Krajewski TIF Chapter 7

Chapter 7 Constraint Management

153

Chapter

7

Constraint Management

TRUE/FALSE

1. Capacity is the maximum rate of output of a process.

Answer: True

Reference: Introduction

Difficulty: Easy

Keywords: capacity, maximum, output

2. Capacity can be expressed by output or input measures.

Answer: True

Reference: The Theory of Constraints

Difficulty: Moderate

Keywords: capacity, input, output

3. Input measures of capacity are inherently more accurate than output measures of capacity.

Answer: False



Keywords: input, output, measure, capacity

4. Utilization is the degree to which equipment, space, or labor is currently being used.

Answer: True


Difficulty: Easy

Keywords: utilization, degree, used

5. Operating processes close to their capacity can result in low customer satisfaction and even losing

money despite high sales levels.

Answer: True



Keywords: capacity, satisfaction

6. A bottleneck is an operation that has the lowest effective capacity of any operation in the process.

Answer: True



Keywords: bottleneck, effective, capacity


154

7. The Theory of Constraints method is also referred to as the drum-beater-rope method.

Answer: False


Difficulty: Easy

Keywords: TOC, theory, constraints, drum, buffer, rope

8. Any work center or machine that has less capacity than other work centers in the same plant is

referred to as a bottleneck.

Answer: True



Keywords: bottleneck, capacity

9. A business school with plenty of classroom space that hires adjunct faculty for a semester to meet

unusually high student demand for courses is an example of elevating a bottleneck.

Answer: True



Keywords: elevate, bottleneck, TOC

10. A bottleneck process has the lowest capacity and the longest total time from the start to the finish.

Answer: True

Reference: Identification and Management of Bottlenecks


Keywords: bottleneck, process, capacity

11. Takt time is the time required to change or readjust a process or operation from making one service or

product to making another.

Answer: False



Keywords: setup, process, takt

12. A competent operations manager should first eliminate all of the bottlenecks from the process.

Answer: False



Keywords: bottleneck, process

13. Short term capacity planning should be driven by identification and management of bottlenecks

Answer: True

Reference: Capacity Planning Over Longer Time Horizons


Keywords: capacity, bottleneck


155

14. One reason economies of scale drive down cost is the spreading of fixed costs.

Answer: True



Keywords: economies, scale, fixed, cost

15. A capacity cushion is the amount of inventory that a firm maintains to handle sudden increases in

demand or temporary loss of production capacity.

Answer: False

Reference: Capacity Timing and Sizing Strategies


Keywords: capacity, cushion

16. Capacity decisions should be made separate from strategic decisions.

Answer: False

Reference: Managing Constraints Across the Organization


Keywords: capacity, decision, strategy

17. A process’s capacity requirement is what the process capacity should be for some future time period

to meet customer demand, allowing for the desired capacity cushion.

Answer: True

Reference: A Systematic Approach to Long-Term Capacity Decisions


Keywords: capacity, requirement, customer, demand

18. Cash flow is the difference between the flows of funds into and out of an organization over a period

of time.

Answer: True



Keywords: cash, flow, time

19. Waiting line models are often used for capacity planning.

Answer: True

Reference: Tools for Capacity Planning


Keywords: waiting, line, capacity

20. A planning horizon is defined as the period beyond which the company does not have customer

orders.

Answer: False

Reference: A Systematic Approach to Long-term Capacity Decisions


Keywords: time, horizon


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MULTIPLE CHOICE

21. Long-term capacity plans deal with:

a. investments in new facilities.

b. workforce size.

c. inventories.

d. overtime budgets.

Answer: a



Keywords: long-term, capacity

22. Short-term capacity decisions that confront managers include production factors such as:

a. capital equipment.

b. additional land.

c. buildings.

d. workforce size.

Answer: d



Keywords: short-term, capacity

23. When a firm provides a relatively small number of standardized products and services:

a. capacity cannot be determined reliably.

b. input measures are typically used.

c. output measures are typically used.

d. utilization becomes equal to capacity.

Answer: c



Keywords: output, measure, capacity

24. Input measures include such metrics as:

a. the number of customers served per hour.

b. the number of trucks produced per day.

c. the number of machine hours available.

d. the number of bills processed in a week.

Answer: c



Keywords: input, measure, capacity


157

25. The degree to which equipment, space, or labor is being used is commonly referred to as:

a. capacity.

b. output.

c. utilization.

d. cushion.

Answer: c



Keywords: utilization, capacity

26. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no

breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3

tons per day because the third shift has devoted much of their time to preventive maintenance. What

is the utilization of the plant?

a. 10 tons/day

b. 7.3 tons/day

c. 73%

d. 137%

Answer: c




27. A rendering plant is capable of producing 10 tons of product per day if run for three shifts with no

breakdowns and plenty of raw materials. Over the past week, the plant has rendered an average of 7.3

tons per day since the third shift has devoted much of their time to preventive maintenance. What is

the capacity of the plant?

a. 10 tons/day

b. 7.3 tons/day

c. 73%

d. 137%

Answer: a




28. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with

minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials,

so the mill has produced an average of 4,575 board feet per day. What is the capacity of the plant?

a. 4,575 board feet/day

b. 10,000 board feet/day

c. 45.75%

d. 219%

Answer: b





158

29. A lumber mill is capable of producing 10,000 board feet of lumber per day if run for ten hours with

minimal breaks. Over the past year, forestry legislation has reduced the availability of raw materials,

so the mill has produced an average of 4,575 board feet per day. What is the utilization of the plant?

a. 4,575 board feet/day

b. 10,000 board feet/day

c. 219%

d. 45.75%

Answer: d




30. The focus for a process improvement exercise should be on balancing:

a. flow.

b. capacity.

c. workload.

d. time.

Answer: a



Keywords: TOC, theory, constraints, flow

31. Consider consecutive processes ABC, where process A has a capacity of 20 units per hour, process B

has a capacity of 25 units per hour, and process C has a capacity of 30 units per hour. Where would

an operations manager NOT want any inventory?

a. in front of process A.

b. in front of process B.

c. in front of an assembly process.

d. in front of a shipping point.

Answer: b



Keywords: TOC, theory, constraints, inventory

32. Use the process flow diagram to determine which of these events has the greatest net benefit.

a. reducing the flow time at Station A from 8 to 7 minutes.

b. increasing the capacity at Station B to 8 units per hour.

c. increasing the capacity at Station C to 7 units per hour.

d. reducing the flow time at Station D from 9 to 8 minutes.

Answer: c



Keywords: TOC, theory, constraints

Station A

1 worker

8 minutes

Station B

1 worker

7 units/hr

Station C

1 worker

6 units/hr

Station D

1 worker

9 minutes


159






Answer: d









Answer: a




35. Work should be released into the system:

a. when a customer order is received.

b. when the first step in the process is idle.

c. when a customer order is completed.

d. when the bottlenecks need work.

Answer: d


Difficulty: Easy

Keywords: TOC, theory, constraints, bottleneck

Station A

1 worker

10 minutes

Station B

1 worker

10 units/hr

Station C

1 worker

8 units/hr

Station D

1 worker

12 minutes

Station A

1 worker

8 minutes

Station B

1 worker

10 units/hr

Station C

1 worker

8 units/hr

Station D

1 worker

6 minutes


160

36. The second step in Theory of Constraints application, “exploit the bottleneck(s),” means that:

a. the analyst should create a schedule that maximizes the throughput of the bottlenecks.

b. the analyst should repeat the analysis process to look for other bottlenecks.

c. the analyst should consider increasing capacity of the bottleneck.

d. the analyst should schedule non-bottleneck resources to support the bottleneck.

Answer: a



Keywords: bottleneck, TOC, theory, constraints

37. The third step in Theory of Constraints application, “subordinate all other decisions to Step 2,” means

that:

a. the analyst should wait for authorization before proceeding with any system-wide changes.

b. the analyst should schedule non-bottleneck processes to support the bottleneck schedule.

c. the analyst should seek to increase capacity of only the bottleneck resources.

d. the analyst should seek to increase capacity of both the bottleneck and non-bottleneck resources.

Answer: b




38. The fourth step in Theory of Constraints application, “elevate the bottleneck(s),” means that:





Answer: c




39. The fifth step in Theory of Constraints application, “do not let inertia set in,” means that:





Answer: b





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40. Bal Seal discovered that it was okay for some workers to have nothing to do at times. The reason for

this is that:

a. these workers were pure production workers.

b. these workers worked at bottleneck processes.

c. these workers were analyzing processes.

d. these workers worked at non-bottleneck processes.

Answer: d




41. There are three consecutive steps in a customer service process. The first two steps are each capable

of serving 25 customers per hour while the third step can process only 20 customers per hour. Which

of the following statements regarding this system is true?

a. The entire system is capable of processing 25 customers per hour.

b. There are floating bottlenecks in the system.

c. If the first two steps are run at full capacity, then the third step has a waiting line.

d. The first and second steps are bottlenecks for the system.

Answer: c




Keywords: capacity, expansionist, strategy

42. The time required to change a machine from making one product or service to the next is called:

a. takt time.

b. setup time.

c. queue time.

d. hold time.

Answer: b



Keywords: setup

43. Which of the following statements regarding setups is TRUE?

a. Unusually high setup times result in higher utilization.

b. Processes are generating output throughout the entire setup process.

c. A machine used in a line process would probably have fewer setups than a batch process.

d. A TOC analyst would not be concerned with setup times on non-bottleneck machines.

Answer: d



Keywords: setup, TOC, bottleneck


162

44. A company makes four products that have the following characteristics: Product A sells for $50 but

needs $20 of materials and $20 of labor to produce; Product B sells for $75 but needs $40 of

materials and $20 of labor to produce; Product C sells for $100 but needs $50 of materials and $30 of

labor to produce; Product D sells for $150 but needs $75 of materials and $40 of labor to produce.

The processing requirements for each product on each of the four machines are shown in the table. Processing Time (min/unit)

Work Center

A B C D

W 6 1 3 12

X 9 10 4 8

Y 4 3 12 9

Z 10 0 7 11

Work centers W, X, Y, and Z are available for 40 hours per week and have no setup time when

switching between products. If market demand for each product is 80 units per week, which work

center is of greatest concern to the operations manager?

a. Work center W.

b. Work center X

c. Work center Y

d. Work center Z

Answer: b



Keywords: TOC, bottleneck






Work Center

A B C D

W 6 1 3 12

X 9 10 4 8

Y 4 3 12 9

Z 10 0 7 11


switching between products. If market demand for each product is 80 units per week, which product

should be scheduled first?

a. Product A.

b. Product B.

c. Product C.

d. Product D.

Answer: c


Difficulty: Hard



163






Work Center

A B C D

W 6 1 3 12

X 9 10 4 8

Y 4 3 12 9

Z 10 0 7 11


switching between products. If market demand for each product is 80 units per week, in what

sequence should products be scheduled for production?

a. D. C. B. A

b. D, C, A, B

c. C, D, A, B

d. C, D, B, A

Answer: d


Difficulty: Hard

Keywords: TOC, bottleneck, sequence






Work Center

A B C D

W 6 1 3 12

X 9 10 4 8

Y 4 3 12 9

Z 10 0 7 11


switching between products. If market demand for each product is 80 units per week, what is the

optimal product mix?

a. 71 A, 80B, 80C, 80 D

b. 80A, 72B, 80C, 80D

c. 80A, 80B, 60C, 80D

d. 80A, 80B, 80C, 70D

Answer: a


Difficulty: Hard

Keywords: TOC, bottleneck, mix


164






Work Center

A B C D

W 8 4 12 10

X 12 9 10 6

Y 8 12 14 5

Z 10 9 5 5


switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. Which

work center is of greatest concern to the operations manager?

a. Work center W

b. Work center X

c. Work center Y

d. Work center Z

Answer: c









Work Center

A B C D

W 8 4 12 10

X 12 9 10 6

Y 8 12 14 5

Z 10 9 5 5


switching between products. Market demand is 50 As, 60 Bs, 70Cs, and 80Ds per week. Which

product should be scheduled first?

a. Product A.

b. Product B.

c. Product C.

d. Product D.

Answer: a





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Work Center

A B C D

W 8 4 12 10

X 12 9 10 6

Y 8 12 14 5

Z 10 9 5 5


switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. In what

sequence should products be scheduled for production?

a. A, D, C, B

b. A, D, B, C

c. D, A, B, C

d. D, A, C, B

Answer: a


Difficulty: Hard

Keywords: TOC, bottleneck, sequence






Work Center

A B C D

W 8 4 12 10

X 12 9 10 6

Y 8 12 14 5

Z 10 9 5 5


switching between products. Market demand is 50 As, 60 Bs, 70 Cs, and 80 Ds per week. What is the

optimal product mix?

a. 37 A, 60 B, 70 C, 80 D

b. 50 A, 51 B, 70 C, 80 D

c. 50 A, 60 B, 62 C, 80 D

d. 50 A, 60 B, 70 C, 60 D

Answer: b


Difficulty: Hard

Keywords: TOC, bottleneck, mix


166

52. The transition from economies of scale to diseconomies of scale:

a. is more likely to occur in a service operation.

b. is more likely to occur in a manufacturing operation.

c. is more likely to occur when utilization is low.

d. contains the point at which average unit costs are at their lowest.

Answer: d



Keywords: economies, diseconomies, scale

53. At higher output rates, processes tend to:

a. reduce bottlenecks, which results in cost savings.

b. increase bottlenecks, which results in cost savings.

c. shift to line processes, which results in cost savings.

d. shift to batch processes, which results in cost savings.

Answer: c



Keywords: process, output, cost, savings

54. Large, infrequent jumps in capacity are characteristic of companies that:

a. have an expansionist strategy.

b. have a wait-and-see strategy.

c. have low utilization.

d. have high utilization.

Answer: a



Keywords: expansionist, capacity, strategy

55. Which one of the following factors usually motivates a smaller capacity cushion?

a. Unevenly distributed demands

b. High capital intensity

c. High penalty costs for overtime usage

d. Requests for quick customer services

Answer: b



Keywords: capacity, cushion, intensity

56. Which one of the following factors usually calls for a larger capacity cushion?

a. Uncertain demand

b. High capital intensity

c. More reliable equipment

d. High worker flexibility

Answer: a





167

57. Which one of the following statements about capacity is best?

a. Companies with flexible flow processes tend to have small-capacity cushions.

b. Companies with high capital costs tend to have large-capacity cushions.

c. Companies that have considerable customization tend to have larger-capacity cushions.

d. Constant demand rates require larger-capacity cushions.

Answer: c



Keywords: capacity, capital, cushion

58. Which one of the following statements concerning capacity cushions is best?

a. Large-capacity cushions are used more often when future demand is level and known.

b. Small-capacity cushions are used extensively in capital-intensive firms.

c. Capacity cushions are used primarily in manufacturing organizations, not in service organizations.

d. Small cushions are used in organizations where the products and services produced often change.

Answer: b



Keywords: capacity, cushion, capital, intensity

59. If a system is well balanced, which one of the following changes usually calls for a larger-capacity

cushion?

a. Higher capital intensity

b. Higher worker flexibility

c. Higher inventories

d. Requests for fast delivery times

Answer: d



Keywords: system, balanced, cushion, capacity

60. If a system is well balanced, which one of the following changes usually calls for a smaller-capacity

cushion?

a. Higher customization

b. More of a flexible-flow strategy

c. Higher yield losses

d. Higher capital intensity

Answer: d



Keywords: capacity, cushion, capital, intensity


168

61. The single milling machine at Stout Manufacturing was severely overloaded last year. The plant

operates eight hours per day, five days per week, and 50 weeks per year. Management prefers a

capacity cushion of 15 percent. Two major types of products are routed through the milling machine.

The annual demand for product A is 3000 units and 2000 units for product B. The batch size for A is

20 units and 40 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The

standard setup time for product A is 2 hours and 8 hours for product B. How many new milling

machines are required if Stout does not resort to any short-term capacity options?

a. No new machines

b. 1 or 2 new machines

c. 3 or 4 new machines

d. More than 4 new machines

Answer: c



Keywords: capacity, requirement

62. Using Table 7.1, what is the total number of hours required of Mark I equipment for the next year?

a. Fewer than 29,000 hours

b. Between 29,000 and 30,000 hours

c. Between 30,000 and 31,000 hours

d. More than 31,000 hours

Answer: b




Table 7.1

The Union Manufacturing Company is producing two types of products: A and B. The

demand forecasts, batch size, and time standards follow:

Both products are produced on the same machine, called Mark I.


169

63. Use the information in Table 7.1. The company works 250 days per year and operates two shifts, each

covering 8 hours. If a 15 percent capacity cushion is maintained, how many hours of capacity can the

company expect from each of its Mark I machines?

a. Fewer than 3000

b. Between 3000 and 3500

c. Between 3501 and 4000

d. More than 4000

Answer: b




64. The Southeast Manufacturing Company is producing two types of products: A and B. Demand

forecasts for next year and other production-related information are provided in the following table:

Both of these products are produced at the same workstation, called the Automatic Lathe.

Currently, the company has 12 automatic lathes, and financial constraints prevent any expansion

for the next year. It works 250 days per year with two 8-hour shifts and desires a 25 percent

capacity cushion. Which one of the following alternatives will allow next year’s demand to be

fully covered?

a. Do nothing.

b. Increase the capacity cushion to 30 percent.

c. Increase the batch size of product B to 300 units.

d. Decrease the capacity cushion by 1 percent.

Answer: c



Keywords: capacity, requirement, option


170

65. Up, Up & Away is a producer of kites and windsocks. Relevant data concerning their production for

the upcoming fiscal year are as follows:

Assume: 1 shift/day, 8 hours/shift, 5 days/week, and 50 weeks/year

There currently are four machines, and management wants a capacity cushion of 20 percent.

Which of the following alternatives will enable Up, Up & Away to meet all of the upcoming

year’s demand using the minimum number of machines?

a. Add six additional machines.

b. Add five additional machines.

c. Add four additional machines.

d. Add three additional machines.

Answer: b





171

66. The lock box department at Bank 21 handles the processing of monthly loan payments to the bank,

monthly and quarterly premium payments to a local insurance company, and bill payments for 85 of

the bank’s largest commercial customers. The payments are processed by machine operators, with

one operator per machine. An operator can process one payment in 0.25 minute. Setup times are

negligible in this situation. A capacity cushion of 20 percent is needed for the operation. The average

monthly (not annual) volume of payments processed through the department currently is 400,000.

However, it is expected to increase by 20 percent. The department operates eight hours per shift, two

shifts per day, 260 days per year. How many machines (not operators) are needed to satisfy the new

total processing volume? (Round up to the next whole integer.)

a. Fewer than 7

b. 7

c. 8

d. More than 8

Answer: c


Difficulty: Hard


67. Using the information from Table 7.2, what is the minimum total number of hours required of sawing

equipment for the next year?

a. Fewer than 85,000 hours

b. More than 85,000 but fewer than 95,000

c. More than 95,000 but fewer than 105,000

d. More than 105,000 hours

Answer: a


Difficulty: Hard


Table 7.2

High Tech, Inc. is producing two types of products: A and B. Both are produced at the same

sawing operation. Because of demand uncertainties, the operations manager obtained three

demand forecasts (pessimistic, expected, and optimistic). The demand forecasts, batch sizes

(units/batch), processing times (hr/unit), and setup times (hr/batch) follow.

Time Standard Demand Forecasts (000 units/yr)

Product Processing Setup Batch Size Pessimistic Expected Optimistic A .20 2.0 40 200 240 300

B .15 3.0 50 160 180 200

The sawing machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year.

The manager wants to maintain a 10 percent capacity cushion.


172

68. Using the information from Table 7.2, how many hours of capacity can the company expect from

each of its sawing machines?

a. Fewer than 3500 hours

b. More than 3500 hours but fewer than 3700 hours

c. More than 3700 hours but fewer than 3900 hours

d. More than 3900 hours

Answer: b


Difficulty: Hard


69. Using the information from Table 7.2, what is the minimum number of machines needed (assuming

no reliance on short-term options)?

a. Fewer than or equal to 22

b. More than 22 but fewer than or equal to 25

c. More than 25 but fewer than or equal to 28

d. More than 28

Answer: b


Difficulty: Hard


70. Using the information from Table 7.2, what is the maximum number of machines needed (assuming

no reliance on short-term option)?




d. More than 31

Answer: d


Difficulty: Hard


71. Using the information from Table 7.2, if the operation currently has 18 machines and the manager is

willing to expand capacity by 20 percent through short-term options, what is the capacity gap (in

terms of number of machines) if you assume the optimistic demand forecasts?




d. More than 14

Answer: a


Difficulty: Hard



173

72. A company’s production facility, consisting of two identical machines, currently caters only to

product A. The annual demand for the product is 4000 units. Management has now decided to

introduce another product, B, which uses the same facilities as that of product A. Product B has an

annual demand of 2000 units. In view of the uncertainties involved in producing two products,

management desires to have an overall 10 percent capacity cushion. Given the following additional

information, how many more machines are required? (Assume 8 hours/shift, 2 shifts/day, 250

days/year, and that no overtime is allowed).

a. No additional machines are necessary.

b. One additional machine is necessary.

c. Two additional machines are necessary.

d. More than two additional machines are necessary.

Answer: c




73. The Northern Manufacturing Company is producing products A and B, using the same machine

called MASAC27A. Demand forecasts for next year and other production-related information are

provided in the following table.

The company works 250 days per year and operates 2 shifts each day, each shift covering 8

hours. If 25 percent of capacity cushion is maintained throughout the year, how many machines

(MASAC27A) does the company need next year to meet the demand? (Round your answer up to

the next whole machine.)

a. Fewer than 11 machines

b. 11 machines

c. 12 machines

d. More than 12 machines

Answer: c





174

74. Using the information in Table 7.3, what is the total number of hours required for MASAC27A

equipment for the next year?

a. 34,000 hours

b. 34,285 hours

c. 36,820 hours

d. 312,000 hours

Answer: c




75. Use the information in Table 7.3 to help answer this question. Additionally, the company works 250

days every year and operates 2 shifts, each of which covers 8 hours. If a 25 percent capacity cushion

is maintained, how many machines does the company need next year to fully cover the demand?

a. Fewer than 13 machines

b. 13 machines

c. 14 machines

d. More than 14 machines

Answer: b




76. Use the information in Table 7.3 to help answer this question. Currently, the company has 12

MASAC27A machines, and financial constraints prevent any expansion for the next year. Which one

of the following alternatives will allow next year’s demand to be fully covered?

a. Do nothing.

b. Increase the capacity cushion to 30 percent.

c. Increase the batch size of product B to 300 units.

d. Decrease the capacity cushion by 1 percent.

Answer: c




Table 7.3

The North Bend Manufacturing Company is producing two types of products, A and B. Demand

forecasts for next year and other production-related information are provided in the following

table:

Product A Product B

Demand forecast (units/year) 4,000 12,000

Batch size (units/batch) 80 150

Standard processing time (hr/unit) 2.5 2

Standard setup time (hr/batch) 18 24

Both products A and B are produced at the same operation called MASAC27A.


175

77. Musk L. Flexor owns a hot tub store that is experiencing significant growth. Flexor is trying to decide

whether to expand its capacity, which currently is at $750,000 in sales per quarter. He is thinking

about expanding to the $850,000 level. The before-tax profit from additional sales is 20 percent. Sales

are seasonal, with peaks in the spring and summer quarters. Forecasts of capacity requirements,

expressed in ($000) sales per quarter, for next year (year 2) are:

Demand in year 3 and beyond is expected to exceed $850,000 per quarter. Flexor is considering

expansion at the end of the fourth quarter of this year (year 1). How much would before-tax

profits in year 2 increase because of this expansion?

a. Less than $28,000

b. More than $28,000 but less than $32,000

c. More than $32,000 but less than $36,000

d. More than $36,000

Answer: b



Keywords: capacity, profit


176

78. Sleep Tight Motel has the opportunity to purchase an adjacent plot of land. Building on this land

would increase their capacity from the current sales level of $515,000/year to $600,000/year. Sleep

Tight experiences a 20 percent before-tax profit margin. It wishes to estimate the additional before-

tax profits that the expansion will produce. Using the following information, how much more before-

tax cash flow would be realized just in year 10 alone?

a. Less than or equal to $20,000

b. Greater than $20,000 but less than or equal to $25,000

c. Greater than $25,000 but less than or equal to $30,000

d. Greater than 30,000

Answer: a



Keywords: cash, flow

79. Innovative Inc. is experiencing a boom for the products it has introduced recently. The estimated

annual sales projected for the next five years are given in the following table. The current capacity is

equivalent to only $100 million sales. The company is considering the alternative of expanding

capacity to an equivalent of $250 million sales. Assume a 25 percent pretax profit margin. What is the

increase in total pretax cash flow (summed over all years) that would be enjoyed because of the

expansion?

a. Less than or equal to $40 million

b. More than $40 million but less than or equal to $70 million

c. More than $70 million but less than or equal to $100 million

d. More than $100 million

Answer: c





177

80. John Owen owns a drugstore that is experiencing significant growth. Owen is trying to decide

whether to expand its capacity, which currently is $200,000 in sales per quarter. Sales are seasonal.

Forecasts of capacity requirements, expressed in sales per quarter for the next year, follow.

Owen is considering expanding capacity to the $250,000 level in sales per quarter. The before-tax

profit margin from additional sales is 15 percent. How much would before-tax profits increase

next year because of this expansion?





Answer: c




Table 7.4

Mr. Lee is considering a capacity expansion for his supermarket. The annual sales projected

for the next five years follow. The current capacity is equivalent to $300,000 sales. Assume

a 20 percent pretax profit margin.


178

81. Using the information in Table 7.4, if Lee expands the capacity to an equivalent of $360,000 sales

now (year 0), how much would pretax cash flow in year 1 increase because of this expansion?

a. Less than $3000

b. More than $3000 but less than $5000

c. More than $5000 but less than $7000

d. More than $7000

Answer: a





now (year 0), how much would pretax cash flow in year 5 increase because of this expansion?

a. Less than $7000

b. More than $7000 but less than $10,000



Answer: c





now (year 0), and then expands the capacity to an equivalent of $400,000 sales at the beginning of

year 4, how much would pretax cash flow increase in total for all years (years 1 through 5)?





Answer: c




84. When future demand is uncertain and sequential decisions are involved in capacity planning, a

manager should use a:

a. waiting line model.

b. cash flow analysis.

c. decision tree.

d. gap analysis.

Answer: c



Keywords: decision, tree, capacity


179

85. Which of the following descriptions about waiting line models is best?

a. They account for major events such as competitor actions.

b. They account for the random, independent behavior of many customers.

c. They assume that each branch can give the highest expected payoff.

d. They deal with the certainty and stability in demand.

Answer: b



Keywords: waiting, line, model

86. What information would managers use to choose the best cost-effective capacity to balance customer

service with the cost of adding capacity?

a. Decision trees

b. Economies of scale

c. Capacity cushion

d. Waiting line models

Answer: d




FILL IN THE BLANK

87. ____________ is the maximum rate of output for a process.

Answer: Capacity


Difficulty: Easy

Keywords: capacity, maximum, output

88. ____________ is the degree to which equipment, space, or labor is currently being used.

Answer: Utilization


Difficulty: Easy

Keywords: utilization, degree, use

89. ____________ capacity is the maximum output that a process or facility can achieve under ideal

conditions.

Answer: Peak



Keywords: peak, capacity, maximum, output

90. A(n) ____________ is an operation that has the lowest effective capacity of any operation in the

process, and thus limits the system’s output.

Answer: bottleneck


Difficulty: moderate

Keywords: bottleneck, TOC, output


180

91. ____________ is the total time taken from the start to the finish of a process.

Answer: Throughput time


Difficulty: Easy

Keywords: throughput, time

92. Variability of a firm’s workload may create ____________.

Answer: floating bottlenecks


Difficulty: Hard

Keywords: workload, variability, floating, bottleneck

93. With TOC, ____________ are scheduled to maximize their throughput of products while adhering to

promised completion dates.

Answer: bottlenecks




94. Instead of producing products with the highest profit margins, operations managers should focus on

the ____________ generated at the ____________ .

Answer: profit (margin), bottleneck



Keywords: TOC, bottleneck, profit

95. Capacity decisions should be linked closely to ____________ and ____________ throughout the

organization.

Answer: processes, value chains



Keywords: capacity, decision, strategy, process

96. ____________ is the amount of reserve capacity that a firm maintains to handle a sudden increase in

demand or temporary losses of production capacity.

Answer: Capacity cushion



Keywords: capacity, cushion, reserve

97. If demand is increasing, and you also prefer to increase the time between capacity increments, then

the size of increments should ____________.

Answer: increase



Keywords: increase, time, capacity, increments


181

98. A process’s ____________ is what its capacity should be for some future time period to meet the

demand of its customers, allowing for the desired capacity cushion.

Answer: capacity requirement




SHORT ANSWERS

99. Explain why a bottleneck limits system output.

Answer: A bottleneck, by definition, is a process that has less capacity than all other processes in

the system. Just as a chain is as strong as its weakest link, the rest of a production system can

produce only as much as the slowest process. The bottleneck limits capacity by serving to slow

the rest of the system down. Running all other processes at their maximum capacity will result in

inventory buildup in front of the bottleneck.



Keywords: bottleneck, output, TOC

100. Define utilization and give a service process example of it.

Answer: Utilization is expressed as a percent and is the degree to which equipment, space, or

labor is currently being used. Examples will vary.


Difficulty: Easy


101. Describe a process from your own personal experience at home or work that suffers from a lack

of sufficient throughput. Apply the first four TOC steps to address the situation, assuming you have

complete authority to do so.

Answer: Examples will vary. The steps of TOC are (1) identify the system bottleneck(s); (2)

exploit the bottlenecks; (3) subordinate all other decisions to step 2; (4) elevate the bottleneck(s);

and (5) do not let inertia set in.



Keywords: TOC, steps

102. Discuss the relationship between setup time and utilization.

Answer: Setup time is the time required to adjust a process when switching from making one

product to another and is unproductive time in the sense that no product is being built during the

setup. Utilization is the ratio of the average output rate to the maximum capacity. As output rate

increases, the resource is more productive and utilization rises. Setups enable output but do not

create it, so the faster a setup can be performed, the more of the total time is productive, thus

increasing utilization.


Difficulty: Easy

Keywords: setup, utilization


182

103. Give four principal reasons economies of scale can occur when output increases.

Answer: The four reasons are spreading fixed costs, reducing construction costs, cutting costs of

purchased materials, and finding process advantages.



Keywords: economies, scale, output

104. What factors should be considered when selecting the appropriate capacity cushion? How does

the choice of capacity cushion relate to other decisions in operations management? To other

functional areas?

Answer: The appropriate size of the capacity cushion varies by industry. Large cushions are

necessary when future demand is uncertain, resource flexibility is low, product mix changes,

uncertainty exists regarding suppliers, and employee absenteeism and penalty costs for overtime

and subcontracting exist. Small-capacity cushions reduce costs and expose problems in the

system. Capacity cushions are linked to competitive priorities, quality management, capital

intensity, resource flexibility, inventory, scheduling, and location. Obviously, many of these

decisions cut across functional boundaries.


Difficulty: Hard


105. What are the four steps involved in making capacity decisions?

Answer: The steps are estimate future capacity requirements, identify gaps by comparing

requirements with alternatives, develop alternative plans for filling the gaps, and evaluate

alternatives, both qualitatively and quantitatively, and make a final choice.



Keywords: capacity, decision, steps

106. Define each of the following capacity strategies: expansionist, wait-and-see, and follow-the-

leader.

Answer: Expansionist means large, infrequent jumps in capacity. Wait-and-see means smaller

and more frequent jumps. Follow-the-leader means to expand when others do.



Keywords: capacity, strategy, wait, follow

107. What is a waiting line model, and what information can it provide?

Answer: Waiting line models use probability distributions to estimate delay times, line length,

and utilization.



Keywords: waiting, line, model, capacity


183

PROBLEMS

108. Lucy’s Pancake House, a no-frills diner along a major interstate, has discovered that if precious

employee time is not wasted on frivolous duties such as cleaning work surfaces, properly storing

ingredients, and pest control, they can achieve an average output rate of 25 customers per hour. If the

diner was designed to accommodate a maximum of 30 customers per hour, what is the utilization?

Answer:

100%

25100% 83.3%

30

Average Output RateUtilization

Maximum capacity

Utilization


Difficulty: Easy


109. Schmidt Industries makes four different snake traps; the Harlan, the Gaylen, the Leah and the

Matthew. The Harlan sells for $200 and has $40 in parts and $40 in labor; the Gaylen sells for $150

and requires $30 in parts and $30 in labor; the Leah sells for $100 and has $20 in parts and $20 in

labor; and the Matthew sells for $75 but requires only $10 of parts and $10 of labor. Schmidt

Industries has four machines (we’ll call them A, B, C, and D for convenience) that are used in the

production of each of these products. Each of these machines is available for 40 hours a week and

there is no setup time required when shifting from the production of one product to any other. The

processing requirements to make one unit of each product are shown in the table.

Processing Time on Each Machine in Minutes

Model Machine A Machine B Machine C Machine D

Harlan 10 15 15 5

Gaylen 10 10 10 10

Leah 5 10 15 10

Matthew 5 5 5 10

Schmidt Industries has monthly fixed costs of $5000 and has a demand forecast of 80 Harlans, 60

Gaylens, 40 Leahs and 20 Matthews for the coming month. How many of each of the four models

should Susan, the operations manager, schedule for production this month?


184

Answer:

The processing requirements for the demand forecast result in a need for:

The contribution margin per bottleneck minute is:

Products should be produced in Matthew, Gaylen, Harlan, and Leah order. The product mix is 20

Matthews (using 100 minutes of Machine C); 60 Gaylens (using 600 minutes of Machine C); 80

Harlans (using 1200 minutes of Machine C); and 33 Leahs (using up the remaining 500 minutes

of Machine C time)


Difficulty: Hard


110. The single milling machine at Fred’s Manufacturing was severely overloaded last year. The

plant operates 8 hours per day, 5 days per week, and 50 weeks per year. Management prefers a

capacity cushion of 20 percent. Two major types of products are routed through the milling machine.

The annual demand for product A is 4000 units and 3000 units for product B. The batch size for A is

20 units and 30 units for B. The standard processing time for A is 0.5 hours/unit and 0.8 for B. The

standard setup time for product A is 2 hours and 8 hours for product B. How many new milling

machines are required if Fred’s does not resort to any short-term capacity options?

Answer:

product 1 product 2

( / ) ( / )

1 ( /100)

Dp D Q s Dp D Q sM

N C

where M = number of machines required, D = number of units forecast per year, p = processing

time in hours per unit, N = total number of hours per year that the process operates, C = desired

capacity cushion, Q = number of units in each batch, and s = setup time.

product product

4000(.5) (4000/ 20)2 3000(.8) (3000/30)83.5 4

2000 1 (20/100)

A BM

machines.




: 80 10 60 10 40 5 20 5 1700 2400

B : 80 15 60 10 40 10 20 10 2300 2400

C : 80 15 60 10 40 15 20 10 2500 2400 Bottleneck

D : 80 5 60 10 40 10 20 10 1600 2400

Machine A

Machine

Machine

Machine

Harlan : (200 - 40 - 40)/15 = $8/min

Gaylen : (150 - 30 - 30)/10 = $9/min

Leah : (100 - 20 - 20)/15 = $4/min

Matthew : (75 - 10 - 10)/5 = $11/min


185

111. The Union Manufacturing Company is producing two types of products: A and B. The demand

forecasts, batch size, and time standards for the Mark I operation follow:

The company works 250 days per year and operates 2 shifts, each covering 8 hours. If a 20

percent capacity cushion is maintained, how many new Mark I machines are required if Union

does not resort to any short-term capacity options?

Answer:

product1 product2

( / ) ( / )

1 ( /100)

Dp D Q s Dp D Q sM

N C

where M = number of machines required, D = number of units forecast per year, p = processing

time (in hours per unit), N = total number of hours per year that the process operates, C = desired

capacity cushion, Q = number of units in each batch, and s = setup time.

product product

1000(3.2) (1000/ 20)10 4000(4.5) (4000/10)209.28 10

4000 1 (20/100)

A BM

machines.





186

112. Larry’s Wickets, Inc. is producing two types of products: A and B. Both are produced at the

same machining operation. Because of demand uncertainties, the operations manager obtained three

demand forecasts (pessimistic, expected, and optimistic). The demand forecasts, batch sizes

(units/batch), processing times (hr/unit), and setup times (hr/batch) follow.

Time Standard Demand Forecasts (000 units/yr)

Product Processing Setup Batch Size Pessimistic Expected Optimistic

A .30 1.0 200 100 120 150

B .25 2.0 100 190 210 230

The machines operate on two 8-hour shifts, 5 days per week, and 50 weeks per year. The manager

wants to maintain a 20 percent capacity cushion.

a. What is the minimum number of hours required of the machining equipment for the next year?

b. How many hours of capacity can the company expect from each machine?

c. What is the minimum number of machines needed (assuming no reliance on short-term options)?

d. What is the maximum number of machines needed (assuming no reliance on short-term

options)?


187

Answer:

Inputs

Solver—Capacity Requirements

Enter data in gray shaded areas.

Shifts/Day 2 Components 2

Hours/Shift 8

Days/Week 5 More Components

Weeks/Year 50 Fewer Components

Cushion (as %) 20%

Current Capacity

Processing Setup Lot Size Demand Forecasts

Components (hr/unit) (hr/lot) (units/lot) Pessimistic Expected Optimistic

A 0.30 1.0 200 100,000 120,000 150,000

B 0.25 2.0 100 190,000 210,000 230,000

Productive hours from

one capacity unit for a year 3,200

Pessimistic Expected Optimistic

Process Setup Process Setup Process Setup

A 30,000 500.0 36,000 600.0 45,000 750.0

B 47,500 3,800.0 52,500 4,200.0 57,500 4,600.0

77,500 4,300.0 88,500 4,800.0 102,500 5,350.0

Total hours required 81,800.0 93,300.0 107,850.0

Total capacity requirements (M) 25.56 29.16 33.70

Rounded 26 30 34

Scenarios that can be met with current systems/capacity:

a, 81,800 hours

b. 3,200 hours

c. 26 machines

d. 34 machines Reference: A Systematic Approach to Long-Term Capacity Decisions

Difficulty: Hard

Keywords: capacity, cushion, requirement

Documents

Krajewski TIF Chapter 7