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OM3 Chapter 10: Capacity Management
Discussion Questions
1. Provide and discuss some examples of economies and diseconomies of scale in a college
environment.
Economies of scale mean that long-run average costs decline as volume increases.
Diseconomies of scale happen when size (capacity) increases to the point where long-run
average costs begin to increase due to increasing complexity, and communication and
2. Define useful capacity measures for a(n)
a. Brewery. Barrels of output/month, number of unload/loading docks, bushels of hops
b. Airline. Seats available per flight, number of planes by type and size, number of airport
gates
3. How might a college or university with growing enrollment use the capacity expansion
strategies in Exhibit 10.6? Discuss the pros and cons of each of these.
You might begin by asking the class – What are examples of capacity in a university? Your
answers might include faculty and instructors, dorm rooms, classroom seats, meals served,
Exhibit 10.6 (a) shows one large capacity increase would require greater state funding for
Exhibit 10.6 (b) depicts several small capacity increases that match demand; this means the
Exhibit 10.6 (c) illustrates when small capacity increases lead demand and idle resources
Exhibit 10.6 (d) shows a situation where capacity lags demand—a more likely
4. Briefly describe a business you are familiar with and explain how it might use each of the
five ways to adjust its short-term capacity levels.
Students should apply the following five ways to their situation. Short-term adjustments to
capacity can be done in a variety of ways and are summarized below.
Add or Share Equipment Capacity levels that are limited by machine and equipment
availability are more difficult to change in the short run because of high capital
Sell Unused Capacity Some firms might sell idle capacity, such as computer storage
Change Labor Capacity and Schedules Labor capacity can usually be managed easily
through short-term changes in workforce levels and schedules. Overtime, extra shifts,
Change Labor Skill Mix Hiring the right people who can learn quickly and adjust to
Shift Work to Slack Periods Another strategy is to shift work to slack periods. For
example, hotel clerks prepare bills and perform other paperwork at night, when
5. How would you apply the Theory of Constraints to a quick-service automobile oil change
service? Explain.
To meet the time guarantees of many quick service automobile stores such as an oil change in
10-20 minutes or less the store must know where the BN and NBN workstations and
Problems and Activities
Note: an asterisk denotes problems for which an Excel spreadsheet template on the CourseMate
Web site may be used.
The instructor may also want to consider the Greyhound Frequent Flyer Call Center case
study at the end of Chapter 13 on staff (resource) capacity and scheduling. A student prerequisite
for doing the Greyhound case is Chapters 7 and 10 (not really Chapter 13). Take a look – great
mini-case.
1. As the assistant manager of a restaurant, how many servers will you need given the following
information for Saturday night’s dinner menu.
What does the service rate per server assume? Explain.
Many students have worked in restaurants as waiters so we begin with a
Utilization (U) = Demand Rate/[Service Rate*Number of Servers] (Eq. 7.2)
Extra Thought: The 200 dinners/hour is during peak dinner time that lasts say 4 hours. The
2. Research and write a short paper (2 pages maximum) on organizations that have successfully
used the focused factory concept.
http://findarticles.com/p/articles/mi_m1038/is_n5_v37/ai_15859256/
In 1982, management at the Copeland Corporation contemplated shutting down its
noncompetitive manufacturing plant in Sidney, Ohio. The plant manufactured compressors
for commercial and residential refrigeration and air conditioning products and provided
With a minimum of capital investment, the focusing of Copeland's Sidney plant proved to be
the turning point in its return to profitability. From 1982 to 1988, total inventory investment
Copeland's success with the focused factory concept is similar to that experienced by other
companies, such as Black and Decker, 3M, Deere and Co., Honeywell, and Cincinnati
Milicron. Since 1974, when Wickham Skinner first articulated the idea of focusing
3.* Medical Solutions, Inc. has the following claims (demand) it must complete in the next week
(40 hours). The jobs are as follows:
Claim Type Number of Claims
to Process (Work Order
Quantity)
Setup (Changeover)
Time per Claim Type
(hours)
Processing Time per
Claim (hours)
Given process claim capacity of 40 hours of work, can the workload (demand) be completed
this week? Explain. If not, what short-term capacity solution would you recommend? Show
all computations.
Total workload is 44.7 hours while capacity is 40 hours so resource utilization is 111.75%
(44.7/40) using Equation 7.1. The work cannot be complete using regular time hours but can be
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Some of the homework problems are pure manufacturing work orders where setup time is a
one-time event allocated over all order size units. For service, like in the dental office example
Manufacturing work orders normally assume that one setup is necessary for each work order, and
therefore, the setup time is spread over the single work order quantity. That is, setup time is
independent of order size. Some services such as hospital surgeries may require a new setup
4.* A
b
b
ot
t
Manufacturing produces plastic cases for solar photovoltaic panels and has decided to
combine orders from customers to increase work order size, and thereby, make one large
Consolidated Work
Orders
Work Order Quantity Setup (Changeover)
Time per Work Order
(minutes)
Processing Time per
Panel (seconds)
What is the total workload (demand) in hours for this work order mix? How many
machines will it take to do this work in one, two or three days? How might this process
be improved?
Model KLY Workload = 150 min + [(10,800 panels)(4.31 sec/panel)/60 sec/min] = 925.8 min
One work day = 7.5 hours
If students use the Excel spreadsheets make sure they keep their units of measure correct.
5. Identify one example of a resource with a very low average utilization rate, and a second
example with a very high average utilization rate. Consider both service and manufacturing
organizations. Write a short (one-page typed) paper that describes these situations and their
capacity implications.
Very low asset utilization – sports stadium (seats), movie theater, musicals and plays, some
ATMs
Sports stadium seats (see P&A #5 in Chapter7) are notorious for low utilization (2 to 15%).
6. Hickory Manufacturing Company forecasts the following demand for a product (in thousands
of units) over the next five years.
Year 1 2 3 4 5
Currently the manufacturer has seven machines that operate on a two-shift (8 hours each)
a. What is the capacity of the factory?
b. At what capacity levels (percentage of normal capacity) would the firm be operating over
the next five years based on the forecasted demand? (Hint: Compute the ratio of demand
to capacity each year.)
Year: 1 2 3 4 5
c. Does the firm need to buy more machines? If so, how many? When? If not, justify.
Demand in the first year Hickory is short about 16 % on machine capacity and it
increases over one-half of normal capacity in subsequent years. The average
7. The roller coaster at Treasure Island Amusement Park consists of 16 cars, each of which can
carry up to three passengers. According to a time study each run takes 2.5 minutes and the
time to unload and load riders is 3.5 minutes. What is the maximum effective capacity of the
system in number of passengers per hour?
The coaster completes a trip every 6 minutes including loading and unloading time or
completing 10 trips per hour. With 3 passengers per car or 48 riders per trip, 480 passengers per
8. Worthington Hills grocery store has five regular checkout lines and one express line (12
items or less). Based on a sampling study, it takes 11 minutes on the average for a customer
to go through the regular line and 4 minutes to go through the express line. The store is open
from 9 a.m. to 9 p.m. daily.
a. What is the store’s maximum capacity (customers processed per day)?
b. What is the store’s capacity by day of the week if the five regular checkout lines operate
according to the schedule below? (The express line is always open.)
Hours/Day Mon Tue Wed Thur Fri Sat Sun
a. What is the store's maximum capacity (customers processed per day)?
Express Checkout Capacity = (12) (60) (1) = 720 express checkout min/day or 180 (720/4)
customers/day.
Therefore, the store's maximum checkout system capacity is 507 customers/day.
This is a long problem but students have experienced good/bad service in retail stores so
b. What is the store's capacity by day of the week if the five regular checkout lines operate
according to the schedule below (The express line is always open.).
Worthington Grocery Problem
Hours Monday Tuesday Wed. Thur. Friday Sat Sunday
Store Capacity by Day of Week (customers/time period)
Regular Lanes
Hours Monday Tuesday Wed. Thur. Friday Sat Sunday
Grand Total = 2574.5 customers per week
9. Given the following data for Albert’s fabricating production area:
a. What is the annual capacity with a single 8-hour shift?
b. What is the capacity with two shifts?
c. What is the break-even volume with a single-shift operation?
Using Equation 2.1
d. What is the maximum revenue with a single shift?
e. What is the break-even volume with a two-shift operation?
Using Equation 2.1
