Operations Management

Chapter 4

Strategic capacity Management

Review and Discussion Questions

1. What capacity problems are encountered when a new drug is introduced to the market??

The primary concerns come from uncertain demand for the drug and the high capital investment typically needed for modern drug production. Being a new drug, there are no historical sales data on which to base forecasts of future demand. If forecasts are too high, significant capital resources will be underutilized. If forecasts are too low, there may be insufficient capital resources to meet the actual demand, resulting in lost sales when the price for the new drug is typically highest.

2. List some practical limits to economies of scale; that is, when should a plant stop growing?

The obvious answer is that a plant should stop growing when its long-run average cost curve hits the inflection point and starts increasing. Factors leading to this situation include difficulties coordinating and managing a facility of that size, demand variations that can lead to regular periods of low capacity utilization, and capacity imbalance within the facility.

3. What are some capacity balance problems faced by the following organizations or facilities?

a. An airline terminal.

Congested flight arrival/departure scheduling typically leads to problems throughout the system, including waiting areas, distances from boarding gates, ground crew requirements, runways, baggage handling, etc.

b. A university computing lab.

The number of computer workstations, the size of each workstation (room for student papers, etc.), the mix of different computer types (Mac or PC), the number of printers, the capacity of the network access, study space for students waiting. These problems are exacerbated by surges in demand during certain points in the semester (e.g. finals week).

c. A clothing manufacturer.

Many manufacturers now use highly decentralized shops to make clothes....