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Operations Management
Chapter 6
13
Management
Undergraduate 3
11/07/2010

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Term
Capacity
Definition
The maximum rate of output of a process or a system.
Term
Utlilization
Definition
The degree to which equipment, space, or the workforce is currently being used, and is measured as the ratio of average output rate to maximum capacity (expressed as a percent)
Term
Economies of Scale
Definition
A concept that states that the average unit cost of a service or good can be reduced by increasing its output rate.
Term
Diseconomies of Scale
Definition
Occurs when the average cost per unit increases as the facility's size increases.
Term
Capacity Cushion
Definition
Amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity; measures the amount by which the average utilization falls below 100%
Term
Capacity Requirement
Definition
What a process's capacity should be for some future time period to meet the demand of customers, given the firm's desired capacity cushion.
Term
Planning horizon
Definition
Set of consecutive time periods considered for planning purposes
Term
Setup Time
Definition
The time required to change a process or an operation from making one service or product to making another.
Term
Capacity Gap
Definition
Positive or negative difference between projected demand and current capacity.
Term
Base Case
Definition
Act of doing nothing and losing orders from any demand that exceeds current capacity, or incur costs because capacity is too large.
Term
Cash Flow
Definition
Difference between the flows of funds into and out of an organization over a period of time, including revenues, costs, and changes in assets and liabilities.
Term
Utilization formula
Definition
(Avg output rate/max capacity)*100%
Term
Capacity Cushion equation
Definition
100%-Avg Utilization rate (%)
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