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Unformatted text preview: C HAPTER 6 DECISION MAKING IN THE SHORT TERM S OLUTIONS R EVIEW Q UESTIONS 6.1 The temporary gaps between the demand and supply of available capacity. 6.2 The maximum volume of activity that a company can sustain with available resources. 6.3 Because organizations make capacity decisions based on the expected volume of operations over a horizon spanning many years. They build plants, buy equipment, rent office space, and hire salaried personnel in anticipation of the demand for their products and services. 6.4 (1) Decisions that deal with excess supply. Examples include reducing prices to stimulate demand, running special promotions, processing special orders, and using extra capacity to make production inputs in-house; (2) Decisions that deal with excess demand. Examples include increasing prices to take advantage of favorable demand conditions, meeting additional demand by outsourcing production, and altering the product mix to focus on the most profitable ones. 6.5 This method focuses only on those costs and revenues that differ from the benchmark option. 6.6 This method considers the gross revenues and costs associated with each option, rather than the incremental amounts relative to the benchmark option. 6.7 The totals approach requires more computations because it includes some noncontrollable benefits and costs. 6.8 In decisions involving many costs and benefits it helps us ensure that we do not forget to include a relevant cost or benefit. 6.9 Excess supply usually, the firm cuts prices to stimulate demand. 6.10 In a make or buy decision, the firm is deciding whether to make a product, or piece thereof, internally or outsource and buy them from a supplier. 6.11 When demand is high and a resource is in short supply. 6.12 To maximize profit when capacity is in short supply, maximize the contribution margin per unit of capacity. 6.13 Typically on a qualitative basis by considering how customers, suppliers, and competitors might respond to the decision being made. D ISCUSSION QUESTIONS 6.14 Yes, the definition of what is short-term and what is long-term depends on the business context. For General Motors anywhere from few weeks to a few months may be considered short-term, as pricing and promotion decisions depend on how fast different models of cars and trucks are moving from the dealers inventories. For a baker, a day or two days may be too long as baked goods do not retain their freshness for long. Thus, product characteristics often play a critical role in determining how long the short-term horizon is. 6.15 The reason why the lots are overflowing is that vehicles are not being sold at the expected rate. Unsold vehicles occupy space in the lot. Thus, it is not correct to define capacity in terms of the lot space available. Rather, capacity should be defined in terms the number of vehicles that can potentially be sold per day. When demand falls short of supply based on the anticipated number of vehicles to be sold...
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This note was uploaded on 02/02/2010 for the course BUS-A 202 taught by Professor Keenan during the Spring '08 term at Indiana.
- Spring '08