Certified Production & Operations Manager (POM) Practice Exam

What does significant underutilization of capacity typically indicate?

1. Increased demand for products

2. Existing capacity limits

3. Poor planning or management

4. Optimal resource allocation

The correct answer is: Poor planning or management

Significant underutilization of capacity typically indicates poor planning or management. This situation suggests that the organization's resources, such as equipment, labor, or facilities, are not being used efficiently, leading to a mismatch between available capacity and actual output. Such underutilization can stem from several issues, including inaccurate demand forecasting, ineffective scheduling, or resource allocation that does not correspond to the actual needs of the production process. In contrast, increased demand for products would likely lead to higher utilization of capacity rather than underutilization. Existing capacity limits could be a concern, but if capacity is underutilized, it implies that the limits are not being reached, which would not directly relate to this issue. Optimal resource allocation would also imply effective utilization of available capacity, contradicting the idea of significant underutilization. Thus, the presence of significant underutilization is a clear signal of underlying problems in planning or management processes that need to be addressed.