MGT236: Key Terms

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.

Hatem Masri

MGT236: Key Terms

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Hatem Masri

MGT236: Key Terms

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