- The definition of “short-term” depends on the business context. What would General Motors consider as short-term? Is this period longer than what a bakery would consider as short-term? Why?
- Automobile dealers frequently advertise sales because their lots are “overflowing.” The ads suggest a shortage of storage capacity but the price-cutting action indicates a demand shortfall. How can you reconcile these seemingly contradictory inferences?
- Identify the one resource whose daily supply is fixed for each person. How could we improve the effectiveness with which we consume this resource?
- Some people argue that the gross method is also, at some level, “incremental.” Evaluate this argument.
- When faced with a sudden spurt in demand, why does it sometimes make sense for a company to increase prices? For example, why do airlines raise fares during peak travel periods? Why might it not be a good idea for consulting companies?
- In periods of excess capacity, does it make sense for a manufacturing company to produce some products to stock (i.e., build up inventory) for sale in future periods of high demand? Give two examples of industries where this might be a good idea. Give two examples where it might be a bad idea.
- How does holding inventory help reduce theexpected gap between available capacity and uncertain demand?
- Inventory is one mechanism that a firm could use to protect itself from the impact of fluctuating demand. What are other long-term strategies a company could adopt to insulate itself against uncertain demand?
- Often, the capacity of the most expensive machine defines a plant’s capacity. That is, firms will deliberately install excess capacity in “cheap” resources. Why might this practice be optimal?
The general allocation procedure in the text assumes few constraints on how we could use resources. Why might this general rule not hold when individual uses require a
amount of the resource? (For example, if we are allocating space, each use might need a minimum of 10 units of space.) How might we modify our approach to incorporate lumpy uses of capacity?
How does the notion of maximizing the contribution per unit of the scarce resource apply when some products have
- Outsourcing is the practice of having an external party take over some business and/or manufacturing processes. How does outsourcing change a firm’s cost structure and, therefore, its ability to be nimble in responding to competition? What are some long-term costs and benefits of outsourcing?
- Suppose that buying a component is estimated to save $50,000 annually over making it in-house. However, outsourcing the component means that 20 long-term employees would be laid off, adversely affecting employee morale. How might a manager trade off these two factors?