1) What factors should be considered when selecting the appropriate capacity cushion? How does the choice of capacity cushion relate to other decisions in operations management? To other functional areas?
There are many factors that we should considerate when selecting the appropriate capacity cushion such as type of business, level of fluctuation in demand, flexibility of production line, level of inventory (finish goods), reliability of supplier and cost of capital etc. All of the example factors can affect the decision of suitable size of capacity cushion as determined in table below.
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Large capacity cushion
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Small capacity cushion
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Type of business
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Service industry
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Manufacturing
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Level of fluctuation in demand
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High
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Low
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Flexibility of production line
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Inflexible
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Flexible
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Level of inventory (finish goods)
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Low
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High
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Reliability of supplier
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Unreliable
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Reliable
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Cost of capital
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Low
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High
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As capacity cushion is the capacity that company reserve for unexpected situation, size of capacity cushion always relate to other decision in operation management. For example, if company has small capacity cushion and demand has continued increasing trend. Operation manager should begin to consider of increasing production capacity. Moreover, if company has small cushion and almost reach maximum capacity, operation team might need to communicate with marketing manager to slow down their team to prevent the situation that company can't deliver product to customer on time. Furthermore, operation manager might have another option that is communicate with finance team to prepare capital for increasing capacity.
2) What are five of the seven key principles of the Theory of Constraints and give an example of each?
1. Maximizing the output and efficiency of every resource may not maximize the throughout of the entire system. For example, no mater how much operation team can maximizing the output and efficiency of every resource but if there is bottleneck in production process, that bottleneck will slow down and decrease efficiency of entire process.
2. An hour lost at bottleneck or constrained resource is an hour lost for whole system. In contrast, an hour saved at a nonbottleneck resource is a mirage because it does not make the whole system more productive. For example, if company has three step of production process and bottleneck occur in step two, saving an hour in step one will not make company productive because production will be slow down at step two anyway. To be more productive company should find bottleneck and fix it.
3. Inventory is needed only in front of the bottleneck in order to prevent them from sitting idle, and in front of assembly and shipping points in order to protect customer schedules. Building inventories elsewhere should be avoided. For example, creating inventory behind bottleneck instead of put it through production process will generate unnecessary inventory costs.
4. Work, which can be material, information to be processed, documents, or customers, should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses. For instance, if bottleneck process can handle 3 materials per hour and operation manager decide to put 5 materials into system per hour, fourth and fifth material will have to sit idle in front of bottleneck process and that create inventory cost and operating expense.
5. Activating a nonbottleneck resource (using it for improve efficiency that does not increase throughput) is not the same as utilizing a bottleneck resource (that does lead to increase throughput). Activation of nonbottleneck resource cannot increase throughput, nor promote better performance on financial measure. For example, if operation manager can activate labor to increase production rate from 10 to 20 pieces per hour in nonbottleneck area but in bottleneck process can handle only 7 pieces per hour, production rate per hour still remain at 7 pieces per hour.
3) List four of the six dominant factors in locating manufacturing facilities, as discussed in the book.
- Favorable labor climate:A favorable labor climate may be the most important factor in location decisions for labor-intensive firms in industries such as textiles, furniture, and consumer electronics. Labor climate includes wage rates, training requirements, attitudes toward work, worker productivity, and union strength. Many executives consider weak unions or al low probability of union organizing efforts as a distinct advantage.
- Quality of life: Good schools, recreational facilities, cultural events, and an attractive lifestyle contribute to quality of life. This factor is relatively unimportant on its own, but it can make the difference in location decisions.
- Proximity to suppliers and resources: In many companies, plants supply parts to other facilities or rely on other facilities for management and staff support. These require frequent coordination and communication, which can become more difficult as distance increases.
- Proximity to markets: After determining where the demand for goods and services is greatest, management must select a location for the facility that will supply that demand. Locating near markets is particularly important when the final goods are bulky or heavy and outbound transportation rates are high. For example, manufacturers of products such as plastic pipe and heavy metals all emphasize proximity to their markets.