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20 Cards in this Set

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Define "bottleneck"
A capacity constraint resource (CCR) whose available capacity limits the organization's ability to meet the product volume, product mix, or demand fluctuation required by the marketplace
Define "Theory of constraints (TOC)"
A systematic mgmt approach that focuses on actively managing those constraints that impede a firm's progress toward its goal.
What are the 7 key principles of TOC?
1. focus on balancing flow, not on balancing capacity
2. maximizing output & efficiency of every resource will not maximize the throughput of the entire system
3. an hr lost at bottleneck=hr lost for whole system. an hr saved at non-constrained resource doesn't necessarily make the whole system more productive
4.inventory's needed only in front of bottlenecks to prevent them from sitting idle, and in front of assembly & shipping points to protect customer schedules. don't build inv. elsewhere
5.work should be released into the system only as frequently as the bottlenecks need it. bottleneck flows should = mkt demand. pace everything to the slowest resource
6. activation of non-bottleneck resources can't increase throughput, not promote better performance on financial measures
7.every capital investment must be viewed from perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE)
What are the 2 ways in which capacity can be expressed?
in terms of:
1-output measures (standardized products and services)
2- input measures (customized products and services)
Utilization equation
=avg output rate/maximum capacity x 100%

Utilization effective= avg output rate/effective capacity x 100%
What are the 5 steps implemented in the practical application of TOC?
1. Identify the System Bottleneck(s)
2. Exploit the Bottleneck(s)
3. Subordinate All Other Decisions to Step 2.
4. Elevate the Bottleneck(s)
5. Do not let inertia set in
Define "throughput time"
Total time taken from the start to the finish of a process
What are the 4 principle reasons why economies of scale can drive costs down when output increases?
1. Fixed costs are spread over more units
2. Construction costs are reduced
3. Costs of purchased materials are cut
4. Process advantages are found
Define "diseconomies of scale"
Occurs when the average cost per unit increases as the facility's size increases.
What are the 3 dimensions of capacity strategy that must be examined before making capacity decisions?
1. Sizing capacity cushions
2. Timing and sizing expansion
3. Linking process capacity and other operating decisions
Equation for Capacity Cushion
=100% - Utilization rate(%)
Define "capacity cushion"
The amt of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity; it measures the amt by which the avg utilization falls below 100%
Define "capacity requirement"
What a process's capacity should be for some future time period to meet the demand for customers, given the firm's desired capacity cushion.
Capacity requirement equation for 1 service/product
M=Dp/[N(1-(C/100))]
M=cap req.
D=demand forecast for the yr (#customers or units)
p=processing time (hrs/customer or unit)
N=total # hours per year
C=desired capacity cushion (percent)
Capacity requirement equation for multiple services/products
M=[(Dp+(D/Q)s)prod1 + (Dp+(D/Q)s)prod2] / N(1-(C/100))

Q=# units in each lot
s=setup time (hrs) per lot
Define "capacity gap"
Positive or negative difference between projected demand and current capacity
Define "base case"
The act of doing nothing and losing orders from any demand that exceeds current capacity
What is the general 4 step process for making sound capacity decisions?
1. Estimate capacity requirements
2. Identify gaps
3. Develop alternatives
4. Evaluate the alternatives
Some things about capacity cushions
Continuous flow processes don’t have any cushion
If customization is a competitive priority, you will want a cushion
If cost is a competitive priority, you don’t want as high of a cushion
The more capital intense you are, the less cushion you want
The mix of jobs in a job shop affects capacity
Some things about decision trees
Use decision trees to make capacity decisions
To solve decision trees, start from the back and work your way to the beginning. Pick the better option in each decision
Circles are events in the environment that are beyond your control (use expected value for these steps)
Squares are things you can control