influenced by economies and diseconomies of scale?

Economies of scale mean that long-run average costs decline as volume increases. For example, the design and construction cost per room of building a hotel decreases as the facility gets larger because the fixed cost is allocated over more rooms, resulting in a lower unit room cost. This lends support to building larger facilities with more capacity.

Diseconomies of scale happen when size (capacity) increases to the point where long-run average costs begin to increase due to increasing complexity, and communication and coordination efforts. In the hotel example, as the number of rooms in a hotel continues to increase, the average cost per unit begins to increase because of larger amounts of overhead and operating expenses required by higher levels of such amenities as restaurants, parking, and recreational facilities. This suggests that some optimal amount of capacity exists where costs are at a minimum.

• What is a focused factory? How can it make more efficient use of capacity?

A focused factory is a way to achieve economies of scale without extensive investments in facilities and capacity by focusing on a narrow range of goods or services, target market segments, and/or dedicated processes to maximize efficiency and effectiveness. The focused factory argues to "divide and conquer" by adopting smaller more focused facilities dedicated to a (1) few key products, (2) a specific technology, (3) a certain process design and capability, (4) a specific competitive priority objective such as next day delivery, and (5) particular market segments or customers and associated volumes. Two ways to execute a focused factory strategy are to (1) build separate focused facilities that are manageable and controllable, or (2) physically divided a huge facility into smaller more focused areas (called "plants-within-plants").

• Summarize the different ways in which capacity can be measured.

Theoretical capacity is the maximum rate of output that can be produced in a period of time under ideal operating conditions.

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