Chapter 13 study module
Which of the following is the term used for intermediate-range capacity planning with a time horizon of three to eighteen months? A) Aggregate planning B) Material requirement planning C) Strategic planning
A) Aggregate planning The term used for intermediate-range capacity planning with a time horizon of three to eighteen months is aggregate planning. Aggregate planning is used to determine the quantity and timing of production for the intermediate future, usually defined as 3 to 18 months ahead. This planning is used to develop forecasts for future production plans. Strategic planning tends to have a longer time horizon often including 1, 3, 5, 10, and 20 year plans. Material requirement planning is focused on identifying all of the materials that will be needed during a production cycle. This is an important element of the production process, but it does not focus on capacity planning.
The objective of aggregate planning is to meet demand while __________ over the planning period. A) minimizing cost B) minimizing stock out C) maximizing service level
A) minimizing cost The objective of aggregate planning is to meet demand while minimizing cost over the planning period. In a manufacturing facility, the aggregate plan ties the overall corporate strategy to production plans and in service organizations the aggregate plan ties the overall corporate strategy to workforce schedules. Minimizing stockouts (running out of a particular item in a store) and maximizing service levels are important issues associated with inventory management and quality management, respectively. These issues are not directly related to the aggregate planning process due to the fact that aggregate planning is focused on the production and timing of production to deal with demand variations in a cost-effective manner.
To use yield management strategies a business should have which combination of costs? A) High variable and low fixed B) Low variable and high fixed C) High variable and high fixed
B) Low variable and high fixed To use yield management strategies a business should have a combination of costs that include low variable and high fixed costs. In order for yield management to work most effectively a company should have low variable costs (or expenses that fluctuate with business activity such as material costs and labor charges) and high fixed costs (or expenses that don't change based on production such as salaries, rent, and insurance fees). This combination of costs makes it attractive to adjust rates to maximize revenue to cover the fixed operation costs
Yield management is best described as: A) a process designed to increase the rate of output B) a situation where the labor union yields to management decisions C) capacity allocation to different classes of customers to maximize revenue
C) capacity allocation to different classes of customers to maximize revenue Yield management is best described as capacity allocation to different classes of customers to maximize revenue. Yield management systems are designed to help companies maximize profit (or yield) by adjusting prices based on demand. For example, consider how an airline or cruise ship continuously adjusts prices based on demand for different segments of their service (first class, business class, general boarding).
Which of these is among the demand options of aggregate planning? A) Back-ordering during high-demand periods B) Subcontracting C) Varying workforce size
A) Back-ordering during high-demand periods Back-ordering during high-demand periods is among the demand options of aggregate planning. Demand options, including back-ordering a product during high-demand periods, are ways that a business tries to react to demand fluctuations. Subcontracting is a capacity based option of aggregate planning that focuses on solving capacity issues by bringing in external labor. Varying workforce size through hiring and layoffs is another capacity option. Capacity options are targeted at production-based solutions.
Which of these is not a characteristic that makes yield management attractive to organizations with perishable inventory? A) Service can be sold in advance of consumption B) Capacity is easily changed C) Demand can be segmented
B) Capacity is easily changed The fact that capacity is easily changed is not a characteristic that makes yield management attractive to organizations with perishable inventory. Yield management systems are designed to help companies maximize revenue (or yield) by adjusting prices based on demand. For example, consider how an airline or cruise ship continuously adjusts prices based on demand. Organizations with perishable goods (such as airlines, hotels, cruise lines, car rental agencies, etc.) have the following characteristics that make yield management helpful: (1) the service can be sold in advance of consumption; (2) demand fluctuates; (3) resource capacity is relatively fixed; (4) demand can be segmented; and (5) variable costs are low and fixed costs are high.
Which of the following aggregate planning models is a trial-and-error approach? A) The transportation method B) Graphical methods C) The management coefficients model
B) Graphical methods Graphical methods is a trial-and-error approach. The transportation method is focused on identifying the optimal plan for minimizing costs. Graphical planning models do not use a quantitative approach and are not guaranteed to achieve an optimal solution.
Which of the following attempts to manipulate product or service demand? A) Subcontracting B) Price cuts C) Inventories
B) Price cuts Price cuts attempt to manipulate product or service demand. Demand options to aggregate planning, such as price cuts, focus on directly impacting consumer demand. Demand options are often targeted at increasing demand directly through advertising, price cuts, or discounts; utilizing a system to help smooth demand such as implementing a back-ordering process; or relying on counterseasonal product mixes to ease demand fluctuation. Subcontracting and inventories would both be considered capacity options because they are intended to adjust production capacity either through the use of external labor (subcontracting) or building
Dependence on an external source of supply is found in which of the following aggregate planning strategies? A) Hiring and laying off workers B) Subcontracting C) Using part-time workers
B) Subcontracting Dependence on an external source of supply is found in the subcontracting aggregate planning strategy. Subcontracting can help a firm meet peak demand by bringing in outside talent. Using part-time workers or hiring and laying off workers do not bring in an external source of supply. Instead, through the hiring process these employees (at least for a limited time) become part of the internal supply of labor.
"An optimal plan for minimizing the cost of allocating capacity to meet demand over several planning periods" best describes __________. A) Graphical models B) The transportation method C) The management coefficients model
B) The transportation method "An optimal plan for minimizing the cost of allocating capacity to meet demand over several planning periods" best describes the transportation method. The transportation method is focused on identifying the optimal plan for minimizing costs. Graphical planning models do not use a quantitative approach and are not guaranteed to achieve an optimal solution.
Which of the following is not consistent with a pure level strategy? A) Finding alternative work for employees during low-demand periods B) Varying production levels and/or work force to meet demand requirements C) Using built-up inventory to meet demand requirements
B) Varying production levels and/or work force to meet demand requirements Varying production levels and/or work force to meet demand requirements is not consistent with a pure level strategy. In a level strategy, production levels are kept uniform from month to month. This approach often results in built-up inventory, but the stable work provides employers with well trained employees and a better end product. Often times, employers will find alternative work for employees during low-demand periods so that inventory levels do not become excessive.
Aggregate planning for service firms that provide intangible output deals mainly with __________. A) capital investment decisions to ensure proper equipment is available B) planning for human resource requirements to manage demand B) smoothing the production rate to meet demand
B) planning for human resource requirements to manage demand Aggregate planning for service firms that provide intangible output deals mainly with planning for human resource requirements to manage demand. Service firms rely heavily on their front-line employees; therefore, a great deal of time, effort and energy are devoted to planning for human resource issues. Smoothing production and capital investments are more frequently associated with the aggregate planning process for manufacturing firms.
Which choice best describes the counterseasonal demand option? A) Lowering prices when demand is low B) Developing a mix of products that smoothes out their demands C) Producing products like lawnmowers and sunglasses in the winter
B) Developing a mix of products that smoothes out their demands The choice that best describes the counterseasonal demand option is developing a mix of products that smoothes out their demands. Counterseasonal product mixing is focused on developing a diverse product line that will counterbalance fluctuations in demand. For instance, Honda makes lawnmowers and snowblowers. Lowering prices when demand is low is another type of demand option targeted at directly influencing demand. Producing products like lawnmowers and sunglasses in the winter would build a significant inventory for the next summer. Given the focus on building inventory, this approach would be considered a capacity approach to inventory management.
A firm uses the pure chase strategy of aggregate planning. It produced 900 units in the last period. Demand in the next period is estimated at 1000, and demand over the next six periods (its aggregate planning horizon) is estimated to average 1000 units. In following the chase strategy, the firm would not ________ to meet next period's production. A) subcontract B) hire workers C) lay off workers
C) lay off workers In following the chase strategy, the firm will not lay off workers to meet next period's demand. The chase strategy is focused on trying to set production equal to forecasted demand. Almost all of the methods used to equalize production and demand through chase strategies focus on adjusting staffing levels through hiring, laying off, providing overtime, idle time, or subcontracting. Thus, the only appropriate choice would be to either hire workers, subcontract, or provide overtime in order to meet the 1000 unit demand. This approach differs from a level strategy that attempts to achieve a level production cycle that builds up inventory to meet future demand.
A manager is applying the transportation model of linear programming to solve an aggregate planning problem. Demand in period 1 is 100 units and in period 2 demand is 150 units. The manager has 125 hours of regular employment available for $10 / hour each period. In addition, 50 hours of overtime are available for $15 / hour each period. If holding costs are $2 per unit each period, how many hours of regular employment should be used in period 1 (assume demand must be met in both periods 1 and 2 for the lowest possible cost and that production is 1 unit per hour)? A) 100 B) 150 C) 125
C) 125 If holding costs are $2 per unit each period, 125 hours of regular employment should be used in period 1. At this rate of employment, the company can produce 125 units in period 1 and 125 units in period 2 for a total production run of 250 units. Given the assumptions (that 1 unit can be produced per hour and the holding costs are $2 per unit), it would make sense to keep employment at 125 hours because holding costs are less than the overtime rate ($2 per unit versus $15 per hour). If the manager holds employment stable between the two time periods, he/she will be able to meet demand during period 2.
What directly results from disaggregation of an aggregate plan? A) A management coefficient analysis B) A transportation analysis C) A master production schedule
C) A master production schedule A master production schedule directly results from disaggregation of an aggregate plan. The process of disaggregation involves breaking an aggregate plan down into specific tasks and action plans. The result of this process is a master production schedule that provides a timetable about production schedules and begins the material requirements planning process. Transportation analysis and management coefficient analysis are two mathematical methods used for aggregate planning. The transportation method is focused on identifying the optimal plan for minimizing costs.
Which of the following is not one of the four things needed for aggregate planning? A) A logical overall unit for measuring sales and output B) A method for determining the relevant costs C) A mathematical model that will minimize costs
C) A mathematical model that will minimize costs A mathematical model that will minimize costs is not one of the four things needed for aggregate planning. Aggregate planning has four requirements: (1) a logical overall measure of sales and output (such as pounds of chips or cases of beer); (2) a forecast of demand for the intermediate planning period; (3) a method to determine operating costs; and (4) a model that combines forecasts and costs so that scheduling decisions can be made for the planning period.
Which of these is among the demand options of aggregate planning? A) Subcontracting B) Varying workforce size C) Back-ordering during high-demand periods
C) Back-ordering during high-demand periods Back-ordering during high-demand periods is among the demand options of aggregate planning. Demand options, including back-ordering a product during high-demand periods, are ways that a business tries to react to demand fluctuations. Subcontracting is a capacity based option of aggregate planning that focuses on solving capacity issues by bringing in external labor. Varying workforce size through hiring and layoffs is another capacity option. Capacity options are targeted at production-based solutions.
Which of the following aggregate planning strategies is a "capacity option"? A) Using promotions to build brand awareness B) Counterseasonal product mixing C) Changing inventory levels
C) Changing inventory levels Changing inventory levels is an aggregate planning strategy that would be considered a "capacity option". Capacity options are focused on adjusting production levels to anticipate, and react to, production cycles. One way to adjust capacity is by increasing inventory during low demand periods in an effort to meet demand during peak periods. Counterseasonal product mixing and using promotions to build brand awareness would both be considered demand options to aggregate planning because they focus on directly impacting consumer demand. Counterseasonal product mixing is focused on developing a diverse product line that will counterbalance fluctuations in demand. For instance, Honda makes lawnmowers and snowblowers. Additionally, in an effort to increase demand a company can invest in promotions and advertisement during periods of low demand.
Which of the following is not an ingredient for controlling labor cost in services? A) An on-call labor pool that can be used (or not) to meet unexpected demand B) Accurate scheduling of labor-hours to assure quick response to consumer demand C) Contracting overseas labor to obtain lower wage scales
C) Contracting overseas labor to obtain lower wage scales Contracting overseas labor to obtain lower wage scales is not an ingredient for controlling labor cost in services. Four strategies have been successfully implemented to control labor costs, including: (1) accurate scheduling of labor-hours to assure quick response to customer demand; (2) an on-call labor resource that can be added or deleted to meet unexpected demand; (3) flexibility of individual worker skills that permits reallocation of available labor; and (4) flexibility in rate of output or hours of work to meet changing demand.
Which of the following is the term used for intermediate-range capacity planning with a time horizon of three to eighteen months? A) Strategic planning B) Material requirement planning C) Aggregate planning
C) aggregate planning The term used for intermediate-range capacity planning with a time horizon of three to eighteen months is aggregate planning. Aggregate planning is used to determine the quantity and timing of production for the intermediate future, usually defined as 3 to 18 months ahead. This planning is used to develop forecasts for future production plans. Strategic planning tends to have a longer time horizon often including 1, 3, 5, 10, and 20 year plans. Material requirement planning is focused on identifying all of the materials that will be needed during a production cycle. This is an important element of the production process, but it does not focus on capacity planning.
A firm uses graphical techniques in its aggregate planning efforts. Over the next twelve months (its intended period) it estimates the sum of demands to be 105,000 units. The firm has 250 production days per year. In January, which has 22 production days, demand is estimated to be 11,000 units. A graph of demand versus level production will show that the __________. A) level production is approximately 1000 units per month B) level production of 420 units per day is below the January requirement C) level production is approximately 420 units per month
B) level production of 420 units per day is below the January requirement A graph of demand versus level production will show that level production of 420 units per day is below the January requirement. Based on information in the question, we know that there are 250 production days in a year. We also know that yearly demand is 105,000 units. Thus, the average daily production should be approximately 420 units (105,000 / 250 = 420). We also can determine that the typical month has approximately 21 production days (250 production days / 12 months = 20.8 production days per month). The question also specifies that January has 22 production days per month; therefore, production for the month of January should exceed the level production of 420 units due to the increased number of working days.
