The definition of “short-term” depends on the business context. What would
- 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 minimum 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 minimum production quantities?
- 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?