- Introduction to Operations Management
- Operations management (OM): The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s goods and services.
- Role of operations management: To transform organizational inputs into outputs
- Value added: The net increase created during the transformation of inputs into final outputs.
- Efficiency: Performing activities at the lowest possible cost.
- Manufacturing organizations: Organizations that primarily produce a tangible product and typically have low customer contact.
- Service organizations: Organizations that primarily produce an intangible product, such as ideas, assistance, or information, and typically have high customer contact.
- Strategic decisions: Decisions that set the direction for the entire company; they are broad in scope and long-term in nature.
- Tactical decisions: Decisions that are specific and short-term in nature and are bound by strategic decisions.
- Industrial Revolution: An industry movement that changed production by substituting machine power for labor power.
- Scientific management: An approach to management that focused on improving output by redesigning jobs and determining acceptable levels of worker output.
- Hawthorne studies: The studies responsible for creating the human relations movement, which focused on giving more consideration to workers’ needs.
- Human relations movement: A philosophy based on the recognition that factors other than money can contribute to worker productivity.
- Management science: A field of study that focuses on the development of quantitative techniques to solve operations problems.
- Just-in-time (JIT): A philosophy designed to achieve high-volume production through elimination of waste and continuous improvement.
- Total quality management (TQM): Philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization.
- Reengineering: Redesigning a company’s processes to make them more efficient.
- Flexibility: An organizational strategy in which the company attempts to offer a greater variety of product choices to its customers.
- Mass customization: The ability of a firm to highly customize its goods and services at high volumes.
- Time-based competition: An organizational strategy focusing on efforts to develop new products and deliver them to customers faster than competitors.
- Supply chain management (SCM): Management of the flow of materials from suppliers to customers in order to reduce overall cost and increase responsiveness to customers.
- Global marketplace: A trend in business focusing on customers, suppliers, and competitors from a global perspective.
- Sustainability: A trend in business to consciously reduce waste, recycle, and reuse products and parts.
- Business-to-business (B2B): Electronic commerce between businesses.
- Business-to-customers (B2C): Electronic commerce between businesses and their customers.
- Customer-to-customer (C2C): Electronic commerce between customers.
- Lean systems: A concept that takes a total system approach to creating efficient operations.
- Enterprise resource planning (ERP): Large, sophisticated software systems used for identifying and planning the enterprise-wide resources needed to coordinate all activities involved in producing and delivering products.
- Customer relationship management (CRM): Software solutions that enable the firm to collect customer-specific data.
- Cross-functional decision making: The coordinated interaction and decision making that occur among the different functions of the organization.
- Operations Strategy and Competitiveness
- Business strategy: A long-range plan for a business.
- Operations strategy: A long-range plan for the operations function that specifies the design and use of resources to support the business strategy.
- Mission: A statement defining what business an organization is in, who its customers are, and how its core beliefs shape its business.
- Environmental scanning: Monitoring the external environment for changes and trends to determine business opportunities and threats.
- Core competencies: The unique strengths of a business.
- Competitive priorities: Capabilities that the operations function can develop in order to give a company a competitive advantage in its market.
- Cost: A competitive priority focusing on low cost.
- Quality: A competitive priority focusing on the quality of goods and services.
- Time: A competitive priority focusing on speed and on-time delivery.
- Flexibility: A competitive priority focusing on offering a wide variety of goods or services.
- Trade-off: The need to focus more on one competitive priority than on others.
- Order qualifiers: Competitive priorities that must be met for a company to qualify as a competitor in the marketplace.
- Order winners: Competitive priorities that win orders in the marketplace.
- Structure: Operations decisions related to the design of the production process, such as facilities, technology, and flow of goods and services through the facility.
- Infrastructure: Operations decisions related to the planning and control systems of the operation, such as organization of operations, skills and pay of workers, and quality measures.
- Productivity: A measure of how efficiently an organization converts inputs into outputs.
- Total productivity: Productivity computed as a ratio of output to all organizational inputs.
- Partial productivity: Productivity computed as a ratio of output to only one input (e.g., labor, materials, and machines).
- Multifactor productivity: Productivity computed as a ratio of output to several, but not all, inputs.
- Product Design and Process Selection
- Manufacturability: The ease with which a product can be made.
- Product design: The process of defining all of the product’s characteristics.
- Service design: The process of establishing all the characteristics of the service, including physical, sensual, and psychological benefits.
- Benchmarking: The process of studying the practices of companies considered “best-in-class” and comparing your company’s performance against theirs.
- Reverse engineering: The process of disassembling a product to analyze its design features.
- Early supplier involvement (ESI): Involving suppliers in the early stages of product design.
- Break-even analysis: A technique used to compute the amount of goods a company would need to sell to cover its costs.
- Fixed costs: Costs a company incurs regardless of how much it produces.
- Variable costs: Costs that vary directly with the amount of units produced.
- Design for manufacture (DFM): A series of guidelines to follow in order to produce a product easily and profitably.
- Product life cycle: A series of stages that products pass through in their lifetime, characterized by changing product demands over time.
- Concurrent engineering: An approach that brings together multifunction teams in the early phase of product design in order to simultaneously design the product and the process.
- Remanufacturing: The concept of using components of old products in the production of new ones.
- Intermittent operations: Processes used to produce a variety of products with different processing requirements in lower volumes.
- Repetitive operations: Processes used to produce one or a few standardized products in high volume.
- Project process: A type of process used to make a one-at-a-time product exactly to customer specifications.
- Batch process: A type of process used to produce a small quantity of products in groups or batches based on customer orders or specifications.
- Line process: A type of process used to produce a large volume of a standardized product.
- Continuous process: A type of process that operates continually to produce a high volume of a fully standardized product.
- Process flow analysis: A technique used for evaluating a process in terms of the sequence of steps from inputs to outputs with the goal of improving its design.
- Process flowchart: A chart showing the sequence of steps in producing the product or service.
- Bottleneck: Longest task in the process.
- Make-to-stock strategy: Produces standard products and services for immediate sale or delivery.
- Assemble-to-order strategy: Produces standard components that can be combined to customer specifications.
- Make-to-order strategy: Produces products to customer specifications after an order has been received.
- Process performance metrics: Measurements of different process characteristics that tell how a process is performing.
- Throughput time: Average amount of time it takes a product to move through the system.
- Process velocity: Ratio of throughput time to value-added time.
- Productivity: Ratio of outputs over inputs.
- Utilization: Ratio of time a resource is used to time it is available for use.
- Efficiency: Ratio of actual output to standard output.
- Information technology (IT): Technology that enables storage, processing, and communication of information within and between firms.
- Enterprise resource planning (ERP): Large software programs used for planning and coordinating all resources throughout the entire enterprise.
- Global positioning systems (GPS): A type of wireless technology that uses satellite transmission to communicate exact locations.
- Radio frequency identification (RFID): A wireless technology that uses memory chips equipped with radio antennas attached to objects used to transmit streams of data.
- Automation 83 flexible manufacturing system (FMS): Using machinery to perform work without human operators.
- Numerically controlled (NC) machine: A type of automated system that combines the flexibility of intermittent operations with the efficiency of continuous operations.
- Computer-aided design (CAD): A system that uses computer graphics to design new products.
- Computer-integrated manufacturing (CIM): A term used to describe the integration of product design, process planning, and manufacturing using an integrated computer system.
- Service package: A grouping of physical, sensual, and psychological benefits that are purchased together as part of the service.
- Supply Chain Management
- Supply chain: A network of all the activities involved in delivering a finished product or service to the customer.
- Supply chain management: Coordinates and manages all the activities of the supply chain.
- Tier one supplier: Supplies materials or services directly to the processing facility.
- Tier two supplier: Directly supplies materials or services to a tier one supplier in the supply chain.
- Tier three supplier: Directly supplies materials or services to a tier two supplier in the supply chain.
- Logistics: Activities involved in obtaining, producing, and distributing materials and products in the proper place and in proper quantities.
- Traffic management: Responsible for arranging the method of shipment for both incoming and outgoing products or materials.
- Distribution management: Responsible for movement of material from the manufacturer to the customer.
- Bullwhip effect: Inaccurate or distorted demand information created in the supply chain.
- E-commerce: Using the Internet and Web to transact business.
- Business-to-business e-commerce (B2B): Businesses selling to and buying from other businesses.
- Automated order entry system: A method using telephone models to send digital orders to suppliers.
- Electronic data interchange (EDI): A form of computer-to-computer communications that enables sharing business documents.
- Electronic storefronts: On-line catalogs of products made available to the general public by a single supplier.
- Net marketplaces: Suppliers and buyers conduct trade in a single Internet-based environment.
- Electronic request for quote (eRFQ): An electronic request for a quote on goods and services.
- Virtual private network (VPN): A private Internet-based communications environment that is used by the company, its suppliers, and its customers for day-to-day activities.
- Business-to-consumer e-commerce (B2C): On-line businesses sell to individual consumers.
- Advertising revenue model: Provides users with information on services and products and provides an opportunity for suppliers to advertise.
- Subscription revenue model: A Web site that charges a subscription fee for access to its contents and services.
- Transaction fee model: A company receives a fee for executing a transaction.
- Sales revenue model: A means of selling goods, information, or services directly to customers.
- Affiliate revenue model: Companies receive a referral fee for directing business to an affiliate.
- Intranets: Networks that are internal to an organization.
- Extranets: Intranets that are linked to the Internet so that suppliers and customers can be included in the system.
- Green supply chain management: Focuses on the role of the supply chain with regard to its impact on the environment.
- Requisition request: Request indicating the need for an item.
- Price and availability: The current price of the item and whether the quantity is available when needed.
- Purchase order: A legal document committing the company to buy the goods and providing details of the purchase.
- Incoming inspection: Verifies the quality of incoming goods.
- Sourcing strategy: A plan indicating suppliers to be used when making purchases.
- Vertical integration: A measure of how much of the supply chain is actually owned or operated by the manufacturing company.
- Insource: Processes or activities that are completed in-house.
- Outsource: Processes or activities that are completed by suppliers.
- Backward integration: Owning or controlling sources of raw materials and components.
- Forward integration: Owning or controlling the channels of distribution.
- Partnering: A process of developing a long-term relationship with a supplier based on mutual trust, shared vision, shared information, and shared risks.
- Early supplier involvement (ESI): Involvement of critical suppliers in new product design.
- General warehouse: Used for long-term storage.
- Distribution warehouse: Used for short-term storage, consolidation, and product mixing.
- Postponement: A strategy that shifts production differentiation closer to the consumer by postponing final configuration.
- Crossdocking: Eliminates the storage and order-picking functions of a distribution warehouse.
- Manufacturing crossdocking: The receiving and consolidating of inbound supplies and materials to support just-in-time manufacturing.
- Distributor crossdocking: The receiving and consolidating of inbound products from different vendors into a multi-SKU pallet.
- Transportation crossdocking: Consolidation of LTL shipments to gain economies of scale.
- Retail crossdocking: Sorting product from multiple vendors onto outbound trucks headed for specific stores.
- Radio frequency identification (RFID): Unpowered microchips are used to wirelessly transmit encoded information through antennae.
- E-distributors: Independently owned net marketplaces having catalogs representing thousands of suppliers and designed for spot purchases.
- E-purchasing: Companies that connect on-line MRO suppliers to businesses that pay fees to join the market, usually for long-term contractual purchasing.
- Value chain management (VCM): Automation of a firm’s purchasing or selling processes.
- Exchanges: A marketplace that focuses on spot requirements of large firms in a single industry.
- Industry consortia: Industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited suppliers.
- Supply chain velocity: The speed at which product moves through a pipeline from the manufacturer to the customer.
- Total Quality Management
- Total quality management (TQM): An integrated effort designed to improve quality performance at every level of the organization.
- Customer-defined quality: The meaning of quality as defined by the customer.
- Conformance to specifications: How well a product or service meets the targets and tolerances determined by its designers.
- Fitness for use: A definition of quality that evaluates how well the product performs for its intended use.
- Value for price paid: Quality defined in terms of product or service usefulness for the price paid.
- Support services: Quality defined in terms of the support provided after the product or service is purchased.
- Psychological criteria: A way of defining quality that focuses on judgmental evaluations of what constitutes product or service excellence.
- Prevention costs: Costs incurred in the process of preventing poor quality from occurring.
- Appraisal costs: Costs incurred in the process of uncovering defects.
- Internal failure costs: Costs associated with discovering poor product quality before the product reaches the customer.
- External failure costs: Costs associated with quality problems that occur at the customer site.
- Walter A. Shewhart: Contributed to understanding of process variability. Developed concept of statistical control charts.
- Edwards Deming Stressed management’s responsibility for quality. Developed “14 Points” to guide companies in quality improvement.
- Joseph M. Juran: Defined quality as “fitness for use”. Developed concept of cost of quality.
- Armand V. Feigenbaum: Introduced concept of total quality control.
- Philip B. Crosby: Coined phrase “quality is free”. Introduced concept of zero defects.
- Kaoru Ishikawa: Developed cause-and-effect diagrams. Identified concept of “internal customer.”
- Genichi Taguchi: Focused on product design quality. Developed Taguchi loss function.
- Robust design: A design that results in a product that can perform over a wide range of conditions.
- Taguchi loss function: Costs of quality increase as a quadratic function as conformance values move away from the target.
- Continuous improvement: A philosophy of never-ending improvement.
- Kaizen: A Japanese term that describes the notion of a company continually striving to be better through learning and problem solving.
- Plan–do–study–act (PDSA) cycle: A diagram that describes the activities that need to be performed to incorporate continuous improvement into the operation.
- Benchmarking: Studying the business practices of other companies for purposes of comparison.
- Quality circle: A team of volunteer production employees and their supervisors who meet regularly to solve quality problems.
- Cause-and-effect diagram: A chart that identifies potential causes of particular quality problems.
- Flowchart: A schematic of the sequence of steps involved in an operation or process.
- Checklist: A list of common defects and the number of observed occurrences of these defects.
- Control charts: Charts used to evaluate whether a process is operating within set expectations.
- Scatter diagrams: Graphs that show how two variables are related to each other.
- Pareto analysis: A technique used to identify quality problems based on their degree of importance.
- Histogram: A chart that shows the frequency distribution of observed values of a variable.
- Quality function deployment (QFD): A tool used to translate the preferences of the customer into specific technical requirements.
- Reliability: The probability that a product, service, or part will perform as intended.
- Quality at the source: The belief that it is best to uncover the source of quality problems and eliminate it.
- Malcolm Baldrige National Quality Award: An award given annually to companies that demonstrate quality excellence and establish best practice standards in industry.
- Deming Prize: A Japanese award given to companies to recognize efforts in quality improvement.
- ISO 9000: A set of international quality standards and a certification demonstrating that companies have met all the standards specified.
- ISO 14000: A set of international standards and a certification focusing on a company’s environmental responsibility.
- Inventory Management
- Raw materials: Purchased items or extracted materials transformed into components or products.
- Components: Parts or subassemblies used in the final product.
- Work-in-process (WIP): Items in process throughout the plant.
- Finished goods: Products sold to customers.
- Distribution inventory: Finished goods in the distribution system.
- Anticipation inventory: Inventory built in anticipation of future demand.
- Fluctuation inventory: Provides a cushion against unexpected demand.
- Lot-size inventory: A result of the quantity ordered or produced.
- Transportation inventory: Inventory in movement between locations.
- Speculative inventory: Used to protect against some future event.
- Maintenance, repair, and operating inventory (MRO): Items used in support of manufacturing and maintenance.
- Customer service: The ability to satisfy customer requirements.
- Percentage of orders shipped on schedule: customer service measure appropriate for use when orders have similar value.
- Percentage of line items shipped on schedule: A customer service measure appropriate when customer orders vary in number of line items ordered.
- Percentage of dollar volume shipped on schedule: A customer service measure appropriate when customer orders vary in value.
- Setup cost: Costs such as scrap costs, calibration costs, and downtime costs associated with preparing the equipment for the next product being produced.
- Inventory turnover: A measure of inventory policy effectiveness.
- Weeks of supply: A measure of inventory policy effectiveness.
- Item cost: Includes price paid for the item plus other direct costs associated with the purchase.
- Holding costs: Include the variable expenses incurred by the plant related to the volume of inventory held.
- Capital costs: The higher of the cost of capital or the opportunity cost for the company.
- Storage costs: Include the variable expenses for space, workers, and equipment related to the volume of inventory held.
- Risk costs: Include obsolescence, damage or deterioration, theft, insurance, and taxes associated with the volume of inventory held.
- Ordering costs: The fixed costs associated with either placing an order with a supplier or setup costs incurred for in-house production.
- Shortage costs: Incurred when demand exceeds supply.
- Back order: Delaying delivery to the customer until the item becomes available.
- Lost sale: Occurs when the customer is not willing to wait for delivery.
- Pareto’s law: Implies that about 20 percent of the inventory items will account for about 80 percent of the inventory value.
- ABC classification: A method for determining level of control and frequency of review of inventory items.
- Continuous review system: Updates inventory balances after each inventory transaction
- Periodic review system: Requires regular periodic reviews of the on-hand quantity to determine the size of the replenishment order.
- Two-bin system: One bin with enough stock to satisfy demand during replenishment time is kept in the storeroom; the other bin is placed on the manufacturing floor.
- Lead time: Time from order placement to order receipt.
- Periodic counting: A physical inventory is taken periodically, usually annually.
- Cycle counting: Prespecified items are counted daily.
- Vendor-managed inventory (VMI): The supplier maintains an inventory at the customer’s facility.
- Stock-keeping unit (SKU): An item in a particular geographic location.
- Lot-for-lot: The company orders exactly what is needed.
- Fixed-order quantity: Specifies the number of units to order whenever an order is placed.
- Min-max system: Places a replenishment order when the on-hand inventory falls below the predetermined minimum level. An order is placed to bring the inventory back up to the maximum inventory level.
- Order n periods: The order quantity is determined by total demand for the item for the next n periods.
- Economic order quantity (EOQ): An optimizing method used for determining order quantity and reorder points.
- Economic production quantity (EPQ): A model that allows for incremental product delivery.
- Perpetual inventory record: Provides an up-to-date inventory balance.
- Quantity discount model: Modifies the EOQ process to consider cases where quantity discounts are available.
- Order-cycle service level: The probability that demand during lead time will not exceed on-hand inventory.
- Target inventory level (TI): Used in determining order quantity in the periodic review system. Target inventory less on-hand inventory equals order quantity.
- Single-period model: Designed for use with products that are highly perishable.
- Project Management
- Project: Endeavor with a specific objective, multiple activities, and defined precedence relationships, to be completed in a specified time period.
- Program evaluation and review technique (PERT): Network planning technique used to determine a project’s planned completion date and identify the project’s critical path.
- Critical path method (CPM): Network planning technique, with deterministic times, used to determine a project’s planned completion date and identify the project’s critical path.
- Project activities: Specific tasks that must be completed and that require resources.
- Precedence relationships: Establishes the sequencing of activities to ensure that all necessary activities are completed before a subsequent activity is begun.
- Activity-on-node: Network diagramming notation that places activities in the nodes and arrows to signify precedence relationships.
- Critical path: The longest sequential path through the network diagram.
- Probabilistic time estimate: Process that uses optimistic, most likely, and pessimistic time estimates.
- Deterministic time estimate: Assumption that the activity duration is known with certainty.
- Slack: The amount of time an activity can be delayed without affecting the project’s planned completion time.
- Optimistic time estimate: The shortest time period in which the activity can be completed.
- Most likely time estimate: The normal time that the activity is expected to take.
- Pessimistic time estimate: The longest time period in which the activity will be completed.
- Beta probability distribution: Typically represents project activities.
- Crashing: Reducing the completion time of the project.
- Critical chain approach: Focus on the final due date that is based on the theory of constraints.
- Project buffer: Safety time placed at the end of the critical path.
