MGSC 395 Test 2 Study Guide

MGSC 395 Test 2 Study Guide - MGSC 395 Test 2 Study Guide...

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MGSC 395 Test 2 Study Guide Operations Management = the systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external, customers. Chapter 6 Capacity -the minimum rate of output of a process or system. A manager is responsible for ensuring that the firm has the capacity to meet current and future demand. Otherwise, the firm will miss out on opportunities for growth and profits. Capacity decisions must be made in light of several long-term issues such as economies and diseconomies of scale, capacity cushions, timing and sizing strategies, and tradeoffs between customer service and capacity utilization. Accounting, finance, marketing, operations, purchasing, and human resources all need capacity information to make decisions. Capacity planning is done in the long-term and the short-term. (Check about the long term and short term with constraint management) Utilization -the degree to which a resource such as equipment, space, or the workforce is currently being used and is measured as the ratio of the average output rate to the maximum capacity (%). The average output rate and the capacity must be measured in the same terms (time, customers, units, dollars). The utilization rate indicates the need for adding extra capacity or eliminating unneeded capacity. Average Output Rate Utililization = Maximum Capacity X 100% Economies of Scale -a concept that states that the average unit cost of a service or a good can be reduced by increasing its output rate. Four reasons that explain why EOS can drive down cost when output increases: 1. Spreading fixed costs 2. Reduce construction costs 3. Cutting costs of purchases materials 4. Finding Process Advantages Diseconomies of Scale - occurs when the average cost per unit increases as the facility size increases. Can occur because excessive size can bring complexity, loss of focus, and inefficiencies that raise the average unit cost of a service or product. A less agile organization looses the flexibility needed to respond to changing demand. Many large companies become so involved in analysis and planning that they innovate less and avoid risks and result in small companies outperforming corporate giants in numerous industries. 3 Dimensions of Capacity Strategy must be examined before making capacity decisions:
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1. Sizing capacity cushions -A capacity cushion is the amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity; it measures the amount by which the average utilization (in terms of total capacity) falls below 100%. Capacity Cushion = 100% - Average Utilization Rate (%) 2. Timing and Sizing Expansion -when to adjust capacity levels and by how much. Companies may not always be looking to expand capacity and may actually need to reduce it. -Two extreme strategies for expanding capacity:
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This note was uploaded on 02/08/2011 for the course MGSC 395 taught by Professor Zimmer during the Fall '10 term at South Carolina.

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MGSC 395 Test 2 Study Guide - MGSC 395 Test 2 Study Guide...

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