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Advantages & Disadvantages of Using a Make To Order Process Questions

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Economics

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MGMT 659

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Application Lesson 10

Part I (10 points each)

1. What is a capacity cushion and why would a firm have one?

A capacity cushion is an amount of capacity in excess of expected demand. A firm would have

this type of cushion to ensure that in a situation where the demand was to fluctuate above the

normal production schedule, their plant/company would have the excess capacity to support

those extra units.

2. What are the advantages and disadvantages of using a make-to-order process compared to

the advantages and disadvantages of a make-to-stock process in a manufacturing operation?

A make-to-order process is one where the firm makes the customer’s product from raw

materials, parts and components. Examples include aircraft and custom-built computers. Some

of the advantages to this type of process include minimizing waste, this is achieved through

making the products to the customers specifications and only includes things they want, not

what they don’t (unneeded features that are installed are considered waste). There is a

reduction in the risk of inefficiency, and finally the biggest advantage from a customer

standpoint would be the ability to customize the products. An example would be having a

computer built with higher speeds for gaming, more storage to hold all the pictures you take

and having the ability to use it as a touch screen, these are features that make the product

more desirable to a specific person and they are more likely to pay more for the product. Some

of the disadvantages include fluctuations in demand to include lulls and high demand booms.

Another disadvantage of the make-to order process is customer wait times. Due to the

customized nature of these orders, the traditional wait time, or availability right now, are not

an option. It will take much longer for those products to arrive with the customer. A make-to-

stock process is one where the firm serves the customer from finished goods inventory.

Examples include televisions, clothing and packaged foods. Some of the advantages of the

make-to-stock process include the ability to allocate resources and production to the correct

places as needed. Customer wait times are significantly lowered in this process where most

have the ability to grab an item off the shelf and bring it home immediately. Some of the

disadvantages of make-to-stock include the ever-changing customer trends, while some items

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are hot for a season or during a specific time frame, they can level off, or fall; there is also the

possibility of incorrectly assuming how successful a product will be. Another disadvantage is

having too much inventory or on the flip side, being unable to keep up with the demand and

having too little inventory. Finally, difficulty with accurate sales forecasting. The current

situation with COVID-19 is the perfect example of accurate sales forecasting, toilet paper

companies were unable to forecast the due to a health crisis toilet paper would become a hot

commodity and they would have a difficult time keeping up with the demand.

3. Differentiate between a work center and a manufacturing cell.

A work center layout, also called a job shop, is where similar equipment or functions are

grouped together. A manufacturing cell layout is a dedicated area where products that are

similar in processing requirements are produced. The difference between these two is that in a

work center layout you will see specific sections for each of the stations (assembly, painting,

welding, etc.) Whereas in a manufacturing cell the grouping of machines is based on their

contribution to the same type of product. The manufacturing cells are in charge of making their

own products. For example, in a guitar manufacturing company, each of the cells would be in

charge of making a guitar, start to finish.

4. What is meant by a process? Describe its important features.

A process is any set of activities performed by an organization that takes inputs and transforms

them into outputs ideally of greater value to the organization than the original inputs. The

important features of a process are (1) a set of tasks, each of these tasks leads to the next,

ultimately ending at the desired output, (2) a flow of material and information that connects

the set of tasks, Material flow transfers a product from one task to the next, the information

flow helps determine the change that has taken place, finally (3) storage of material and

information. In this feature of the process includes goods being stored in wait for the next task

to begin. Also called work-in-process inventory.

5. What is a break-even analysis? Why would an analyst do one, and how?

A break-even analysis is a calculation used to determine the point at which your company will

have covered all costs and start to see profits. An analyst would want to perform a break-even

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Application Lesson 10 Part I (10 points each) 1. What is a capacity cushion and why would a firm have one? A capacity cushion is an amount of capacity in excess of expected demand. A firm would have this type of cushion to ensure that in a situation where the demand was to fluctuate above the normal production schedule, their plant/company would have the excess capacity to support those extra units. 2. What are the advantages and disadvantages of using a make-to-order process compared to the advantages and disadvantages of a make-to-stock process in a manufacturing operation? A make-to-order process is one where the firm makes the customer’s product from raw materials, parts and components. Examples include aircraft and custom-built computers. Some of the advantages to this type of process include minimizing waste, this is achieved through making the products to the customers specifications and only includes things they want, not what they don’t (unneeded features that are installed are considered waste). There is a reduction in the risk of inefficiency, and finally the biggest advantage from a customer standpoint would be the ability to customize the products. An example would be having a computer built with higher speeds for gaming, more storage to hold all the pictures you take and having the ability to use it as a touch screen, these are features that make the product more desirable to a specific person and they are more likely to pay more for the product. Some of the ...
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Tags: manufacturing cell Capacity utilization rate work center capacity cushion rate Price Variable Costs