Capacity

Critical thinking Exercises

1. A computer repair service has a design capacity of 80 repairs per day. Its effective capacity,
however, is 64 repairs per day, and its actual output is 62 repairs per day. The manager would
like to increase the number of repairs per day. Which of the following factors would you
recommend that the manager investigate: quality problems, absenteeism, or scheduling and
balancing? Explain your reasoning.

2. Compared to manufacturing, service requirements tend to be more time dependent, location

dependent, and volatile. In addition, service quality is often directly observable by customers.
Find a recent article in a business magazine that describes how a service organization is
struggling with one or more of these issues and make recommendations on what an
organization needs to do to overcome these difficulties.

3. Identify four potential unethical actions or inactions related to capacity planning, and the
ethical principle each violates.

4. Any increase in efficiency also increases utilization. Although the upper limit on efficiency is
100%, what can be done to achieve still higher levels of utilization?

5. One approach that can be effective in reducing the impact of production bottlenecks in a job
shop or batch operations setting is to use smaller lot sizes.
a. What is the impact of a production bottleneck?
b. Explain how small lot sizes can reduce the impact of bottleneck operations.
c.What are the key trade-offs in using small lot sizes for the purpose of reducing the
bottleneck effect?
d. In some cases, the location of a bottleneck will shift (i.e., sometimes it is at workstation
3, another time it is at workstation 12). Furthermore, there can be more than one bottleneck
operation at the same time. How would these situations impact scheduling using small lot
sizes?
 Exercises
1. Determine the utilization and the efficiency for each of these situations:
a. A loan processing operation that processes an average of 7 loans per day. The operation
has a design capacity of 10 loans per day and an effective capacity of 8 loans per day.
b. A furnace repair team that services an average of four furnaces a day if the design
capacity is six furnaces a day and the effective capacity is five furnaces a day.
c. Would you say that systems that have higher efficiency ratios than other systems will
always have higher utilization ratios than those other systems? Explain.
2. The following diagram shows a four-step process that begins with Operation 1 and ends with
Operation 4. The rates shown in each box represent the effective capacity of that operation.
a. Determine the capacity of this process.
b. Which action would yield the greatest increase in process capacity: (1) increase the
capacity of Operation 1 by 15 percent; (2) increase the capacity of Operation 2 by 10 percent;
or (3) increase the capacity of Operation 3 by 10 percent?

Operation 1

3. A producer of pottery is considering the addition of a new plant to absorb the backlog of
demand that now exists. The primary location being considered will have fixed costs of
$9,200 per month and variable costs of 70 cents per unit produced. Each item is sold to
retailers at a price that averages 90 cents.
a. What volume per month is required in order to break even?
b. What profit would be realized on a monthly volume of 61,000 units? 87,000 units?
c. What volume is needed to obtain a profit of $16,000 per month?
d. What volume is needed to provide a revenue of $23,000 per month?
4. An assembly line with 17 tasks is to be balanced. The longest task is 2.4 minutes, and the
total time for all tasks is 18 minutes. The line will operate for 450 minutes per day.
a. What are the minimum and maximum cycle times?
b. What range of output is theoretically possible for the line?
c. What cycle time will provide an output rate of 125 units per day?
d. What output potential will result if the cycle time is (1) 9 minutes? (2) 15 minutes?