Management, Hitt, Black, Porter, Test Bank, Vahdi Boydaş, Mensur Boydaş,

CHAPTER 13: OPERATIONS MANAGEMENTMultiple Choice Questions

1. Michelle Jackson and other operations managers realized that _____ will be needed to reduce bottlenecks and increase operational efficiency at BNSF Railway Company.a. increasing total volume and reducing service qualityb. decreasing total volume and improving service qualityc. increasing total volume and improving service qualityd. none of the above

Answer: c (p. 371, difficult, recall)

2. _____ is a specialized field of management associated with the conversion or transformation of resources into products and services.a. Strategic managementb. Operations managementc. Production managementd. Supply-chain management

Answer: b (p. 371, easy, recall)

3. Managers who work in operations are typically concerned with all of the following EXCEPT for the _____.a. appropriate quality of products and servicesb. right quantity of products and servicesc. timely delivery of products and servicesd. creation and design of products and services

Answer: d (p. 372, moderate, integration)

4. All of the following EXCEPT _____ are elements of the quality of a product or service.a. priceb. reliabilityc. serviceabilityd. dependability

Answer: a (p. 372, moderate, recall)

5. _____ is a management philosophy that involves a commitment from all levels of employees to continually strive to make improvements and satisfy customers. a. Capacity planningb. Total quality managementc. Statistical process controld. Just-in-time systemization

228Copyright © (2009) Pearson Education, Inc. Publishing as (Prentice Hall)

Answer: b (p. 373, easy, recall)

6. The TQM concept of “quality at the source” involves _____.a. cost controls and statistical analysisb. computer-aided design and work standardizationc. capacity planning and operational protractiond. quantitative techniques and employee empowerment


7. _____ is a quantitative tool to aid in making decisions concerning how well a process is performing. a. Employee empowermentb. Statistical process control c. Total quality managementd. Electronic data interchange

Answer: b (p. 373, easy, recall, AACSB: Information Technology)

8. The term _____ refers to the incremental and breakthrough improvements in the way an organization does business. a. computer-aided engineeringb. electronic data interchangec. statistical process controld. continuous process improvement

Answer: d (p. 374, easy, recall)

9. The fundamental notion of process reengineering is that _____.a. function influences formb. form influences functionc. form and function exist independentlyd. form and function are irrelevant to the process

Answer: b (p. 374, difficult, recall)

10. Which of the following is NOT one of the five key elements of process reengineering?a. designb. objectivec. environmentd. infrastructure

Answer: c (p. 374, moderate, application)


11. _____ is a disciplined, data-driven approach for eliminating defects and enhancing quality, with an orientation toward the impact such improvements will have on the customer.a. Six Sigmab. ABC analysisc. PERT analysisd. CAD/CAM

Answer: a (p. 375, moderate, recall, AACSB: Information Technology)

12. Which of the following is critical to the TQM philosophy?a. employee empowermentb. commitment by top managersc. strong focus on customer needs and expectationsd. all of the above


13. Managers use capacity planning to _____.a. ensure that total inventory costs are minimizedb. make decisions concerning how well a process is performingc. categorize items to produce a list of items that require the most controld. determine how much of a product or service a firm should be able to produce

Answer: d (p. 376, moderate, application)

14. The _____ is the maximum capacity at which a facility can run under ideal conditions. a. design capacityb. effective capacityc. optimal capacityd. none of the above


15. _____ is the percent of design capacity a facility is actually expected to maintain.a. Expected capacityb. Effective capacity c. Projected capacityd. Extended capacity

Answer: b (p. 376, moderate, recall)


16. _____ is a system of getting the right materials to the right place at the right time.a. Flexible manufacturingb. Total quality managementc. Computer-assisted deliveryd. Materials requirement planning

Answer: d (p. 377, easy, recall)

17. Which of the following is NOT a basic approach to inventory management?a. ABC analysisb. EOQc. TQMd. all of the above


18. Retail managers can use _____ to determine which inventory items require the most attention.a. EOQ modelingb. CSI factoring c. ABC analysisd. LIFO analysis


19. Managers use the _____ model to determine the most economical quantity of products to order, so that total inventory costs are minimized.a. ECIb. EOQc. IQAd. TQM

Answer: b (p. 378, difficult, recall)

20. The term _____ is used to describe a situation in which a company cannot get products and services to customers when they want them.a. stock outs b. rain checksc. lock downs d. planned obsolescence



21. _____ refer to inventory management and control systems that ensure the timely delivery of a product or service and related inputs. a. Just-in-time systemsb. Supply-chain systemsc. Continuous improvement mechanismsd. Statistical process control techniques

Answer: a (p. 379, easy, recall)

22. Operations managers contribute to the profitability of Zara clothing stores in all of the following ways EXCEPT _____.a. higher sales per square foot of retail spaceb. cutting-edge clothing designs and stylesc. reductions in inventory stores have to carryd. faster delivery of new products to the market

Answer: b (p. 380, difficult, integration)

23. The benefits of implementing a JIT inventory system include all of the following EXCEPT _____.a. the creation of new jobs to manage excess inventoryb. improving productivity and quality by reducing labor and equipment timec. reducing inventory levels to only the parts or supplies that are needed at the timed. decreasing the time needed to make and deliver products or services to customers

Answer: a (p. 381, moderate, integration, AACSB: Information Technology)

24. A _____ is a nonmathematical graphical representation of projects used by managers to help monitor the progress of projects.a. PERT chartb. Gantt chartc. CPM chartd. JIT system


25. Gantt charts are useful in all of the following situations EXCEPT _____.a. helping mangers monitor the progress of projectsb. plotting the critical path through a network of activitiesc. monitoring projects that have a manageable number of activitiesd. determining the specific activities needed to complete a project on time



26. The _____ are useful tools for scheduling, monitoring, and controlling the timing of large, complex projects.a. ABC/EOQ modelsb. CAD/CAE approachesc. PERT/CPM techniques d. TQM and CPI programs

Answer: c (p. 381, difficult, recall, AACSB: Information Technology)

27. _____ is the measure of how well an organization is using its resources (inputs) to produce goods and services (outputs). a. Profitb. Turnover c. Productivityd. Work standardization

Answer: c (p. 382, moderate, recall)

28. A _____ is the amount of time it should take a trained employee to complete a specific activity or process. a. unit of laborb. work standardc. work-sample indexd. level of effort measurement


29. _____are commonly used for setting standards for repetitive, well-defined jobs.a. Just-in-time systemsb. Time and motion studiesc. Work sampling techniquesd. Critical path methodologies


30. _____ involves sampling the activities performed by an employee or group of employees at random times throughout a work shift.a. Work samplingb. Random samplingc. Productivity analysisd. Studying time and motion

Answer: a (p. 383, easy, recall)


31. _____ are achieved when the per-unit allocation of fixed costs and, therefore, the total cost per unit go down as more units are produced.a. Economies of scaleb. Positive cash flowsc. Quality installmentsd. Utilization increments

Answer: a (p. 383, moderate, application)

32. Which of the following production processes is the most flexible?a. job shopb. small batchc. assembly lined. continuous flow


33. The _____ allows a company to capture the highest economies of scale. a. job shop production processb. small batch production processc. assembly line production processd. continuous flow production process

Answer: d (p. 384, moderate, recall)

34. Cars, computers, and cameras are all examples of products that are typically made via _____.a. job shop processesb. small batch processesc. assembly line processesd. continuous flow processes

Answer: c (p. 384, moderate, recall)

35. _____ occur when a firm gets more experienced at making a product and develops greater insight about how to do the task more efficiently.a. Learning effectsb. Economies of scalec. Production insightsd. Capacity expansions



36. In a _____, automation of a production line is achieved by controlling and guiding all machinery with computers. a. continuous process system (CPS)b. flexible manufacturing system (FMS)c. manufacturing monitoring system (MMS)d. manufacturing integration system (MIS)

Answer: b (p. 385, moderate, recall, AACSB: Information Technology)

37. In a flexible manufacturing system, _____ is a measure of the overall system’s ability to absorb large-scale changes in volume, capacity, or capabilities.a. station flexibilityb. routing flexibilityc. processing flexibilityd. input-output flexibility

Answer: b (p. 385, difficult, application)

38. Computer-aided design (CAD) and computer-aided engineering (CAE) are computerized processes for doing all of the following EXCEPT _____.a. designing new productsb. modifying existing productsc. testing prototypes or modelsd. directing manufacturing processes

Answer: d (p. 385, moderate, recall, AACSB: Information Technology)

39. _____ involves the use of computers to direct manufacturing processes. a. Computer-aided designb. Computer-aided engineeringc. Computer-aided automationd. Computer-aided manufacturing

Answer: d (p. 385, moderate, recall, AACSB: Information Technology)

40. _____ refers to the process of designing products to maximize their functionality and ease of production and to minimize their associated costs. a. Just-in-time utilization b. Flexible manufacturing c. Designing for manufacturingd. Computer-aided manufacturing

Answer: c (p. 385, easy, recall, AACSB: Information Technology)


41. Chrysler invested over $500 million in its Sterling Heights, Michigan, assembly plant in order to expand the company’s _____.a. flexible manufacturing systemb. integrated manufacturing systemc. designing for manufacturing systemd. continuous process manufacturing system

Answer: a (p. 386, moderate, recall, AACSB: Information Technology)

42. Supply-chain managers must focus on coordinating the _____ involved in converting raw materials into finished products and services delivered to consumers.a. resourcesb. informationc. organizationsd. all of the above


43. _____ expedites the management of complicated supply chain relationships and processes.a. Internet relay chatb. Electronic data interchangec. Computer-aided manufacturingd. Flexible manufacturing protocol

Answer: b (p. 389, moderate, recall, AACSB: Information Technology)

44. In a supply chain, there is a _____ between suppliers and customers. a. dynamic tensionb. no-fault agreementc. tacit understandingd. preferred partnership arrangement


45. The _____ relates to the activities needed to retrieve a used product from a customer and either reuse it or dispose of it.a. trade-in programb. after-market linkagec. reverse supply chain d. materials requirement plan

Answer: c (p. 390, easy, recall)


True/False Questions

46. The term operations management is used to describe the activities related to producing both goods and services.

Answer: True (p. 371, moderate, recall)

47. The tools and techniques of operations management do not apply to service firms or service activities.

Answer: False (p. 371, moderate, integration)

48. Operations management is purely a specialized function, without organizational or strategic importance.

Answer: False (p. 371, moderate, recall)

49. A popular definition of quality is “fitness for use,” which is a measure of how well a product or service performs its intended purpose.


50. Total quality management (TQM) encompasses a commitment from employees at all levels to continually strive to make improvements and satisfy customers.

Answer: True (p. 373, moderate, integration)

51. Total quality management (TQM) requires the use of a separate team of experts to inspect products or services for defects or errors after completion.

Answer: False (p. 373, moderate, application)

52. TQM emphasizes “quality at the source,” that is, quality inspection at all stages of production or service output.


53. The most important use for control charts is to provide a basis for taking action to determine the causes of good or poor performance.

Answer: True (p. 373, moderate, application)

54. TQM uses quantitative and qualitative methods to promote “quality at the source.”



55. Statistical process control is a TQM employee empowerment tool.

Answer: False (p. 373, difficult, recall)

56. Continuous process improvement in an organization involves both incremental and breakthrough improvements in the way it does business.


57. The Six Sigma approach focuses on hitting a target average for eliminating defects and enhancing quality.


58. Capacity planning involves determining how much of a product or service a firm should be able to produce.


59. Capacity planning for operations managers is a routine activity with little risk.

Answer: False (p. 376, difficult, integration)

60. Most organizations are expected to operate at maximum capacity.


61. A materials requirement planning (MRP) system produces schedules that identity raw materials, parts, and assemblies needed during specified time periods.

Answer: True (p. 377, moderate, recall, AACSB: Information Technology)

62. Managers use the economic order quantity (EOC) system to control inventory costs.

Answer: True (p. 378, easy, recall, AACSB: Information Technology)

63. The ABC analysis model helps managers decide when to order a product and how much of it to order.


64. In today’s business world, most companies plan on carrying excess inventory in order to meet unexpected upswings in consumer demand.

Answer: False (p. 379, difficult, application)


65. Just-in-time (JIT) systems are used to manage and control inventory systems in order to ensure the timely delivery of products or services and all required inputs.

Answer: True (p. 379, moderate, recall, AACSB: Information Technology)

66. A JIT system works best for organizations that make customized, one-of-a-kind products or services.

Answer: False (p. 381, difficult, recall, AACSB: Information Technology)

67. Gantt charts are nonmathematical graphical representations of projects.


68. Gantt charts and PERT/CPM tools perform identical functions.

Answer: False (p. 381, moderate, integration, AACSB: Information Technology)

69. The “critical path” through a network of activities represents the shortest time path for the project.


70. Productivity is a measurement of how well an organization is using its resources to produce goods and services.

Answer: True (p. 382, easy, recall)

71. A work standard is the amount of time it should take for a trained employee to complete a specific activity or process.

Answer: True (p. 382, easy, recall)

72. Labor productivity applies to both service and manufacturing firms.


73. The first step in a work sampling study is to review each activity in detail so that unnecessary steps are eliminated.

Answer: False (p. 383, difficult, integration)

74. Economies of scale occur when the per-unit cost of production falls as a firm’s output increases.



75. The continuous flow process is common in chemical plants, refineries, and integrated steel mills.


76. Job shops are characterized by the production of small batch products or services.

Answer: False (p. 384, moderate, recall)

77. Typically, there is a tradeoff between the flexibility offered by each of the four basic production types and its ability to capture economies of scale.


78. Learning effects occur when a firm gets more experienced at making a product and develops greater insight about how to do the task more efficiently.


79. Flexible manufacturing systems offer both economies of scale and flexibility.


80. The term computer aided design (CAD) refers to the use of computers to direct manufacturing processes.

Answer: False (p. 385, difficult, recall, AACSB: Information Technology)

81. In a design-for manufacturing system (DFM), products are designed for ease of manufacturing so that quality is built into the design process.

Answer: True (p. 385, difficult, recall)

82. As the complexity of managing supply chains has increased, so has the potential strategic importance of this management activity.


83. The emergence of the Internet and standard protocols has driven up the costs of electronic data interchange, thus creating barriers to entry for small companies.

Answer: False (p. 389, moderate, application, AACSB: Information Technology)


84. Customers and suppliers along a supply chain always take a partnership approach to doing business.


85. In today’s global business world, it is common for a company to control every link in its supply chain.


Short Essay Questions

86. What are the typical objectives of managers working in operations? (p. 372)

Managers working in operations typically have four related overall objectives. First, they manage activities designed to ensure that the services and products produced for customers have the appropriate quality. Second, they use tools and techniques to ensure that the right quantities of the products and services are produced. Third, they use techniques to ensure that the products and services get to the customer at the right time. Finally, they focus on delivering the first three objectives at the best possible cost.

87. Discuss the term “quality” and explain how improving quality can lower costs and boost revenues. (pp. 372 – 373)

A popular definition of quality is “fitness for use,” which is a measure of how well a product or service performs its intended purpose; including how reliable it is and how easy it is to service or repair. This definition applies to products and to services. Higher quality can lower costs through improved efficiency, as well as lower repair and warranty costs. Higher quality can boost revenues by enhancing customer satisfaction, which can lead to repeat business. Moreover, higher quality can lead to “positive word of mouth,” in which customers recommend the product or service to others.

88. How does the concept of continuous process improvement relate to process reengineering? Identify and discuss the five key elements or steps involved in process reengineering. (p. 374)

Continuous process improvement, also known as business process reengineering, refers to both incremental and breakthrough improvements in the way an organization does business. The fundamental premise of process reengineering is that form influences function; that is, the way a process is designed influences its function, which has an important influence on key outcomes.

A common approach to process reengineering has five key elements or steps. First, the objective step focuses on determining what a process is supposed to achieve. Second, the design step examines the critical sequences and seeks to maximize the objective and minimize the number, complexity, and time needed to complete the sequences involved


in the process. Third, the capabilities step determines the range of abilities needed to execute the design. Fourth, the infrastructure step focuses on the information and other structural elements needed for supporting the design and capabilities needed to meet the objective. Fifth, the metrics step determines the key metrics that help monitor and determine how well the redesign is doing in meeting the objective.

89. Discuss the ABC analysis system of inventory management. (pp. 378 – 379)

ABC analysis provides information about which inventory items require the most attention. In most companies, a small percentage of inventory accounts for the greatest percentage of inventory dollar volume. For this reason, companies are better off putting more effort into controlling and monitoring the higher-dollar-volume items compared with the lower-dollar-volume items. ABC analysis can help companies accomplish this goal by providing a way to classify inventory items into three categories (A, B, and C): “A” items typically account for the top 15 percent of the firm’s dollar volume; “B” items typically account for the next 35 percent of the firm’s dollar volume; and “C” items typically account for the remaining 50 percent of the firm’s dollar volume.

90. What is a just-in-time (JIT) inventory system? (pp. 379 – 381, AACSB: Information Technology)

Just-in-time (JIT) inventory and control systems ensure the timely deliver of a product or service and its related inputs. The objective of JIT is to produce the product or service as needed, using only the materials, equipment, and employee time that will add value to the product or service. The benefits of implementing JIT include the following: (1) reducing inventory levels to only the parts that are needed at the time, thereby lowering the carrying cost of inventory; (2) improving productivity and quality by reducing labor and equipment time; and (3) increasing customer satisfaction by decreasing the time required to make and deliver a product or service. In order to maximize the benefits of JIT, the production of a product or service and its related components must be highly repetitive and standardized.

91. Compare and contrast the following methods of monitoring the progress of projects: Gantt charts and program evaluation and review technique (PERT) and the critical path method (CPM). (p. 381, AACSB: Information Technology)

Gantt charts are nonmathematical graphical representations of projects. They are useful for determining what specific activities should be included to complete a project on time. Gantt charts are most often used to monitor projects that have a manageable number of activities (about 25 or fewer). This technique helps ensure that projects (related to production and the production process itself) deliver the designed quality and quantity to the customer, on time. Much larger projects require a more sophisticated technique known as PERT/CPM.

The program evaluation and review technique (PERT) and the critical path method (CPM) are useful for scheduling, monitoring, and controlling the timing of large,


complex projects, such as the expansion of a freeway system or the construction of a bridge. Due to the complexity of such projects, PERT/CPM software has been developed. Although Gantt charts and PERT/CPM both require a complete list of the specific activities involved and the time estimates for each, PERT/CPM goes one step further in terms of controlling the timing. Specifically, the project manager determines which activities must precede others and which must follow. These relationships help to determine the critical path through the network of activities. This path represents the longest time path for the project and the activities on the path that will delay the entire project, if any one of them is delayed. PERT/CPM software can also help managers reschedule the noncritical activities of a project (i.e., those that can be delayed without causing the entire project to fall behind schedule). The software can even help the process get back on schedule.

92. What is meant by the term “productivity”? How are productivity measures being used? (p. 382)

The simple formula for productivity is as follows: Productivity = Output/Input. Thus, productivity measures how well an organization is using its resources (inputs) to produce goods and services (outputs). A useful productivity measure for a restaurant would be the number of meals served per server. A useful productivity measure for an automobile assembly plant would be the number of labor hours used to produce a car. Productivity measures such as these can be used for two main comparative purposes. First, a firm can use the measures to compare itself to similar firms. Second, a firm can track productivity measures over time to determine a trend.

93. Identify and discuss the major classifications of production processes. (p. 384)

There are four major classifications of production processes: continuous flow, assembly line, small batch, and job shop. Continuous flow production is characterized by inputs that are transformed into outputs in an uninterrupted stream. This type of process is common in chemical plants and refineries. Assembly line processes are characterized by a series of workstations at which individual steps in the assembly of a product are performed by workers or machines as the product is moved along. Computers and automobiles are typically produced in this way. Small batch processes are used to produce small batches of products or services. Many university classes are small batch processes, in which a group of students attends a class for a predetermined period of time, during which inputs (knowledge) are added. Job shops are characterized by production processes that focus on the creation of small groups of products with features that are typically different from one job to the next. This category is represented by high-end tailors that produce custom-made suits for customers.

94. Discuss the nature of the relationship between customers and suppliers along a supply chain. (p. 389)

There is an inherent tension between customers and suppliers along a supply chain. On the one hand, there are incentives for customers to “partner” with suppliers. In other


words, the tighter a customer is integrated with its suppliers and the more it depends on them, the more its operations managers need to work closely with the suppliers, build trust, and take a long-term perspective. On the other hand, Internet-based technologies have lowered the entry barriers for new suppliers and lowered the costs of switching to new suppliers. Therefore, operations managers may not want to get too close to their current suppliers, just in case better suppliers may come along. In addition, there is always the threat of suppliers forming their own supply chain in order to compete with their former customers. Thus, there is a dynamic tension between taking a transactional or adversarial orientation and a partnership orientation.

95. What is a “reverse supply chain”? (p. 390)

Increasingly, operations managers have been focusing on the “reverse supply chain.” Their focus relates to the activities needed to retrieve a used product from a customer and either reuse it or dispose of it. Reverse supply chain managers have to focus on at least five key activities: (1) acquiring the used products, (2) managing the reverse logistics to get the products to the company, (3) inspecting the product, (4) determining the disposition of the product (destruction or reuse), and (5) distributing and selling refurbished products.

Note: The remaining questions in this section will be based on the following scenario:

ABC Office Products sells copy machines and other office equipment. Business has been good, and ABC has expanded its operations in New Orleans, LA, where it provides sales and service to over 7,500 customers. ABC receives numerous calls every day for repairs and supplies. All calls are answered by customer service representatives and then routed to the appropriate departments. During the final quarter of last year, customers began to complain about how long it took to get their phone calls answered by customer service, and how long they had to wait on hold before being helped by the repair and supply departments. This year, customer complaints have increased. Collin Stone, the owner of the company, realizes that this is a serious problem since ABC’s reputation has been built on efficient customer service. Mr. Stone has authorized Sam Nguyen, the manager of the customer service department, to study this problem and report to him ASAP.

96. How does the concept of quality apply to this scenario? (p. 372) The concept of quality is often defined as “fitness for use,” which is a measure of how well a product or service performs its intended purpose, including how reliable it is and how easy it is to service or repair when it does break down. Traditionally, this definition has been applied to products; however, the elements can also apply to services. In this scenario, the quality of ABC’s service to customers is breaking down (1) during the time when they first contact the company and (2) during the time they have to wait to order supplies or request repairs. These issues must be remedied, or the quality of the customer-service experience will continue to suffer.


97. Could the philosophy of Total Quality Management (TQM) be applied in this scenario? (p. 373)

The TQM philosophy involves a commitment from all levels of employees to strive to make improvements and satisfy customers, on an ongoing basis. TQM emphasizes “quality at the source”; that is, quality inspection at all stages of production or service output. Quality at the source involves the use of quantitative techniques, such as statistical process control, and qualitative techniques, such as employee empowerment.

Statistical process control (SPC) at ABC would provide an objective tool to analyze how customer calls for repairs and supplies are being handled. Although ABC should have a goal of 100 percent customer satisfaction, slight deviations cannot be eliminated. Thus, ABC should seek to minimize the occurrence of deviations. Managers could use a process control chart to track how phone calls for customer service are being handled, and identify unacceptable deviations. The results could be used to determine the causes of good or poor performance. Then, these causes can be reinforced or corrected, as needed, via the process of continuous improvement.

Employee empowerment will be critical to improving how customers’ calls for repairs or supplies are handled at ABC. Empowered employees will take pride in and responsibility for their individual performance, as well as the performance of the entire organization. Since the employees from the customer service, repair, and supply departments are experts in their areas, they should be able to provide valuable input on how to improve the quality of the customer-service experience, right “at the source.”

In addition to the quantitative and qualitative elements described above, top managers at ABC must be committed to the TQM philosophy. They will need to communicate the TQM vision and provide the strong leadership needed to focus on the needs of customers and implement the changes required for TQM to succeed.

98. Could continuous process improvement be used in this scenario? (p. 374)

The term “continuous process improvement” refers to incremental and break-through improvements in the way an organization does business. Underlying this concept is the idea that the way a process is designed influences how well or poorly it functions, which in turn has an important influence on key outcomes. The following key elements could be applied to this scenario. (1) Objective: reducing customer complaints by improving the quality of how their calls for service and supplies are handled. (2) Design: examining the way that phone calls are handled, in order to maximize the objective while minimizing the complexity of the process. (3) Capabilities: determining the capabilities needed to improve the process of handling customers’ calls. (4) Infrastructure: focusing on the information and other elements needed to support the design and capabilities needed to meet the objective. (5) Metrics: setting key metrics to monitor process improvements and determine how well the redesign is doing in meeting the objectives.


99. Could capacity planning play a role in this scenario? (p. 376)

While rendering high-quality customer service will be important to ABC, their customers will also care about the right quantity. Managers at ABC can use capacity planning to determine how much service the company should be able to render. Although ABC would like to operate at maximum capacity (design capacity) at all times, doing so is not realistic. Rather than running at its design capacity (maximum capacity under ideal conditions), ABC should seek to run at its effective capacity instead. The effective capacity is the percent of design capacity actually expected, and it can be expressed as a simple formula: Effective Capacity = Expected Capacity/Design Capacity.

100. What role could “timing” play in this scenario? (p. 379)

Even if management at ABC takes action to produce the right quantity and quality of customer service, they still must ensure that the timing and delivery of customer services meet the needs and expectations of customers. Not providing service to customers when they want it can cost ABC repair and supply revenues, as well as “word-of-mouth” and repeat business.
