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Chapter 12 - Aggregate Operations Planning

Chapter 12 Aggregate Operations Planning


Learning Objectives for Chapter 12 1. Understand what sales and operations planning is and how it coordinates manufacturing, logistics, service, and marketing plans. 2. Construct aggregate plans that employ different strategies for meeting demand. 3. Describe what yield management is and why it is an important strategy for leveling demand.
True / False Questions

1. The aggregate operations plan translates annual and quarterly business plans into broad labor and output plans for the intermediate term of 3 to 18 months. True False

2. The objective of the aggregate operations plan is to insure that the marketing and sales plans are realistic. True False

3. The aggregate operations plan differs in virtually every aspect in service organizations as contrasted with manufacturing organizations. True False

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Chapter 12 - Aggregate Operations Planning

4. The sales and marketing plans are typically developed separately from the aggregate operations plan as a way of cross-checking results to insure the integrity of assumptions about the future. True False

5. Aggregate sales and operations planning occurs in a company about every 3 to 18 months. True False

6. Aggregation in sales and operations planning is by groups of customers on the supply side and by product families on the demand side of the firm's supply chain. True False

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Chapter 12 - Aggregate Operations Planning

7. Accurate medium-range planning increases the likelihood of operating within the limits of a budget. True False

8. The main purpose of the aggregate production plan is to specify the optimal combination of workforce level and inventory on hand. True False

9. The International Aggregate Planning Society (IAPS) has developed aggregate operations planning guidelines which are followed by a majority of manufacturing firms. True False

10. The sales and operations planning process consists of a series of meetings. True False

11. The sales and operations planning process is made up of a variety of analytical techniques which interact to produce short and intermediate term goals. True False

12. Subcontracting is viewed as a risky strategy because the firm may loose control of product design and pricing. True False

13. The aggregate operations plan should not be updated but should be followed precisely until the planning horizon has passed. True False

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Chapter 12 - Aggregate Operations Planning

14. Fixed and variable costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. True False

15. Backordering costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. True False

16. Foregone profit margins are considered as relevant aggregate operations planning costs. True False

17. Costs incurred in hiring, training and laying off personnel are considered relevant aggregate operations planning costs. True False

18. The aggregate operations plan is developed from the master schedule and the strategic capacity plan. True False

19. The widespread adoption of computing technology has led to the virtual abandonment of simple cut-and-try charting and graphical methods to develop aggregate operations plans. True False

20. The increasing complexity of modern operations management has made simple cut-andtry charting and graphical methods formerly used to develop aggregate operations plans impractical and obsolete. True False

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Chapter 12 - Aggregate Operations Planning

21. In a services organization strategic capacity planning follows process planning. True False

22. In a logistics organization vehicle dispatching immediately precedes vehicle loading. True False

23. Yield management is the process of allocating the right type of capacity to the right type of customer at the right prices at the right time to maximize revenue or yield. True False

24. Order scheduling is the step in the aggregate operations planning process that immediately follows material requirements planning. True False

25. The master production schedule is a crucial input into the aggregate operations plan. True False

26. In services, once the aggregate staffing level is determined, the focus is on short-term workforce and customer scheduling. True False

27. The aggregate operations planning variable "production rate" refers to the number of units completed per unit of time. True False

28. The aggregate operations planning variable "workforce level" refers to the number of workers needed to accomplish the planned production. True False

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Chapter 12 - Aggregate Operations Planning

29. The aggregate operations planning variable "inventory on hand" refers to the balance of unused inventory carried over from the previous time period. True False

30. Because a level production strategy does not require adjustment in the short-to-medium term, aggregate sales and operations planning is not required. True False

31. The essence of yield management is the ability to manage supply. True False

32. One of the conditions that make yield management effective is when inventory is easily stored and held for a time when demand is stronger. True False

33. Yield management is an important tool that can be used to shape demand patterns. True False

34. Firms facing cyclical demand fluctuations would be wise to introduce complementary products whose cycles are the same as their current products. True False

35. Firms that match the production rate to the order rate by hiring and laying off employees as the order rate varies are following what is known as the chase strategy. True False

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Chapter 12 - Aggregate Operations Planning


Multiple Choice Questions

36. In an overview of the major operations planning activities in a typical organization, which of the following activities precedes aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Master production scheduling D. Materials requirements planning E. Order scheduling

37. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities follows aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Vehicle loading D. Materials requirements planning E. Order scheduling

38. In an overview of the major operations planning activities in a typical service organization, which of the following activities follows aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Master scheduling D. Materials requirements planning E. Order scheduling

39. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities immediately follows aggregate sales and operations planning? A. Process planning B. Strategic capacity planning C. Vehicle dispatching D. Vehicle capacity planning E. Warehouse receipt planning

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Chapter 12 - Aggregate Operations Planning

40. The main purpose of aggregate operations planning is to specify the optimal combination of which of the following? A. Workforce levels and inventory on hand B. Inventory on hand and financing costs for that inventory C. The strategic plan and the products available for sale D. The workforce level and the degree of automation E. Operational costs and the cash flow to support operations

41. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Inventory levels and market demand B. Raw material availability and competitor's behavior C. Current workforce and economic conditions D. Current physical capacity and market demand E. Subcontractor capacity and inventory levels

42. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Competitors' behavior and economic conditions B. Market demand and inventory levels C. Subcontractor capacity and current workforce D. Economic conditions and current physical capacity E. Raw material availability and inventory levels

43. In conducting aggregate operations planning there are a number of required inputs. Which of the following are considered inputs internal to the firm? A. Inventory levels and economic conditions B. Market demand and subcontractor capacity C. Current physical capacity and current workforce D. Competitor behavior and current workforce E. Current physical capacity and raw material availability

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Chapter 12 - Aggregate Operations Planning

44. Which of the following is a production planning strategy presented in the textbook? A. Level B. Strategic C. Balanced D. Synchronous E. Optimal

45. Which of the following is considered a "pure" production planning strategy? A. Variable workforce, stable work hours B. Lag demand C. Level playing field D. Stable workforce, variable work hours E. Product warehouse

46. Matching the production rate to the order rate by hiring and laying off employees as the order rate varies is which of the following pure production planning strategies? A. Stable workforce, variable work hours B. Chase C. Level D. Meeting demand E. Minimizing inventory

47. Maintaining a stable workforce working at a constant output rate while shortages and surpluses are absorbed by fluctuating inventory levels, order backlogs and allowing lost sales is which of the following production planning strategies? A. Stable workforce, variable work hours B. Chase C. Level D. Full employment E. Skill maintenance

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Chapter 12 - Aggregate Operations Planning

48. Which of the following costs are relevant to aggregate operations planning? A. Sunk costs B. Transaction costs C. Backordering costs D. Legal costs E. Fixed costs

49. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 100 units, the demand forecast is 1,200, and the necessary safety stock is 20% of the demand forecast, which of the following is the production requirement? A. 1,200 B. 1,300 C. 1,340 D. 1,500 E. 1,540

50. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 500 units, the demand forecast is 1,000, and the necessary safety stock is 10% of the demand forecast, which of the following is the production requirement? A. 1,000 B. 600 C. 550 D. 450 E. 100

51. An advantage of the level strategy for aggregate operations planning is which of the following? A. Total costs through the entire system are minimized. B. There is a smooth flow throughout the production system C. There is variety for the workers through the mixing of models produced D. The risk of backorders is minimized E. Customer service is improved

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Chapter 12 - Aggregate Operations Planning

52. An advantage of the level strategy for aggregate operations planning is which of the following? A. Purchased items from vendors can be delivered when and where needed B. High level of scheduling allows for workers to have lots of overtime C. System can better accommodate unexpected large orders D. Financial requirements are minimized through lower finished goods inventory E. It is easier to apply linear programming or simulation

53. Which of the following methods requires generating several alternative aggregate plans? A. Trial and error B. Production smoothing C. Graphing and charting D. Aggregate plan simulation E. Cut and try

54. From an operational perspective yield management is most effective under which of the following circumstances? A. Demand cannot be segmented by customer B. Inventory is perishable C. Fixed costs are low and variable costs are high D. The customer is a "captive" of the system E. The firm doing yield management is very profitable

55. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customer B. The product can be sold in advance C. Demand is highly variable D. Fixed costs are high and variable costs are low E. Demand is stable and close to capacity

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Chapter 12 - Aggregate Operations Planning

56. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customer B. The product can be sold in advance C. The product can be kept to be sold when demand is stronger D. Fixed costs are high and variable costs are low E. Demand is highly variable

Fill in the Blank Questions

57. What are the four main categories of cost relevant to aggregate operations planning? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ ________________________________________

58. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 400 units, the demand forecast is 900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ___________ ________________________________________

59. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If beginning inventory is 4,000 units, the demand forecast is 2,900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ____________ ________________________________________

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Chapter 12 - Aggregate Operations Planning

60. What are the five conditions named in the text that support yield management from an operational perspective? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ 5. ____________________________ ________________________________________

61. What are four advantages of level production that make it the backbone of JIT production? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ ________________________________________

Essay Questions

62. What are the three basic production planning strategies? 1. ____________________________ 2. ____________________________ 3. ____________________________

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Chapter 12 - Aggregate Operations Planning

63. Explain how yield management works and why some companies are able to use it to manage demand patterns?

64. Describe the aggregate sales and operations planning process.

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Chapter 12 - Aggregate Operations Planning

Chapter 12 Aggregate Operations Planning Answer Key

True / False Questions

1. The aggregate operations plan translates annual and quarterly business plans into broad labor and output plans for the intermediate term of 3 to 18 months. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

2. The objective of the aggregate operations plan is to insure that the marketing and sales plans are realistic. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

3. The aggregate operations plan differs in virtually every aspect in service organizations as contrasted with manufacturing organizations. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

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Chapter 12 - Aggregate Operations Planning

4. The sales and marketing plans are typically developed separately from the aggregate operations plan as a way of cross-checking results to insure the integrity of assumptions about the future. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

5. Aggregate sales and operations planning occurs in a company about every 3 to 18 months. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

6. Aggregation in sales and operations planning is by groups of customers on the supply side and by product families on the demand side of the firm's supply chain. FALSE

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

7. Accurate medium-range planning increases the likelihood of operating within the limits of a budget. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

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Chapter 12 - Aggregate Operations Planning

8. The main purpose of the aggregate production plan is to specify the optimal combination of workforce level and inventory on hand. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

9. The International Aggregate Planning Society (IAPS) has developed aggregate operations planning guidelines which are followed by a majority of manufacturing firms. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

10. The sales and operations planning process consists of a series of meetings. TRUE

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

11. The sales and operations planning process is made up of a variety of analytical techniques which interact to produce short and intermediate term goals. FALSE

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

12-17

Chapter 12 - Aggregate Operations Planning

12. Subcontracting is viewed as a risky strategy because the firm may loose control of product design and pricing. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

13. The aggregate operations plan should not be updated but should be followed precisely until the planning horizon has passed. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

14. Fixed and variable costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

15. Backordering costs incurred in producing a given product type in a given time period are relevant aggregate operations planning costs. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

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Chapter 12 - Aggregate Operations Planning

16. Foregone profit margins are considered as relevant aggregate operations planning costs. FALSE

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

17. Costs incurred in hiring, training and laying off personnel are considered relevant aggregate operations planning costs. TRUE

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

18. The aggregate operations plan is developed from the master schedule and the strategic capacity plan. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

19. The widespread adoption of computing technology has led to the virtual abandonment of simple cut-and-try charting and graphical methods to develop aggregate operations plans. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

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Chapter 12 - Aggregate Operations Planning

20. The increasing complexity of modern operations management has made simple cut-andtry charting and graphical methods formerly used to develop aggregate operations plans impractical and obsolete. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

21. In a services organization strategic capacity planning follows process planning. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

22. In a logistics organization vehicle dispatching immediately precedes vehicle loading. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

23. Yield management is the process of allocating the right type of capacity to the right type of customer at the right prices at the right time to maximize revenue or yield. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

12-20

Chapter 12 - Aggregate Operations Planning

24. Order scheduling is the step in the aggregate operations planning process that immediately follows material requirements planning. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

25. The master production schedule is a crucial input into the aggregate operations plan. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

26. In services, once the aggregate staffing level is determined, the focus is on short-term workforce and customer scheduling. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

27. The aggregate operations planning variable "production rate" refers to the number of units completed per unit of time. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

12-21

Chapter 12 - Aggregate Operations Planning

28. The aggregate operations planning variable "workforce level" refers to the number of workers needed to accomplish the planned production. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

29. The aggregate operations planning variable "inventory on hand" refers to the balance of unused inventory carried over from the previous time period. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

30. Because a level production strategy does not require adjustment in the short-to-medium term, aggregate sales and operations planning is not required. FALSE

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

31. The essence of yield management is the ability to manage supply. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 3 Taxonomy: Knowledge Topic: Yield Management

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Chapter 12 - Aggregate Operations Planning

32. One of the conditions that make yield management effective is when inventory is easily stored and held for a time when demand is stronger. FALSE

AACSB: Analytic Difficulty: Medium Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

33. Yield management is an important tool that can be used to shape demand patterns. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

34. Firms facing cyclical demand fluctuations would be wise to introduce complementary products whose cycles are the same as their current products. FALSE

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

35. Firms that match the production rate to the order rate by hiring and laying off employees as the order rate varies are following what is known as the chase strategy. TRUE

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

12-23

Chapter 12 - Aggregate Operations Planning


Multiple Choice Questions

36. In an overview of the major operations planning activities in a typical organization, which of the following activities precedes aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Master production scheduling D. Materials requirements planning E. Order scheduling

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

37. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities follows aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Vehicle loading D. Materials requirements planning E. Order scheduling

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

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Chapter 12 - Aggregate Operations Planning

38. In an overview of the major operations planning activities in a typical service organization, which of the following activities follows aggregate sales and operations planning? A. Process planning B. Workforce scheduling C. Master scheduling D. Materials requirements planning E. Order scheduling

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

39. In an overview of the major operations planning activities in a typical logistics organization, which of the following activities immediately follows aggregate sales and operations planning? A. Process planning B. Strategic capacity planning C. Vehicle dispatching D. Vehicle capacity planning E. Warehouse receipt planning

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

12-25

Chapter 12 - Aggregate Operations Planning

40. The main purpose of aggregate operations planning is to specify the optimal combination of which of the following? A. Workforce levels and inventory on hand B. Inventory on hand and financing costs for that inventory C. The strategic plan and the products available for sale D. The workforce level and the degree of automation E. Operational costs and the cash flow to support operations

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

41. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Inventory levels and market demand B. Raw material availability and competitor's behavior C. Current workforce and economic conditions D. Current physical capacity and market demand E. Subcontractor capacity and inventory levels

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

42. In conducting aggregate operations planning there are a number of required inputs. Which of the following are inputs considered external to the firm? A. Competitors' behavior and economic conditions B. Market demand and inventory levels C. Subcontractor capacity and current workforce D. Economic conditions and current physical capacity E. Raw material availability and inventory levels

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

12-26

Chapter 12 - Aggregate Operations Planning

43. In conducting aggregate operations planning there are a number of required inputs. Which of the following are considered inputs internal to the firm? A. Inventory levels and economic conditions B. Market demand and subcontractor capacity C. Current physical capacity and current workforce D. Competitor behavior and current workforce E. Current physical capacity and raw material availability

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Understanding Topic: What Is Sales and Operations Planning?

44. Which of the following is a production planning strategy presented in the textbook? A. Level B. Strategic C. Balanced D. Synchronous E. Optimal

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

45. Which of the following is considered a "pure" production planning strategy? A. Variable workforce, stable work hours B. Lag demand C. Level playing field D. Stable workforce, variable work hours E. Product warehouse

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

12-27

Chapter 12 - Aggregate Operations Planning

46. Matching the production rate to the order rate by hiring and laying off employees as the order rate varies is which of the following pure production planning strategies? A. Stable workforce, variable work hours B. Chase C. Level D. Meeting demand E. Minimizing inventory

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

47. Maintaining a stable workforce working at a constant output rate while shortages and surpluses are absorbed by fluctuating inventory levels, order backlogs and allowing lost sales is which of the following production planning strategies? A. Stable workforce, variable work hours B. Chase C. Level D. Full employment E. Skill maintenance

AACSB: Analytic Difficulty: Easy Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

48. Which of the following costs are relevant to aggregate operations planning? A. Sunk costs B. Transaction costs C. Backordering costs D. Legal costs E. Fixed costs

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

12-28

Chapter 12 - Aggregate Operations Planning

49. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 100 units, the demand forecast is 1,200, and the necessary safety stock is 20% of the demand forecast, which of the following is the production requirement? A. 1,200 B. 1,300 C. 1,340 D. 1,500 E. 1,540

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Analysis Topic: The Aggregate Operations Plan

50. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 500 units, the demand forecast is 1,000, and the necessary safety stock is 10% of the demand forecast, which of the following is the production requirement? A. 1,000 B. 600 C. 550 D. 450 E. 100

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Analysis Topic: The Aggregate Operations Plan

12-29

Chapter 12 - Aggregate Operations Planning

51. An advantage of the level strategy for aggregate operations planning is which of the following? A. Total costs through the entire system are minimized. B. There is a smooth flow throughout the production system C. There is variety for the workers through the mixing of models produced D. The risk of backorders is minimized E. Customer service is improved

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Analysis Topic: The Aggregate Operations Plan

52. An advantage of the level strategy for aggregate operations planning is which of the following? A. Purchased items from vendors can be delivered when and where needed B. High level of scheduling allows for workers to have lots of overtime C. System can better accommodate unexpected large orders D. Financial requirements are minimized through lower finished goods inventory E. It is easier to apply linear programming or simulation

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

53. Which of the following methods requires generating several alternative aggregate plans? A. Trial and error B. Production smoothing C. Graphing and charting D. Aggregate plan simulation E. Cut and try

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Understanding Topic: The Aggregate Operations Plan

12-30

Chapter 12 - Aggregate Operations Planning

54. From an operational perspective yield management is most effective under which of the following circumstances? A. Demand cannot be segmented by customer B. Inventory is perishable C. Fixed costs are low and variable costs are high D. The customer is a "captive" of the system E. The firm doing yield management is very profitable

AACSB: Analytic Difficulty: Medium Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

55. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customer B. The product can be sold in advance C. Demand is highly variable D. Fixed costs are high and variable costs are low E. Demand is stable and close to capacity

AACSB: Analytic Difficulty: Medium Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

56. From an operational perspective yield management is least effective under which of the following circumstances? A. Demand can be segmented by customer B. The product can be sold in advance C. The product can be kept to be sold when demand is stronger D. Fixed costs are high and variable costs are low E. Demand is highly variable

AACSB: Analytic Difficulty: Medium Learning Objective: 3 Taxonomy: Understanding Topic: Yield Management

12-31

Chapter 12 - Aggregate Operations Planning

Fill in the Blank Questions

57. What are the four main categories of cost relevant to aggregate operations planning? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ (1.) Basic production costs; (2.) Costs associated with changes in the production rate; (3.) Inventory holding costs; (4.) Backordering costs.

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

58. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If the beginning inventory is 400 units, the demand forecast is 900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ___________ 590

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Analysis Topic: The Aggregate Operations Plan

59. Using the cut-and-try method for aggregate operations planning we can determine the production requirement in units of product. If beginning inventory is 4,000 units, the demand forecast is 2,900 units, and the required safety stock is 10% of the demand forecast, what is the production requirement? ____________ 0 (zero)

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Analysis Topic: The Aggregate Operations Plan

12-32

Chapter 12 - Aggregate Operations Planning

60. What are the five conditions named in the text that support yield management from an operational perspective? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ 5. ____________________________ (1.) Demand can be segmented by customer; (2.) Fixed costs are high and variable costs are low; (3.) Inventory is perishable; (4.) Product can be sold in advance; (5.) Demand is highly variable.

AACSB: Analytic Difficulty: Hard Learning Objective: 3 Taxonomy: Knowledge Topic: Yield Management

61. What are four advantages of level production that make it the backbone of JIT production? 1. ____________________________ 2. ____________________________ 3. ____________________________ 4. ____________________________ (1.) The entire system can be planned to minimize inventory and work-in-process; (2.) Product modifications are up-to-date because of the low level of work-in-process; (3.) There is a smooth flow throughout the production system; (4.) Purchased items can be delivered by vendors when needed.

AACSB: Analytic Difficulty: Medium Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

12-33

Chapter 12 - Aggregate Operations Planning


Essay Questions

62. What are the three basic production planning strategies? 1. ____________________________ 2. ____________________________ 3. ____________________________ (1.) Chase; (2.) Stable workforcevariable work hours; (3.) Level.

AACSB: Analytic Difficulty: Easy Learning Objective: 2 Taxonomy: Knowledge Topic: The Aggregate Operations Plan

63. Explain how yield management works and why some companies are able to use it to manage demand patterns? Yield management is discussed in the text on pages 372-374. It is, in essence, a method used by service firms (typically) that have limited and inflexible capacity to match short-term demand to that capacity. The technique capitalizes on short-term supply/demand relationships involving price with the service firm manipulating price either upwards or downwards to just fill their available capacity. Lower matinee movie prices, discount air-fares, lowered weekend hotel rates and higher weekend golf course green fees are examples of yield management. A successful answer to this question will also indicate that firms that are successful at using yield management have excellent forecasting skills and a well trained staff who are skilled at dealing with customers who may be disappointed to find an activity which they have booked turns out to have no room for them.

AACSB: Analytic Difficulty: Hard Learning Objective: 3 Taxonomy: Synthesis Topic: Yield Management

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Chapter 12 - Aggregate Operations Planning

64. Describe the aggregate sales and operations planning process. In the text, this is addressed on page 356. The aggregate sales and operations planning process is essentially a series of meetings designed to insure that all facets of the business are "on the same page." Although sophisticated analysis both precedes and flows from the process, it is the open and honest communications that takes place in these meetings that truly adds value to the process. The process synchronizes the needs of sales and operations over a three to eighteen month horizon, seeking to develop a collaborative relationship. In addition to sales and operations executives, senior management is intimately involved in the process.

AACSB: Analytic Difficulty: Medium Learning Objective: 1 Taxonomy: Knowledge Topic: What Is Sales and Operations Planning?

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