MGMT 339 Exam 2

CH.6, 7, 10

Design capacity

• Highest output rate an activity or process can achieve under ideal conditions

• For equipment also called rated capacity

Effective capacity

• Sustainable maximum capacity taking into account potential disruptions, fatigue, machine breakdowns

• Usually used when making plans to meet demand or determine long run production values

Utilization

• Percentage of process capacity actually used

• Very high utilization: Possible overuse of resources

• Low utilization: Equipment or employees may be underused

Utilization formula

= (Actual Capacity / Output) * 100%

Capacity Cushion

• The amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity

• The appropriate size of capacity cushion varies by industry

Capacity Cushion Formula

= 𝟏𝟎𝟎 (%) − 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐮𝐭𝐢𝐥𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐫𝐚𝐭𝐞 (%)

Yield Rate

• Percentage of good units produced from total units begun

• A 80% yield rate means 80% of started products are of acceptable quality while 20% of started products have to be scraped or reworked.

Yield Rate Formula

# of “acceptable” products & services / # of started products & services