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Chapter 01 - Operations and Supply Chain ManagementChapter 01Operations and Supply Chain Management

Learning Objectives for Chapter 1

1. Understand why it is important to study operations and supply chain management.2. Define efficient and effective operations.3. Categorize operations and supply chain processes.4. Contrast differences between services and goods producing processes.5. Identify operations and supply chain management career opportunities.6. Describe how the field has developed over time.

True / False Questions1.Efficiency means doing the right things to create the most value for the company.TrueFalse2.Effectiveness means doing the right things to create the most value for the company.TrueFalse3.A doctor completes a surgical procedure on a patient without error. The patient dies anyway. In operations management terms, we could refer to this doctor as being efficient but not effective.TrueFalse

4.A worker can be efficient without being effective.TrueFalse5.A process can be effective without being efficient.TrueFalse6.Operations and supply management is defined as the design, operation, and improvement of the systems that create and deliver the firm's primary products and services.TrueFalse7.The term "value" refers to the relationship between quality and the price paid by the consumer.TrueFalse

8.Attempting to balance the desire to efficiently use resources while providing a highly effective service may create conflict between the two goals.TrueFalse9.Central to the concept of operations strategy are the notions of operations focus and trade-offs.TrueFalse10.Fashion retailers, in particular, need to have plenty of inventory on hand because demand is so unpredictable.TrueFalse11.Today's leading retailers use operations and supply chain management techniques to match supply and demand as closely and quickly as possible.TrueFalse12."Concept-to-cash" refers to the idea of generating revenue from licensing of patent rights or other intellectual property.TrueFalse13.OSM is concerned with management of the trickiest parts of the system that produces a good or delivers a service.TrueFalse14.OSM is a functional field of business with clear line management responsibilities.TrueFalse

15.The supply network as can be thought of as a pipeline through which cash, material and information flows.TrueFalse16.Supply networks can not be constructed for every product or service.TrueFalse17."Operations" refers to manufacturing and service processes used to transform resources employed by a firm into products desired by customers.TrueFalse18."Supply" refers to supply chain processes that move information and material to and from the manufacturing and service processes of the firm.TrueFalse19."Supply" includes inbound freight and inventory only.TrueFalse20.It is critical that a sustainable strategy meet the needs of shareholders and employees. It is also highly desirable that it preserves the environment.TrueFalse21.Supply and demand planning is needed to coordinate the manufacturing, service, and supply chain processes.TrueFalse

22.Supply and demand planning involves forecasting demand, making intermediate term plans for how demand will be met, controlling different types of inventory, but not the detailed weekly scheduling of processes.TrueFalse23.All managers should understand the basic principles that guide the design of transformation processes.TrueFalse24.OSM changes constantly because of the dynamic nature of competing in global business and the constant evolution of information technology.TrueFalse25.Internet technology has made the sharing of reliable real-time information expensive.TrueFalse26.Use of systems like point-of-sale, radio-frequency identification tags, bar-code scanners, and automatic recognition has made it more difficult to understand what all the information is saying.TrueFalse27.Operations and supply processes can be conveniently categorized as planning, sourcing, making, and delivering.TrueFalse28.A major aspect of planning involves developing a set of metrics to monitor the supply chain.TrueFalse

29.Returning involves processes for receiving worn-out, defective, and excess products back from customers but does not involve support for customers who have problems with the product.TrueFalse30.Delivering is not considered in supply chain analysis when outside carriers are contracted to move products to customers.TrueFalse31.Services are intangible processes that cannot be weighed or measured.TrueFalse32.Service innovations can be patented.TrueFalse33.Services are homogeneous.TrueFalse34.Services are defined and evaluated as a package of features that affect the five senses.TrueFalse35.Automobiles and appliances are classified as "pure goods."TrueFalse36.Core service providers integrate tangible goods into their product.TrueFalse

37.Servitization refers to a company building service activities into its product offerings for current users.TrueFalse38.Servitization is a nonsense word invented to describe the disappearance of manufacturing from the US economy.TrueFalse39.In contrast to careers in finance and marketing, careers in OSM involve hands-on involvement with people and processes.TrueFalse40.A bank branch manager position is not an OSM-type of job.TrueFalse41.A supply chain manager is an OSM job while a purchasing manager is not.TrueFalse42.Just in time (JIT) production was a major breakthrough in manufacturing philosophy pioneered by the Japanese.TrueFalse43.Lean manufacturing refers to just in time production coupled with total quality control.TrueFalse44.The Baldrige National Quality Award was started under the direction of the National Institute of Standards and Technology.TrueFalse

45.The approach that advocates making revolutionary changes as opposed to evolutionary changes is called creation theory.TrueFalse46.The approach that advocates making revolutionary changes as opposed to evolutionary changes is called "business process reengineering."TrueFalse47.Business process reengineering is contrasted to total quality management which commonly advocates incremental change.TrueFalse48.The "triple bottom line" relates to the economic, employee, and environmental impact of a firm's strategy.TrueFalse49.Sustainability is the ability to maintain profits in a system.TrueFalse50.Raising senior management awareness of operations as a competitive weapon is not an issue on OSM.TrueFalse

Multiple Choice Questions51.A reason for studying operations management (OSM) is which of the following?A.OSM is essential for understanding organizational behavior.B.Most business graduates do OSM work regardless of their job title.C.All managers should understand the basic principles that guide the design of transformation processes.D.OSM is a required course in all business degree programs.E.OSM is the most rigorous business discipline.52.The Goods-Services Continuum consists of which set of the following categories?A.No goods, some goods, even mix, some service, no serviceB.Pure goods, core goods, core services, pure servicesC.No service, some service, good service, excellent serviceD.Self-service, help desk service, face-to-face service, service-with-a-smileE.None of the above53.Which of the following are defined as core goods?A.ChemicalsB.AirlinesC.Data storage systemsD.HotelsE.None of the above54.Current issues in OSM do not include:A.Coordinating relationships between organizations.B.Making senior management aware that OSM can be a competitive weapon.C.The triple bottom line.D.Managing customer touch points.E.Increasing global servitization networks.

55.Which of the following are not listed in the text as jobs in OSM?A.Department store managerB.Project managerC.Hospital administratorD.Chief Information OfficerE.Call center manager56.Which of the following is not a characteristic that distinguishes services from goods?A.Service jobs are unskilled.B.A service is intangible.C.Services are perishable.D.Services are heterogeneous.E.None of the above.57.Which of the following is not a way that operations and supply processes are categorized?A.PlanningB.ReturnC.DeliveryD.SelectingE.Making58.One of the package of features that make up a service are:A.AppearanceB.Facilitating goodsC.PackagingD.CostE.Implied use

Fill in the Blank Questions59.The ability to maintain balance in a system is referred to as _______________.________________________________________

60.Processes that are used to transform the resources into products are called ________________.________________________________________

Essay Questions61.What are the five categories of supply chain processes?1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________

Fill in the Blank Questions62.Doing something at the lowest possible cost is called: ________________.________________________________________63.Value is the ratio of _______________________to _______________________________________________________________64.A pipeline through which material and information flows is a conception of a _______________________.________________________________________

65.List five OSM job titles.1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________________________________________________66.What are three current issues in operations and supply management?1. ___________________2. ___________________3. ___________________________________________________________

Essay Questions67.Discuss the role of efficiency and effectiveness in the creation of value.

Chapter 01 Operations and Supply Chain Management Answer Key

True / False Questions1.Efficiency means doing the right things to create the most value for the company.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Differences Between Services and Goods2.Effectiveness means doing the right things to create the most value for the company.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Differences Between Services and Goods3.A doctor completes a surgical procedure on a patient without error. The patient dies anyway. In operations management terms, we could refer to this doctor as being efficient but not effective.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: AnalysisTopic: Differences Between Services and Goods

4.A worker can be efficient without being effective.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: ComprehensionTopic: Differences Between Services and Goods5.A process can be effective without being efficient.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: ComprehensionTopic: Differences Between Services and Goods6.Operations and supply management is defined as the design, operation, and improvement of the systems that create and deliver the firm's primary products and services.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Management?7.The term "value" refers to the relationship between quality and the price paid by the consumer.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Differences Between Services and Goods

8.Attempting to balance the desire to efficiently use resources while providing a highly effective service may create conflict between the two goals.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: AnalysisTopic: Differences Between Services and Goods9.Central to the concept of operations strategy are the notions of operations focus and trade-offs.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Management?10.Fashion retailers, in particular, need to have plenty of inventory on hand because demand is so unpredictable.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Differences Between Services and Goods11.Today's leading retailers use operations and supply chain management techniques to match supply and demand as closely and quickly as possible.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Management?

12."Concept-to-cash" refers to the idea of generating revenue from licensing of patent rights or other intellectual property.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Management?13.OSM is concerned with management of the trickiest parts of the system that produces a good or delivers a service.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?14.OSM is a functional field of business with clear line management responsibilities.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?15.The supply network as can be thought of as a pipeline through which cash, material and information flows.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?

16.Supply networks can not be constructed for every product or service.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?17."Operations" refers to manufacturing and service processes used to transform resources employed by a firm into products desired by customers.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?18."Supply" refers to supply chain processes that move information and material to and from the manufacturing and service processes of the firm.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?19."Supply" includes inbound freight and inventory only.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?

20.It is critical that a sustainable strategy meet the needs of shareholders and employees. It is also highly desirable that it preserves the environment.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?21.Supply and demand planning is needed to coordinate the manufacturing, service, and supply chain processes.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?22.Supply and demand planning involves forecasting demand, making intermediate term plans for how demand will be met, controlling different types of inventory, but not the detailed weekly scheduling of processes.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: UnderstandingTopic: What is Operations and Supply Management?23.All managers should understand the basic principles that guide the design of transformation processes.TRUE


24.OSM changes constantly because of the dynamic nature of competing in global business and the constant evolution of information technology.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Careers in Operations and Supply Management25.Internet technology has made the sharing of reliable real-time information expensive.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Careers in Operations and Supply Management26.Use of systems like point-of-sale, radio-frequency identification tags, bar-code scanners, and automatic recognition has made it more difficult to understand what all the information is saying.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: UnderstandingTopic: Careers in Operations and Supply Management27.Operations and supply processes can be conveniently categorized as planning, sourcing, making, and delivering.FALSE


28.A major aspect of planning involves developing a set of metrics to monitor the supply chain.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?29.Returning involves processes for receiving worn-out, defective, and excess products back from customers but does not involve support for customers who have problems with the product.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?30.Delivering is not considered in supply chain analysis when outside carriers are contracted to move products to customers.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?31.Services are intangible processes that cannot be weighed or measured.TRUE


32.Service innovations can be patented.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods33.Services are homogeneous.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods34.Services are defined and evaluated as a package of features that affect the five senses.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods35.Automobiles and appliances are classified as "pure goods."FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods

36.Core service providers integrate tangible goods into their product.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods37.Servitization refers to a company building service activities into its product offerings for current users.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods38.Servitization is a nonsense word invented to describe the disappearance of manufacturing from the US economy.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Differences Between Services and Goods39.In contrast to careers in finance and marketing, careers in OSM involve hands-on involvement with people and processes.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Careers in Operations and Supply Management

40.A bank branch manager position is not an OSM-type of job.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: KnowledgeTopic: Careers in Operations and Supply Management41.A supply chain manager is an OSM job while a purchasing manager is not.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: KnowledgeTopic: Careers in Operations and Supply Management42.Just in time (JIT) production was a major breakthrough in manufacturing philosophy pioneered by the Japanese.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management43.Lean manufacturing refers to just in time production coupled with total quality control.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management

44.The Baldrige National Quality Award was started under the direction of the National Institute of Standards and Technology.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management45.The approach that advocates making revolutionary changes as opposed to evolutionary changes is called creation theory.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management46.The approach that advocates making revolutionary changes as opposed to evolutionary changes is called "business process reengineering."TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management47.Business process reengineering is contrasted to total quality management which commonly advocates incremental change.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management

48.The "triple bottom line" relates to the economic, employee, and environmental impact of a firm's strategy.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management49.Sustainability is the ability to maintain profits in a system.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: UnderstandingTopic: Historical Development of Operations and Supply Management50.Raising senior management awareness of operations as a competitive weapon is not an issue on OSM.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: UnderstandingTopic: Historical Development of Operations and Supply Management

Multiple Choice Questions51.A reason for studying operations management (OSM) is which of the following?A.OSM is essential for understanding organizational behavior.B.Most business graduates do OSM work regardless of their job title.C.All managers should understand the basic principles that guide the design of transformation processes.D.OSM is a required course in all business degree programs.E.OSM is the most rigorous business discipline.

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Management?52.The Goods-Services Continuum consists of which set of the following categories?A.No goods, some goods, even mix, some service, no serviceB.Pure goods, core goods, core services, pure servicesC.No service, some service, good service, excellent serviceD.Self-service, help desk service, face-to-face service, service-with-a-smileE.None of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: ApplicationTopic: Differences Between Services and Goods53.Which of the following are defined as core goods?A.ChemicalsB.AirlinesC.Data storage systemsD.HotelsE.None of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: ApplicationTopic: Differences Between Services and Goods

54.Current issues in OSM do not include:A.Coordinating relationships between organizations.B.Making senior management aware that OSM can be a competitive weapon.C.The triple bottom line.D.Managing customer touch points.E.Increasing global servitization networks.

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: ApplicationTopic: Careers in Operations and Supply Management55.Which of the following are not listed in the text as jobs in OSM?A.Department store managerB.Project managerC.Hospital administratorD.Chief Information OfficerE.Call center manager

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: ApplicationTopic: Careers in Operations and Supply Management56.Which of the following is not a characteristic that distinguishes services from goods?A.Service jobs are unskilled.B.A service is intangible.C.Services are perishable.D.Services are heterogeneous.E.None of the above.


57.Which of the following is not a way that operations and supply processes are categorized?A.PlanningB.ReturnC.DeliveryD.SelectingE.Making

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?58.One of the package of features that make up a service are:A.AppearanceB.Facilitating goodsC.PackagingD.CostE.Implied use


Fill in the Blank Questions59.The ability to maintain balance in a system is referred to as _______________.Sustainability

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: Historical Development of Operations and Supply Management

60.Processes that are used to transform the resources into products are called ________________.Operations


Essay Questions61.What are the five categories of supply chain processes?1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________Planning, sourcing, making, delivering & returning.

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: KnowledgeTopic: What is Operations and Supply Management?

Fill in the Blank Questions62.Doing something at the lowest possible cost is called: ________________.Efficiency


63.Value is the ratio of _______________________to _______________________quality to price paid

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: ApplicationTopic: Differences Between Services and Goods64.A pipeline through which material and information flows is a conception of a _______________________.Supply network

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: ApplicationTopic: What is Operations and Supply Management?65.List five OSM job titles.1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________Any five from the list on page 14-15 of the text.

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: ApplicationTopic: Careers in Operations and Supply Management

66.What are three current issues in operations and supply management?1. ___________________2. ___________________3. ___________________(any three): 1. Coordinating relationships between mutually supportive but separate organizations; 2. Optimizing global supplier, production, and distribution networks; 3. Managing customer touch points; 4. Raising senior management awareness of operations as a significant competitive weapon; 5. Sustainability and the triple bottom line.

AACSB: AnalyticDifficulty: HardLearning Objective: 6Taxonomy: UnderstandingTopic: Historical Development of Operations and Supply Management

Essay Questions67.Discuss the role of efficiency and effectiveness in the creation of value.A successful response to this question requires a definition of "value" (a relationship between "quality" or "performance" of a product and its price) and discussion of the trade-off between efficiency and effectiveness. Creating value means striking the most appropriate balance between efficiency and effectiveness for the market need the product will satisfy. These concepts are discussed in the text beginning on page 12.

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: UnderstandingTopic: Differences Between Services and Goods

Chapter 02Strategy and Sustainability

Learning Objectives for Chapter 2:

1. Compare how operations and supply chain strategy relates to marketing and finance.2. Understand the competitive dimensions of operations and supply chain strategy.3. Identify order winners and order qualifiers.4. Understand the concept of strategic fit.5. Describe how productivity is measured and how it relates to operations and supply chain processes.6. Explain how the financial markets evaluate a firms operations and supply chain performance.

True / False Questions1.An operations and supply strategy must be integrated with the organization's corporate strategy.TrueFalse2.One of the competitive dimensions that form the competitive position of a company when planning their strategies is cost.TrueFalse

3.One of the competitive dimensions that form the competitive position of a company when planning their strategies is delivery speed.TrueFalse4.One of the competitive dimensions that form the competitive position of a company when planning their strategies is making the best trade-off.TrueFalse5.The process when a company seeks to match the benefits of a successful position while maintaining its existing position by adding new features, services, and technologies into its current portfolio is called flexibility.TrueFalse6.The process when a company seeks to match the benefits of a successful position while maintaining its existing position by adding new features, services, and technologies into its current portfolio it is called straddlingTrueFalse

7.By following a straddling strategy, firms can broaden their capabilities and effectively compete with more focused firms in markets requiring low cost for success.TrueFalse8.An order winner is a set of criteria that differentiates the products or services of one firm from another.TrueFalse9.An order winner is a set of screening criteria that permits a firm's products to be considered as possible candidates for purchase.TrueFalse10.An order qualifier is a set of screening criteria that permits a firm's products to be considered as possible candidates for purchase.TrueFalse11.Activity-system maps show how a company's strategy is delivered through a set of tailored activities.TrueFalse12.Activity-system maps are useful in understanding how well a system of activities fits the overall company's strategy.TrueFalse13.Activity-system maps depict the geographic reach of a company's business strategies.TrueFalse

14.Operations and supply strategy are not important issues to investors who tend to focus on growth, dividends and earnings per share.TrueFalse15.Investors pay close attention to efficiency and productivity measures like net income per employee because they are interested in how well the firm manages its workforce relations.TrueFalse16.During a recession, efficient firms often have an opportunity to increase market share while maintaining profitability.TrueFalse17.An operations strategy must resist change because of the long term nature of equipment and personnel investments.TrueFalse18.Operations and supply strategy can be viewed as part of a planning process that coordinates operational goals with those of the larger organization.TrueFalse19.Infrastructure decisions within operations strategy include the selection of the appropriate technology, the role of inventory and the location of facilities.TrueFalse20.Infrastructure decisions within operations strategy include the selection of the logic associated with the planning and control systems.TrueFalse

21.Once an operations strategy is adopted and articulated, the primary emphasis becomes perfecting the system of activities that make up the strategy through detailed refinements over a long period of time.TrueFalse22.The job of operations strategy is to deliver the most feature-rich, highest quality product at the lowest price within specified parameters of delivery time and customization.TrueFalse23.Wall Street analysts are not particularly concerned with how efficient companies are from an operations and supply management view.TrueFalse24.Productivity is a relative measure.TrueFalse25.In a partial measure of productivity the denominator of the ratio would include all resources used or all inputs.TrueFalse26.In a multifactor measure of productivity the numerator of the ratio would include all resources used or all inputs.TrueFalse27.The operations and supply activities of the firm need to strategically support the competitive priorities of the firm.TrueFalse

28.The triple bottom line considers evaluating the firm against social, economic, and environmental criteria.TrueFalse29.Sustainability means meeting a firm's current needs without excessively compromising the ability of future generations to meet their own needs.TrueFalse

Multiple Choice Questions30.Which of the following is not a major strategic operational competitive dimension that forms a company's competitive position?A.Cost or priceB.Delivery speedC.Delivery reliabilityD.Management acumenE.Coping with changes in demand31.A major competitive dimension that forms a company's strategic operational competitive position in their strategic planning is which of the following?A.Cost or priceB.FocusC.AutomationD.StraddlingE.Activity-system mapping32.When developing an operations and supply strategy, which of the following is an important product-specific criterion to consider?A.Technical liaisonB.Learning curveC.Competitor's product performanceD.Production lot-sizeE.Total quality management

33.In development of an operations and supply strategy, which of the following would be an important product-specific criteria to consider?A.FocusB.Production lot-sizeC.Supplier after-sale supportD.Learning curveE.Total quality management34.When a company seeks to match the benefits of a successful position while maintaining its existing position in offering customers a variety of differing services, what is this process called?A.Operations capability analysisB.StraddlingC.Order qualifyingD.Order winningE.Inter-functional analysis35.An activity-based map is which of the following?A.A network guide to route airlinesB.A listing of activities that make up a projectC.A network that shows how a company's strategy is delivered to customersD.A facility layout schematic noting what is done whereE.A timeline displaying major planned events36.Which of the following is not a measure of operations and supply management efficiency used by Wall Street?A.Inventory turnoverB.Revenue per employeeC.Receivable turnoverD.Earnings per shareE.Asset turnover

37.Which of the following is a measure of operations and supply management efficiency used by Wall Street?A.Dividend payout ratioB.Current ratioC.Receivable turnoverD.Earnings per share growthE.Financial leverage38.Which of the following is a partial measure of productivity?A.Output/MaterialsB.Output/(Labor + Capital + Energy)C.Output/All resources usedD.Output/InputsE.All of the above39.Which of the following is a multifactor measure of productivity?A.Output/(Materials)B.Output/(Labor + Capital + Energy)C.Output/All resources usedD.Output/InputsE.All of the above40.Which of the following is a total measure of productivity?A.Output/MaterialsB.Output/(Labor + Capital + Energy)C.Output/LaborD.Output/InputsE.All of the above

41.If all you knew about a production system was that total daily output was 400 units and the total labor necessary to produce the 400 units was 350 hours, what kind of productivity measure could you use to compute productivity?A.Partial measureB.Multifactor measureC.Total measureD.Global measureE.All of the above42.If all you knew about a production system was that total daily output was 400 units and the total labor necessary to produce the 400 units was 350 hours, and the total materials used were 425 units, what kind of productivity measure could you use to compute productivity?A.Partial measureB.Multifactor measureC.Total measureD.A and B aboveE.B and C above43.The total output from a production system in one day is 500 units and the total labor necessary to produce the 500 units is 350 hours. Using the appropriate productivity measure, which of the following numbers represents the resulting productivity ratio?A.1.000B.1.428C.0.700D.0.411E.None of the above44.The total output from a production system in one day is 900 units and the total labor necessary to produce the 900 units is 900 hours. Using the appropriate productivity measure, what is the resulting productivity ratio?A.1.000B.1.428C.0.700D.0.411E.None of the above

45.Larry's Auto Body Repair Shop had revenues that averaged $60,000 per week in April and $50,000 per week in May. During both months, the shop employed six full-time (40 hours/week) workers. In April the firm also had four part-time workers working 25 hours per week but in May there were only 2 part-time workers and they only worked 10 hours per week. What is the percentage change in labor productivity from April to May for Larry's Auto Body Repair?A.17.65B.-15.84C.8.97D.-1.76E.19.2346.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in SunPath's total productivity measure between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.39

47.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the energy partial productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.3948.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the labor partial productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.39

49.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the multifactor labor and raw materials productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.-2.88E.10.39

Fill in the Blank Questions50.What is a criterion or product characteristic that differentiates a product from the products of competitors in a way meaningful to the market called? ____________________________________________________________51.A diagram showing how a company's strategy is delivered through a set of tailored activities is called what? _____________________________________________________________52.The triple-bottom-line evaluates the firm against what three criteria?1. _____________________2. _____________________3. _____________________________________________________________

53.People who provide capital to the firm through stock purchases and other financial instruments are called: _____________________________________________________________54.Individuals or organizations that are influenced, either directly or indirectly, by the actions of the firm are called: _____________________________________________________________55.Name five common measures of operations and supply management efficiency used by Wall Street.1. _____________________2. _____________________3. _____________________4. _____________________5. _____________________________________________________________

Essay Questions56.Describe a specific example of the trade-offs between any two of the competitive dimensions.

57.Explain the role that "order qualifiers" and "order winners" play as the interface between marketing and operations.

Chapter 02 Strategy and Sustainability Answer Key

True / False Questions1.An operations and supply strategy must be integrated with the organization's corporate strategy.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Learning Objective: 4Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy2.One of the competitive dimensions that form the competitive position of a company when planning their strategies is cost.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?3.One of the competitive dimensions that form the competitive position of a company when planning their strategies is delivery speed.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?

4.One of the competitive dimensions that form the competitive position of a company when planning their strategies is making the best trade-off.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?5.The process when a company seeks to match the benefits of a successful position while maintaining its existing position by adding new features, services, and technologies into its current portfolio is called flexibility.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Learning Objective: 4Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy6.The process when a company seeks to match the benefits of a successful position while maintaining its existing position by adding new features, services, and technologies into its current portfolio it is called straddlingTRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy

7.By following a straddling strategy, firms can broaden their capabilities and effectively compete with more focused firms in markets requiring low cost for success.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 4Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy

8.An order winner is a set of criteria that differentiates the products or services of one firm from another.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy9.An order winner is a set of screening criteria that permits a firm's products to be considered as possible candidates for purchase.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy10.An order qualifier is a set of screening criteria that permits a firm's products to be considered as possible candidates for purchase.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy11.Activity-system maps show how a company's strategy is delivered through a set of tailored activities.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Learning Objective: 4Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy

12.Activity-system maps are useful in understanding how well a system of activities fits the overall company's strategy.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Learning Objective: 4Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy13.Activity-system maps depict the geographic reach of a company's business strategies.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Strategic Fit: Fitting Operational Activities to Strategy14.Operations and supply strategy are not important issues to investors who tend to focus on growth, dividends and earnings per share.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?15.Investors pay close attention to efficiency and productivity measures like net income per employee because they are interested in how well the firm manages its workforce relations.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?

16.During a recession, efficient firms often have an opportunity to increase market share while maintaining profitability.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement17.An operations strategy must resist change because of the long term nature of equipment and personnel investments.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Learning Objective: 4Taxonomy: ComprehensionTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy18.Operations and supply strategy can be viewed as part of a planning process that coordinates operational goals with those of the larger organization.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?19.Infrastructure decisions within operations strategy include the selection of the appropriate technology, the role of inventory and the location of facilities.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?

20.Infrastructure decisions within operations strategy include the selection of the logic associated with the planning and control systems.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?21.Once an operations strategy is adopted and articulated, the primary emphasis becomes perfecting the system of activities that make up the strategy through detailed refinements over a long period of time.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?22.The job of operations strategy is to deliver the most feature-rich, highest quality product at the lowest price within specified parameters of delivery time and customization.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?23.Wall Street analysts are not particularly concerned with how efficient companies are from an operations and supply management view.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?

24.Productivity is a relative measure.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement25.In a partial measure of productivity the denominator of the ratio would include all resources used or all inputs.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement26.In a multifactor measure of productivity the numerator of the ratio would include all resources used or all inputs.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement27.The operations and supply activities of the firm need to strategically support the competitive priorities of the firm.TRUE


28.The triple bottom line considers evaluating the firm against social, economic, and environmental criteria.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?29.Sustainability means meeting a firm's current needs without excessively compromising the ability of future generations to meet their own needs.FALSE


Multiple Choice Questions30.Which of the following is not a major strategic operational competitive dimension that forms a company's competitive position?A.Cost or priceB.Delivery speedC.Delivery reliabilityD.Management acumenE.Coping with changes in demand


31.A major competitive dimension that forms a company's strategic operational competitive position in their strategic planning is which of the following?A.Cost or priceB.FocusC.AutomationD.StraddlingE.Activity-system mapping

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?32.When developing an operations and supply strategy, which of the following is an important product-specific criterion to consider?A.Technical liaisonB.Learning curveC.Competitor's product performanceD.Production lot-sizeE.Total quality management

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?33.In development of an operations and supply strategy, which of the following would be an important product-specific criteria to consider?A.FocusB.Production lot-sizeC.Supplier after-sale supportD.Learning curveE.Total quality management


34.When a company seeks to match the benefits of a successful position while maintaining its existing position in offering customers a variety of differing services, what is this process called?A.Operations capability analysisB.StraddlingC.Order qualifyingD.Order winningE.Inter-functional analysis

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?35.An activity-based map is which of the following?A.A network guide to route airlinesB.A listing of activities that make up a projectC.A network that shows how a company's strategy is delivered to customersD.A facility layout schematic noting what is done whereE.A timeline displaying major planned events

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Learning Objective: 4Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?, Strategic Fit: Fitting Operational Activities to Strategy36.Which of the following is not a measure of operations and supply management efficiency used by Wall Street?A.Inventory turnoverB.Revenue per employeeC.Receivable turnoverD.Earnings per shareE.Asset turnover


37.Which of the following is a measure of operations and supply management efficiency used by Wall Street?A.Dividend payout ratioB.Current ratioC.Receivable turnoverD.Earnings per share growthE.Financial leverage

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?38.Which of the following is a partial measure of productivity?A.Output/MaterialsB.Output/(Labor + Capital + Energy)C.Output/All resources usedD.Output/InputsE.All of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement39.Which of the following is a multifactor measure of productivity?A.Output/(Materials)B.Output/(Labor + Capital + Energy)C.Output/All resources usedD.Output/InputsE.All of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement

40.Which of the following is a total measure of productivity?A.Output/MaterialsB.Output/(Labor + Capital + Energy)C.Output/LaborD.Output/InputsE.All of the above

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: KnowledgeTopic: Productivity Measurement41.If all you knew about a production system was that total daily output was 400 units and the total labor necessary to produce the 400 units was 350 hours, what kind of productivity measure could you use to compute productivity?A.Partial measureB.Multifactor measureC.Total measureD.Global measureE.All of the above

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: AnalysisTopic: Productivity Measurement42.If all you knew about a production system was that total daily output was 400 units and the total labor necessary to produce the 400 units was 350 hours, and the total materials used were 425 units, what kind of productivity measure could you use to compute productivity?A.Partial measureB.Multifactor measureC.Total measureD.A and B aboveE.B and C above

AACSB: AnalyticDifficulty: EasyLearning Objective: 5Taxonomy: AnalysisTopic: Productivity Measurement

43.The total output from a production system in one day is 500 units and the total labor necessary to produce the 500 units is 350 hours. Using the appropriate productivity measure, which of the following numbers represents the resulting productivity ratio?A.1.000B.1.428C.0.700D.0.411E.None of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: AnalysisTopic: Productivity Measurement44.The total output from a production system in one day is 900 units and the total labor necessary to produce the 900 units is 900 hours. Using the appropriate productivity measure, what is the resulting productivity ratio?A.1.000B.1.428C.0.700D.0.411E.None of the above

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: AnalysisTopic: Productivity Measurement

45.Larry's Auto Body Repair Shop had revenues that averaged $60,000 per week in April and $50,000 per week in May. During both months, the shop employed six full-time (40 hours/week) workers. In April the firm also had four part-time workers working 25 hours per week but in May there were only 2 part-time workers and they only worked 10 hours per week. What is the percentage change in labor productivity from April to May for Larry's Auto Body Repair?A.17.65B.-15.84C.8.97D.-1.76E.19.23

AACSB: AnalyticDifficulty: HardLearning Objective: 5Taxonomy: AnalyticTopic: Productivity Measurement46.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in SunPath's total productivity measure between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.39

AACSB: AnalyticDifficulty: HardLearning Objective: 5Taxonomy: AnalysisTopic: Productivity Measurement

47.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the energy partial productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.39

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: AnalyticTopic: Productivity Measurement

48.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the labor partial productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.2.88E.10.39

AACSB: AnalyticDifficulty: MediumLearning Objective: 5Taxonomy: AnalyticTopic: Productivity Measurement

49.Various financial data for SunPath Manufacturing for 2010 & 2011 follow. What is the percentage change in the multifactor labor and raw materials productivity measure for SunPath between 2010 & 2011?A.-9.22B.2.33C.-0.53D.-2.88E.10.39

AACSB: AnalyticDifficulty: HardLearning Objective: 5Taxonomy: AnalyticTopic: Productivity Measurement

Fill in the Blank Questions50.What is a criterion or product characteristic that differentiates a product from the products of competitors in a way meaningful to the market called? ____________________Order winner


51.A diagram showing how a company's strategy is delivered through a set of tailored activities is called what? _____________________Activity-system map

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?52.The triple-bottom-line evaluates the firm against what three criteria?1. _____________________2. _____________________3. _____________________The text provides three alternatives: social, economic, and environmental; people, planet, and profit; or folk, work, and place.

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: What is Operations and Supply Strategy?53.People who provide capital to the firm through stock purchases and other financial instruments are called: _____________________Shareholders


54.Individuals or organizations that are influenced, either directly or indirectly, by the actions of the firm are called: _____________________Stakeholders

AACSB: AnalyticDifficulty: EasyLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?55.Name five common measures of operations and supply management efficiency used by Wall Street.1. _____________________2. _____________________3. _____________________4. _____________________5. _____________________Income per employee; Revenue per employee; Inventory turnover; Asset turnover; Receivable turnover.

AACSB: AnalyticDifficulty: MediumLearning Objective: 6Taxonomy: KnowledgeTopic: How Does Wall Street Evaluate Operations Performance?

Essay Questions56.Describe a specific example of the trade-offs between any two of the competitive dimensions.This question requires that the student recall at least two of the seven competitive dimensions described under the heading "Competitive Dimensions" on pages 27-29 of the text. In evaluating the student's response the instructor should take care that the student's arguments do, indeed illustrate a "trade-off" or a situation where an improvement in one dimension comes at the cost of a lessening of a different dimension. A fairly common example is between achieving low cost (or price) at the expense of quality. For this example it is necessary for the student to specify that he is talking about reducing design quality to achieve low cost (for example) instead of process quality where improvements typically result in lowered cost.

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: SynthesisTopic: What is Operations and Supply Strategy?57.Explain the role that "order qualifiers" and "order winners" play as the interface between marketing and operations.The student's answer to this question should indicate the usefulness of articulating and differentiating between order winners and order qualifiers. In essence, these factors should indicate the essence of what is required to compete in the marketplace and the ways that the product or service, itself, differentiates itself from competing products and services. This topic is discussed in the text on pages 30 under the heading "Order Winners and Qualifiers: The Marketing-Operations Link."

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: SynthesisTopic: Strategic Fit: Fitting Operational Activities to Strategy

Chapter 03Strategic Capacity Management Learning Objectives for Chapter 3:

1. Recognize the concept of capacity and how important it is to manage capacity.2. Explain the impact of economies of scale on the capacity of a firm.3. Understand how to use decision trees to analyze alternatives when faced with the problem of adding capacity.4. Describe the differences in planning capacity between manufacturing firms and service firms.

True / False Questions1.Capacity can be defined as the ability to hold, receive, store, or accommodate.TrueFalse2.When evaluating capacity, managers need to consider both resource inputs and product outputs.TrueFalse

3.Capacity can be defined as the amount of available resource inputs relative to requirements for output over a particular period of time.TrueFalse4.The capacity utilization rate is found by dividing best operating level by capacity used.TrueFalse5.The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.TrueFalse6.The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's short-range competitive strategy.TrueFalse

7.The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's long-range competitive strategy.TrueFalse8.Best operating level is usually a multiple of the level of capacity for which a process was designed.TrueFalse9.Best operating level is the volume of output at which average unit cost is minimized.TrueFalse10.At some point, the size of a growing plant can become too large and diseconomies of scale become a capacity planning problem.TrueFalse11.Long-range capacity planning requires top management participation.TrueFalse12.Overtime and personnel transfers are solutions to capacity problems in the intermediate term.TrueFalse13.Capacity planning is generally viewed in three time durations: Immediate, Intermediate and Indeterminate.TrueFalse

14.The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops.TrueFalse15.A piece of equipment with twice the capacity of another piece typically costs twice as much to purchase and to operate.TrueFalse16.The problem of keeping demand sufficiently high to keep a large factory busy is a sales issue and not a diseconomy of scale.TrueFalse17.A production facility works best when it focuses on a fairly limited set of production objectives.TrueFalse18.A production facility develops virtuosity and works best when it focuses on a widely varied set of production objectives.TrueFalse19.Making adjustments to eliminate the variance between planned and actual output is tied into intermediate range capacity planning.TrueFalse20.The ultimate in plant flexibility is a one-hour-changeover time plant.TrueFalse

21.Capacity flexibility means having the ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one product or service to another.TrueFalse22.Economies of scope exist when multiple products can be produced at a lower cost in combination than they can separately.TrueFalse23.The frequency of additions to productive capacity should balance the costs of upgrading too frequently and the costs of upgrading too infrequently.TrueFalse24.Subcontracting is a common source of external capacity.TrueFalse25.Sharing capacity is a common source of external capacity.TrueFalse26.A capacity cushion is the amount of capacity less than expected demand.TrueFalse27.A decision tree problem does not need probabilities or payoffs to generate a solution.TrueFalse28.In solving a decision tree problem, calculations start at the ends of the "branches" of the tree and work backwards to the base "trunk" of the tree.TrueFalse

29.The probability of each occurrence at a decision tree chance node is the reciprocal of the number of possibilities at the chance node.TrueFalse30.In a decision tree, the only time probabilities are applied to a decision node is when the decision is being made by someone else such as your customer or your competitor.TrueFalse31.Low rates of capacity utilization in service organizations are never appropriate.TrueFalse32.The smaller the capacity cushion the better.TrueFalse33.The larger the capacity cushion the better.TrueFalse34.The capacity cushion is the ratio of capacity used to the best capacity level.TrueFalse35.When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion.TrueFalse36.In decision tree analysis the time value of money is ignored because you are only concerned with cash costs.TrueFalse

Multiple Choice Questions37.The ability to rapidly and inexpensively switch production from one product to another enables what are sometimes referred to as:A.Economies of scaleB.Economies of sizeC.Economies of shapeD.Economies of scopeE.Economies of shipping38.Capacity planning involving hiring, layoffs, some new tooling, minor equipment purchases, and subcontracting is considered as which one of the following planning horizons?A.Intermediate rangeB.Long rangeC.Short rangeD.CurrentE.Upcoming39.Capacity planning involving acquisition or disposal of fixed assets such as buildings, equipment or facilities is considered as which one of the following planning horizons?A.Intermediate-rangeB.Long-rangeC.Short-rangeD.CurrentE.Upcoming40.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity utilization rate?A.0.75B.1.00C.1.33D.2.33E.300

41.If the actual output of a piece of equipment during an hour is 500 units and its best operating level is at a rate of 400 units per hour, which of the following is the capacity utilization rate?A.0.75B.1.00C.1.25D.1.33E.10042.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity cushion?A.33 percentB.75 percentC.90 percentD.100 percentE.133 percent43.The capacity focus concept can be put into practice through a mechanism called which of the following?A.Best operating level (BOL)B.Plants within plants (PWP)C.Total quality management (TQM)D.Capacity utilization rate (CUR)E.Zero-changeover-time (ZXT)44.The way to build in greater flexibility in your workers is to do which of the following?A.Pay higher wages to motivate a willingness to do a variety to tasksB.Provide a broader range of trainingC.Provide a wide variety of technology to augment workers skillsD.Institute a "pay for skills" programE.Use part-time employees with specialized skills as needed

45.When deciding to add capacity to a factory which of the following need not be considered?A.Maintaining system balanceB.The frequency of capacity additionsC.Use of external capacityD.Immediate product demandE.Availability of raw materials46.Which of the following is not a step used in determining production capacity requirements?A.Forecasting to predict product salesB.Forecasting raw material usageC.Projecting availability of laborD.Calculating equipment and labor needsE.Projecting equipment availability47.Which of the following models uses a schematic model of the sequence of steps in a problem and the conditions and consequences of each step?A.Probability indexingB.Johnson's sequencing ruleC.Decision treesD.Activity System MapsE.Decision mapping48.Compared with a service operation, a manufacturing operation's capacity is which of the following?A.More dependent on time and locationB.Subject to more volatile demand fluctuationsC.Utilization more directly impacts qualityD.Demand can be smoothed by inventory policiesE.More capable of reacting to demand fluctuations

49.At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000 with a probability of 90%; the expected benefit of selecting machine B is $80,000 with a probability of 50% and the expected benefit of selecting machine C is $60,000 with a probability of 75%?A.Machine AB.Machine BC.Machine CD.You would be indifferent between machines A and CE.You would be indifferent between machines A and B50.What is an important difference between capacity planning in services as contrasted to capacity planning in manufacturing operations?A.TimeB.LocationC.Demand volatilityD.Utilization impacts serviceE.All of the above51.Capacity planning involving consideration of production scheduling and inventory position is characterized by which one of the following time durations?A.Intermediate-rangeB.Long-rangeC.Short-rangeD.CurrentE.Upcoming

Fill in the Blank Questions52.A chance node on a decision tree has four possible outcomes each worth $100,000. The probabilities of the outcomes occurring are assessed as 10%, 27%, 43% and 20%. What is the expected value of this chance node? ____________________________________________________________

53.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has trained labor and equipment sufficient to produce 150,000 units per month, is the capacity cushion positive or negative? ____________________________________________________________54.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 4,500 units per week, how many similar machines might you plan to acquire? ___________________________________________________________55.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 75,000 units per month, how much of product "A" might you plan to acquire through outsourcing? _______________________________________________________56.A chance node on a decision tree has four possible outcomes worth $10,000, $20,000, $30,000 and minus $100,000 respectively. The probabilities of these outcomes occurring are assessed as 10%, 25%, 50% and 15% correspondingly. What is the expected value of this chance node? _________________________________________________________________57.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, what is the capacity utilization rate? ____________________________________________________________58.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, what is the capacity cushion? __________________________________________________________

Essay Questions

59.What is a capacity cushion and why would a firm have one?

60.Why does volatility of demand have a higher effect on a service delivery system than on a manufacturing system?

61.Describe the relationship between capacity utilization and quality in a service operation.

Chapter 03 Strategic Capacity Management Answer Key

True / False Questions1.Capacity can be defined as the ability to hold, receive, store, or accommodate.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations2.When evaluating capacity, managers need to consider both resource inputs and product outputs.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations3.Capacity can be defined as the amount of available resource inputs relative to requirements for output over a particular period of time.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations

4.The capacity utilization rate is found by dividing best operating level by capacity used.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations5.The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations6.The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's short-range competitive strategy.FALSE


7.The objective of strategic capacity planning is to determine the overall capacity level of capital intensive resources (including facilities, equipment, and overall labor force size) that best supports the company's long-range competitive strategy.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations8.Best operating level is usually a multiple of the level of capacity for which a process was designed.FALSE


9.Best operating level is the volume of output at which average unit cost is minimized.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations10.At some point, the size of a growing plant can become too large and diseconomies of scale become a capacity planning problem.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts11.Long-range capacity planning requires top management participation.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations12.Overtime and personnel transfers are solutions to capacity problems in the intermediate term.FALSE


13.Capacity planning is generally viewed in three time durations: Immediate, Intermediate and Indeterminate.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations14.The basic notion of economies of scale is that as a plant gets larger and volume increases, the average cost per unit of output drops.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts15.A piece of equipment with twice the capacity of another piece typically costs twice as much to purchase and to operate.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts16.The problem of keeping demand sufficiently high to keep a large factory busy is a sales issue and not a diseconomy of scale.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts

17.A production facility works best when it focuses on a fairly limited set of production objectives.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts18.A production facility develops virtuosity and works best when it focuses on a widely varied set of production objectives.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts19.Making adjustments to eliminate the variance between planned and actual output is tied into intermediate range capacity planning.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations20.The ultimate in plant flexibility is a one-hour-changeover time plant.FALSE


21.Capacity flexibility means having the ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one product or service to another.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations22.Economies of scope exist when multiple products can be produced at a lower cost in combination than they can separately.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts23.The frequency of additions to productive capacity should balance the costs of upgrading too frequently and the costs of upgrading too infrequently.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations24.Subcontracting is a common source of external capacity.TRUE


25.Sharing capacity is a common source of external capacity.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations26.A capacity cushion is the amount of capacity less than expected demand.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations27.A decision tree problem does not need probabilities or payoffs to generate a solution.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning28.In solving a decision tree problem, calculations start at the ends of the "branches" of the tree and work backwards to the base "trunk" of the tree.TRUE

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning

29.The probability of each occurrence at a decision tree chance node is the reciprocal of the number of possibilities at the chance node.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning30.In a decision tree, the only time probabilities are applied to a decision node is when the decision is being made by someone else such as your customer or your competitor.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning31.Low rates of capacity utilization in service organizations are never appropriate.FALSE

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Planning Service Capacity32.The smaller the capacity cushion the better.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations

33.The larger the capacity cushion the better.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations34.The capacity cushion is the ratio of capacity used to the best capacity level.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations35.When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion.TRUE

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations36.In decision tree analysis the time value of money is ignored because you are only concerned with cash costs.FALSE

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning

Multiple Choice Questions37.The ability to rapidly and inexpensively switch production from one product to another enables what are sometimes referred to as:A.Economies of scaleB.Economies of sizeC.Economies of shapeD.Economies of scopeE.Economies of shipping

AACSB: AnalyticDifficulty: MediumLearning Objective: 2Taxonomy: KnowledgeTopic: Capacity Planning Concepts38.Capacity planning involving hiring, layoffs, some new tooling, minor equipment purchases, and subcontracting is considered as which one of the following planning horizons?A.Intermediate rangeB.Long rangeC.Short rangeD.CurrentE.Upcoming


39.Capacity planning involving acquisition or disposal of fixed assets such as buildings, equipment or facilities is considered as which one of the following planning horizons?A.Intermediate-rangeB.Long-rangeC.Short-rangeD.CurrentE.Upcoming


40.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity utilization rate?A.0.75B.1.00C.1.33D.2.33E.300

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations41.If the actual output of a piece of equipment during an hour is 500 units and its best operating level is at a rate of 400 units per hour, which of the following is the capacity utilization rate?A.0.75B.1.00C.1.25D.1.33E.100

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations

42.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, which of the following is the capacity cushion?A.33 percentB.75 percentC.90 percentD.100 percentE.133 percent

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations43.The capacity focus concept can be put into practice through a mechanism called which of the following?A.Best operating level (BOL)B.Plants within plants (PWP)C.Total quality management (TQM)D.Capacity utilization rate (CUR)E.Zero-changeover-time (ZXT)

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations44.The way to build in greater flexibility in your workers is to do which of the following?A.Pay higher wages to motivate a willingness to do a variety to tasksB.Provide a broader range of trainingC.Provide a wide variety of technology to augment workers skillsD.Institute a "pay for skills" programE.Use part-time employees with specialized skills as needed


45.When deciding to add capacity to a factory which of the following need not be considered?A.Maintaining system balanceB.The frequency of capacity additionsC.Use of external capacityD.Immediate product demandE.Availability of raw materials

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations46.Which of the following is not a step used in determining production capacity requirements?A.Forecasting to predict product salesB.Forecasting raw material usageC.Projecting availability of laborD.Calculating equipment and labor needsE.Projecting equipment availability

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: KnowledgeTopic: Capacity Management in Operations47.Which of the following models uses a schematic model of the sequence of steps in a problem and the conditions and consequences of each step?A.Probability indexingB.Johnson's sequencing ruleC.Decision treesD.Activity System MapsE.Decision mapping

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: KnowledgeTopic: Capacity Planning

48.Compared with a service operation, a manufacturing operation's capacity is which of the following?A.More dependent on time and locationB.Subject to more volatile demand fluctuationsC.Utilization more directly impacts qualityD.Demand can be smoothed by inventory policiesE.More capable of reacting to demand fluctuations

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: KnowledgeTopic: Planning Service Capacity49.At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine A is $45,000 with a probability of 90%; the expected benefit of selecting machine B is $80,000 with a probability of 50% and the expected benefit of selecting machine C is $60,000 with a probability of 75%?A.Machine AB.Machine BC.Machine CD.You would be indifferent between machines A and CE.You would be indifferent between machines A and B

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: AnalysisTopic: Capacity Planning

50.What is an important difference between capacity planning in services as contrasted to capacity planning in manufacturing operations?A.TimeB.LocationC.Demand volatilityD.Utilization impacts serviceE.All of the above

AACSB: AnalyticDifficulty: EasyLearning Objective: 4Taxonomy: AnalysisTopic: Planning Service Capacity51.Capacity planning involving consideration of production scheduling and inventory position is characterized by which one of the following time durations?A.Intermediate-rangeB.Long-rangeC.Short-rangeD.CurrentE.Upcoming


Fill in the Blank Questions52.A chance node on a decision tree has four possible outcomes each worth $100,000. The probabilities of the outcomes occurring are assessed as 10%, 27%, 43% and 20%. What is the expected value of this chance node? ____________________$100,000

AACSB: AnalyticDifficulty: EasyLearning Objective: 3Taxonomy: AnalysisTopic: Capacity Planning

53.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has trained labor and equipment sufficient to produce 150,000 units per month, is the capacity cushion positive or negative? ____________________Positive

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations54.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 4,500 units per week, how many similar machines might you plan to acquire? ___________________5 (five)

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations55.If demand for product "A" were forecast at 1,000,000 units for the coming year and your factory has one machine capable of producing 75,000 units per month, how much of product "A" might you plan to acquire through outsourcing? _______________100,000 units

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations

56.A chance node on a decision tree has four possible outcomes worth $10,000, $20,000, $30,000 and minus $100,000 respectively. The probabilities of these outcomes occurring are assessed as 10%, 25%, 50% and 15% correspondingly. What is the expected value of this chance node? _________________________$6,000

AACSB: AnalyticDifficulty: MediumLearning Objective: 3Taxonomy: AnalysisTopic: Capacity Planning57.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, what is the capacity utilization rate? ____________________0.75 or 75%

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations58.If the best operating level of a piece of equipment is at a rate of 400 units per hour and the actual output during an hour is 300 units, what is the capacity cushion? __________________0.33 or 33%

AACSB: AnalyticDifficulty: EasyLearning Objective: 1Taxonomy: AnalysisTopic: Capacity Management in Operations

Essay Questions59.What is a capacity cushion and why would a firm have one?The capacity cushion is an amount of excess capacity over expected demand maintained by a firm. Capacity cushion is discussed in the text beginning on page 49. A satisfactory response to this question will indicate that firms typically hold capacity cushions when demand is more rapidly variable than capacity adjustments can be. For example, in many service operations it is not possible to inventory finished goods, they must be produced to demand. To be able to meet peak demand, therefore, service operations must have a cushion of capacity over average demand. Electric utilities, where demand varies considerably over a 24-hour period, are a good example of this. Other reasons for a capacity cushion include expected rapid growth and a desire to service expanded demand rapidly.

AACSB: AnalyticDifficulty: MediumLearning Objective: 1Taxonomy: SynthesisTopic: Capacity Management in Operations60.Why does volatility of demand have a higher effect on a service delivery system than on a manufacturing system?The impact of demand volatility on services is discussed in the text on page 55. A successful response to this question will mention the following three issues: (1) a service can not be inventoried and thus must be produced as demanded; (2) that customers interact directly with the service delivery system and each may have unique needs or will require different levels of service; and (3) consumer behaviors can magnify volatility of demand very significantly in service operations.

AACSB: AnalyticDifficulty: HardLearning Objective: 4Taxonomy: SynthesisTopic: Planning Service Capacity

61.Describe the relationship between capacity utilization and quality in a service operation.The relationship between capacity utilization and service quality is discussed in the text beginning on page 55. A good response will note that higher levels of capacity utilization may result in waiting lines and hurried or overwhelmed service personnel causing perceptions of service quality to decline. An excellent response will include the observation that the optimal utilization rates are context specific with the optimal rates depending on the degrees of uncertainty (or variabili

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