MGT 636: Key Terms

CHAPTER 1: Introduction to Operations and Supply Chain Management

Balanced scorecard: A performance assessment that includes metrics related to customers, processes, and learning and growing, as well as financials.
Competitiveness: The degree to which a nation can produce goods and services that meet the test of international markets.
Core competencies: The essential capabilities that create a firm’s sustainable competitive advantage.
Craft production: The process of handcrafting products or services for individual customers.
Division of labor: Dividing a job into a series of small tasks each performed by a different worker.
Flexibility: In operations, the ability to adjust to changes in product mix, production volume, or product and process design.
Hoshins: The action plans generated from the policy deployment process.
Interchangeable parts: The standardization of parts initially as replacement parts; enabled mass production.
Key performance indicators: A set of measures that help managers evaluate performance in critical areas.
Lean production: An adaptation of mass production that prizes quality and flexibility.
Mass customization: The mass production of customized products.
Mass production: The high-volume production of a standardized product for a mass market.
Operations: A function or system that transforms inputs into outputs of greater value.
Operations management: The design and operation of productive systems.
Order qualifiers: The characteristics of a product or service that qualify it to be considered for purchase.
Order winner: The characteristic of a product or service that wins orders in the marketplace.
Policy deployment: A planning system for converting strategy to measurable objectives throughout all levels of an organization.
Positioning: Determining how a firm will compete in the marketplace.
Primary task: The task that is most central to the operation of a firm; it defines the business that a firm is in and is often expressed in a mission statement.
Productivity: The ratio of output to input.
Quality revolution: An emphasis on quality and the strategic role of operations.
Scientific management: The systematic analysis of work methods proposed by Frederick Taylor in the early 1900s.
Speed: Fast moves, fast adaptations, tight linkages.
Strategy: A common vision that unites an organization, provides consistency in decisions, and keeps the organization moving in the right direction.
Supply chain management: Managing the flow of information, products, and services across a network of customers, enterprises, and supply chain partners.
Value chain: A series of activities from supplier to customer that add value to a product or service.

CHAPTER 1 (Supplement): Operational Decision-Making Tools: Decision Analysis

Coefficient of optimism: A measure of a decision maker’s optimism, from 0 (completely pessimistic) to 1 (completely optimistic), used in the Hurwicz decision criterion.
Decision analysis: A set of quantitative decision-making techniques to aid the decision maker in dealing with decision situations in which uncertainty exists.
Equal likelihood (La Place) criterion: A decision criterion in which each state of nature is weighted equally.
Expected value: A weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence.
Expected value of perfect information (EVP): The maximum value that a decision maker would be willing to pay for perfect information about future states of nature.
Hurwicz criterion: A decision criterion in which the decision payoffs are weighted by a coefficient of optimism.
Maximax criterion: A decision criterion that results in the maximum of the maximum payoffs.
Maximin criterion: A decision criterion that results in the maximum of the minimum payoffs.
Minimax regret: Criterion a decision criterion that results in the minimum of the maximum regrets for each alternative.
Payoff: The outcome of a decision.
Payoff table: A means of organizing and illustrating the payoffs from different decisions given various states of nature.
Sequential decision tree: A graphical method for analyzing decision situations that require a sequence of decisions over time.

CHAPTER 2: Quality Management

Appraisal costs: Costs of measuring, testing, and analyzing materials, parts, products, and the productive process to make sure they conform to design speciﬁcations.
Benchmark: A level of quality achievement established by one company that other companies seek to achieve (i.e., a goal).
Black Belt: In a Six Sigma program, the leader of a quality improvement project; a full-time position.
Breakthrough strategy: In Six Sigma, a ﬁve-step process for improvement projects: deﬁne, measure, analyze, improve, and control.
Cause-and-effect diagram or ﬁshbone diagram: A graphical description of the elements of a speciﬁc quality problem.
Cause-and-effect matrix: A grid used to prioritize causes of quality problems.
Champion: A member of top management who is responsible for project success in a Six Sigma program.
Cost index: The ratio of quality cost to manufacturing cost.
Design for Six Sigma (DFSS): A systematic methodology to design products and processes that meet customer expectations and can be produced at Six Sigma quality levels.
External failure costs: Costs of poor quality incurred after the product gets to the customer; that is, customer service, lost sales, and so on.
ﬁtness for use: A measure of how well a product or service does what the consumer thinks it is supposed to do and wants it to do.
Green Belt: In a Six Sigma program, a project team member, a part-time position.
Index numbers: Ratios that measure quality costs relative to some base accounting values such as sales or product units.
Internal failure costs: Costs of poor-quality products discovered during the production process—that is, scrap, rework, and the like.
Kaizen: Involving everyone in the workplace, in a process of gradual, organized, and continuous improvement.
Labor index: The ratio of quality cost to direct labor hours.
Lean Six Sigma: Integrating Six Sigma’s and lean systems.
Master Black Belt: In a Six Sigma program, a teacher and mentor for Black Belts; a full-time position.
Pareto analysis: A method for identifying the causes of poor quality, which usually shows that most quality problems result from only a few causes.
Participative problem solving: Involving employees directly in the quality-management process to identify and solve problems.
Partnering: A relationship between a company and its supplier based on mutual quality standards.
Prevention costs: Costs incurred during product design and manufacturing that prevent nonconformance to speciﬁcations.
Process ﬂowchart: A diagram of the steps in a job, operation, or process.
Production index: The ratio of quality cost to ﬁnal product units.
Productivity: A measure of effectiveness in converting resources into products, generally computed as output divided by input.
Quality circles: A small, voluntary group (team) of workers and supervisors formed to address quality problems in their area.
Quality impact on productivity: Fewer defects increase output and quality improvement reduces inputs.
Quality management system (QMS): A system to achieve customer satisfaction that complements other company systems.
Quality of conformance: The degree to which the product or service meets the speciﬁcations required by design during the production process.
Quality of design: The degree to which quality characteristics are designed into a product or service.
Quality–productivity ratio (QPR): A productivity index that includes productivity and quality costs.
Sales index: The ratio of quality cost to sales.
Six Sigma: A measure of how much a given product or process deviates from perfection, or zero defects; the basis of a quality-improvement program. Six Sigma process includes four basic steps—align, mobilize, accelerate and govern.
Total quality management (TQM): The management of quality throughout the organization at all management levels and across all areas.
Yield: A measure of productivity; the sum of good-quality and reworked units.

CHAPTER 3: Statistical Process Control

Attribute: A product characteristic that can be evaluated with a discrete response such as yes or no, good or bad.
C-chart: A control chart based on the number of defects in a sample.
Control chart: A graph that visually shows if a sample is within statistical limits for defective items.
Control limits: The upper and lower bands of a control chart.
Mean (-) chart: A control chart based on the means of the samples taken.
P-chart: A control chart based on the proportion defective of the samples taken.
Pattern test: A statistical test to determine if the observations within the limits of a control chart display a nonrandom pattern.
Process capability: The capability of a process to accommodate design speciﬁcations of a product.
Range: The difference between the smallest and largest values in a sample.
Range (R-) chart: A control chart based on the range (from the highest to the lowest values) of the samples taken.
Run: A sequence of sample values that display the same tendency in a control chart.
Sample: A portion of the items produced used for inspection.
Statistical process control (SPC): A statistical procedure for monitoring the quality of the production process using control charts.
Tolerances: Product design speciﬁcations required by the customer.
Variable measure: A product characteristic that can be measured, such as weight or length.

CHAPTER 3 (Supplement): Operational Decision-Making Tools: Acceptance Sampling

Acceptable quality level (AQL): The fraction of defective items deemed acceptable in a lot.
Acceptance sampling: A statistical procedure for taking a random sample in order to determine whether or not a lot should be accepted or rejected.
Average outgoing quality (AOQ): The expected number of defective items that will pass on to the customer with a sampling plan.
Consumer’s risk (): the proﬁtability of accepting a lot in which the fraction of defective items exceeds the most (LTPD) the consumer is willing to accept.
Lot tolerance percent defective (LTPD): The maximum percentage defective items in a lot that the consumer will knowingly accept.
Operating characteristic (OC): Curve a graph that measures the probability of accepting a lot for different proportions of defective items.
Producer’s risk (): The probability of rejecting a lot that has an acceptable quality level (AQL).
Sampling plan: A plan that provides guidelines for accepting a lot.

CHAPTER 4: Product Design

Benchmarking: Finding the best-in-class product or process, measuring one’s performance against it, and making recommendations for improvements based on the results.
Carbon footprint: A measure of the greenhouse gases produced by an activity, product or company.
Collaborative product design (CPD): Software system for collaborative design and development among trading partners.
Computer-aided design (CAD): A software system that uses computer graphics to assist in the creation, modiﬁcation, and analysis of a design.
Computer-aided design/computer-aided manufacturing (CAD/CAM): The ultimate design-to-manufacture connection.
Computer-aided engineering (CAE): Engineering analysis performed at a computer terminal with information from a CAD database.
Concurrent design: A new approach to design that involves the simultaneous design of products and processes by design teams.
Design for environment (DFE): Designing a product from material that can be recycled or easily repaired rather than discarded.
Design for manufacture (DFM): Designing a product so that it can be produced easily and economically.
Eco-labeling: A seal of approval for environmentally safe products.
Extended producer responsibility (EPR): Holding a company responsible for its product even after its useful life.
Failure mode and effects analysis (FMEA): A systematic approach to analyzing the causes and effects of product failures.
Fault tree analysis (FTA): A visual method for analyzing the interrelationships among failures.
Form design: The phase of product design concerned with how the product looks.
Functional design: The phase of a product design concerned with how the product performs.
Maintainability: The ease with which a product is maintained or repaired.
Modular design: Combining standardized building blocks, or modules, in a variety of ways to create unique ﬁnished products.
Perceptual map: Visual method for comparing customer perceptions of different products or services.
Production design: The phase of product design concerned with how the product will be produced.
Product lifecycle management (PLM): Software for managing the entire lifecycle of a product.
Quality function deployment (QFD): A structured process that translates the voice of the customer into technical design requirements.
Rapid prototyping: Quickly testing and revising a preliminary design model.
Reliability: The probability that a given part or product will perform its intended function for a speciﬁed period of time under normal conditions of use.
Reverse engineering: Carefully dismantling and inspecting a competitor’s product to look for design features that can be incorporated into your own product.
Robust design: The design of a product or a service that can withstand variations in environmental and operating conditions.
Simpliﬁcation: Reducing the number of parts, subassemblies, or options in a product.
Standardization: Using commonly available parts that are interchangeable among products.
Sustainability: The ability to meet present needs without jeopardizing the needs of future generations.
Tolerances: Allowable ranges of variation.
Usability: Ease of use of a product or service.
Value analysis (VA): An analytical approach for eliminating unnecessary design features and functions.

CHAPTER 5: Service Design

Arrival rate: The rate at which customers arrive at a service facility during a speciﬁed period.
Calling population: The source of customers to a waiting line.
Channels: The number of parallel servers.
Delivery speciﬁcation: Specify schedules, deliverables, and location.
Design speciﬁcation: Describe the service in enough detail to be replicate.
Goods: Tangible objects that can be created and sold at a later date.
Inﬁnite queue: A waiting line that grows to any length.
Line of inﬂuence: Signs or activities that inﬂuences a customer to seek a service.
Line of interaction: Point where a customer and service provider interact.
Line of support: Point where a service provider interacts with support personnel.
Line of visibility: Separates front ofﬁce and back ofﬁce activities.
Operating characteristics: Measures of waiting line performance expressed as averages.
Performance speciﬁcation: Outline expectations and requirements.
Phases: The number of sequential servers a customer must go through to receive service.
Queue: A single waiting line that forms in front of a service facility.
Queue discipline: The order in which customers are served.
Services: Acts, deeds or performances that provide value to the customer.
Servicescapes: The design of the physical environment (including signs, symbols and, artifacts) in which a service takes place.
Service blueprinting: A specialized ﬂow chart used for service processes.
Service concept: The purpose of a service; it deﬁnes the target market and the customer experience.
Service package: The mixture of physical items, sensual beneﬁts, and psychological beneﬁts provided to the customer.
Service time: The time required to serve a customer; the time period divided by service time yields the service rate ().
Utilization factor: The probability the server is busy and the customer must wait.

CHAPTER 6: Processes and Technology

Assembly chart: A schematic diagram of a product that shows the relationship of component parts to parent assemblies, the groupings of parts that make up a subassembly, and the overall sequence of assembly.
Batch production: The low-volume production of customized products.
Breakeven analysis: A technique that determines the volume of demand needed to be proﬁtable; it takes into account the trade-off between ﬁxed and variable costs.
Continuous production: The production of a very-high-volume commodity product with highly automated equipment.
Mass production: The high-volume production of a standard product for a mass market.
Operations sheet: A document that shows the series of operations necessary to make each item listed on the assembly chart.
Process: A group of related tasks with speciﬁc inputs and outputs.
Process ﬂowchart: A document that uses standardized symbols to chart the productive and nonproductive ﬂow of activities involved in a process; it may be used to document current processes or as a vehicle for process improvement.
Process innovation: The total redesign of a process.
Process planning: The conversion of designs into workable instructions for manufacture, along with associated decisions on component purchase or fabrication, and process and equipment selection.
Process plans: A set of documents that detail manufacturing or service delivery speciﬁcations.
Process strategy: An organization’s overall approach for physically producing goods and services.
Project: The one-of-a-kind production of a product to customer order that requires a long time to complete and a large investment of funds and resources.
Vertical integration: The degree to which a ﬁrm produces the parts that go into its products

CHAPTER 7: Capacity and Facilities Design

Balance delay: The total idle time of an assembly line.
Best operating level: The percent of capacity utilization at which unit costs are lowest.
Block diagram: A schematic layout diagram that includes the size of each work area.
Capacity: The maximum capability to produce.
Capacity cushion: A percent of capacity held in reserve for unexpected occurrences.
Capacity planning: A long-term strategic decision that establishes the overall level of productive resources for a ﬁrm.
Cellular layout: A layout that creates individual cells to process parts or customers with similar requirements.
Cycle time: The maximum amount of time an item is allowed to spend at each workstation if the targeted production rate is to be achieved; also, the time between successive product completions.
Diseconomies of scale: When higher levels of output cost more per unit to produce.
Economies of scale: When it costs less per unit to produce higher levels of output.
Facility layout: The arrangement of machines, departments, workstations, and other areas within a facility.
Fixed-position layout: A layout in which the product remains at a stationary site for the entire manufacturing cycle.
Flexible manufacturing system (FMS): Programmable equipment connected by an automated material-handling system and controlled by a central computer.
Line balancing: A layout technique that attempts to equalize the amount of work assigned to each workstation on an assembly line.
Mixed-model assembly line: An assembly line that processes more than one product model.
Muther’s grid: A format for displaying manager preferences for department locations.
Precedence requirements: Physical restrictions on the order in which operations are performed.
Process layout: A layout that groups similar activities together into work centers according to the process or function they perform.
Product layout: A layout that arranges activities in a line according to the sequence of operations that are needed to assemble a particular product.
Production ﬂow analysis (PFA): A group technology technique that reorders part routing matrices to identify families of parts with similar processing requirements.
Relationship diagram: A schematic diagram that denotes location preference with different line thicknesses.
Unit load: The quantity in which material is normally moved, such as a unit at a time, a pallet, or a bin of material.
CHAPTER 7 (Supplement): Operational Decision-Making Tools: Facility Location Models
Center-of-gravity technique: A quantitative method for locating a facility at the center of movement in a geographic area based on weight and distance.
Infrastructure: The physical support structures in a community, including roads, water and sewage systems, and utilities.
Load-distance technique: A quantitative method for evaluating various facility locations using a value that is a measure of weight and distance.
Location factor rating: A system for weighting the importance of different factors in the location decision, scoring the individual factors, and then developing an overall location score that enables a comparison of different location sites.

CHAPTER 8: Human Resources

Alternative workplace: A combination of nontraditional work locations, settings and practices that supplements or replaces the traditional ofﬁce.
Cross training: An employee learns more than one job in the organization.
Empowerment: The authority and responsibility of the workers to alert management about job-related problems.
Ergonomics: The application of human sciences like anatomy, physiology, and psychology to the design of the work environment and jobs, and objects and equipment used in work; ﬁtting the task to the person.
ﬂextime: A work schedule in which ﬁxed times of arrival and departure are replaced by a combination of ﬁxed and variable times.
Gainsharing: An incentive plan that includes employees in a common effort to achieve a company’s objectives in which they share in the gains.
Horizontal job enlargement: The scope of a job that includes all tasks necessary to complete a product or process.
Job: A deﬁned set of tasks that comprise the work performed by employees that contributes to the production of a product or delivery of a service.
Job rotation: The horizontal movement between two or more jobs according to a plan or schedule.
Learning curve: A graph that reﬂects the improvement rate of workers as a job is repeated and more units are produced.
Managing diversity: Includes education, awareness, communication, fairness, and commitment.
Motion study: The study of the individual human motions used in a task.
Motivation: A willingness to work hard because that effort satisﬁes an employee need.
Process ﬂowchart: A ﬂowchart that illustrates, with symbols, the steps for a job or how several jobs ﬁt together within the ﬂow of the production process.
Proﬁt sharing: The company sets aside a portion of proﬁts and distributes it among employees usually at the end of the ﬁscal year.
Tasks: Individual, deﬁned job activities that consist of one or more elements.
Telecommuting: Employees work electronically from whatever location they choose, either exclusively or some of the time.
Vertical job enlargement: The degree of self-determination and control allowed workers over their own work; also referred to as job enrichment.
Worker-machine chart: A chart that illustrates on a time scale the amount of time an operator and a machine are working or are idle in a job.

CHAPTER 8 (Supplement): Operational Decision-Making Tools: Work Measurement

Elemental standard time: Files company ﬁles containing historical data of elemental time studies that can be used to develop a standard time.
Normal time: In a time study, the elemental average time multiplied by a performance rating.
Predetermined motion times: Normal times for basic, generic micromotions developed by an outside organization in a laboratory-type environment.
Standard time: The time required by an “average” worker to perform a job once under normal circumstances and conditions.
Work sampling: A technique for determining the proportion of time a worker or machine spends on job activities.

CHAPTER 9: Project Management

Activity: Performance of an individual job or work effort that requires labor, resources, and time and is subject to management control.
Activity-on-arrow (AOA): A convention for constructing a CPM/ PERT network in which the branches between nodes represent project activities.
Activity-on-node (AON): A convention for constructing a CPM/PERT network in which the nodes represent project activities.
Backward pass: Starting at the end of a CPM/PERT network, a procedure for determining latest activity times.
Beta distribution: A probability distribution traditionally used in CPM/PERT for estimating the mean and variance of project activity times.
Crash cost: The cost of reducing the normal activity time.
Crash time: The amount of time an activity is reduced.
Crashing: A method for shortening the project duration by reducing the time of one or more critical activities at a cost.
Critical path: The longest path through a CPM/PERT network, indicating the minimum time in which a project can be completed.
Dummy: An activity in a network that shows a precedence relationship but represents no passage of time.
Earliest ﬁnish time (EF)
The earliest time an activity can be completed.
Earliest start time (ES): The earliest time an activity can begin subject to preceding activities.
Earned value analysis (EVA): A standard procedure for measuring a project’s progress, forecasting its completion time and cost, and measuring schedule and budget variation.
Event: The completion or beginning of an activity in a project.
Forward pass: Starting at the beginning of a CPM/PERT network, a procedure for determining earliest activity times.
Gantt chart: A graphical display using bars (or time lines) to show the duration of project activities and precedence relationships.
Latest ﬁnish time (LF): The latest time an activity can be completed and still maintain the project critical path time.
Latest start time (LS): The latest time an activity can begin and not delay subsequent activities.
Matrix organization: An organizational structure of project teams that includes members from various functional areas in the company.
Most likely time (m): The subjective estimate of the time that would occur most frequently if the activity were repeated many times.
Optimistic time (a): The shortest possible time to complete the activity if everything went right.
Organizational breakdown structure (OBS): A chart that shows which organizational units are responsible for work items.
Pessimistic time (b): The longest possible time to complete the activity given that everything went wrong.
Precedence relationship: The sequential relationship of project activities to each other.
Project: A unique, one-time operation or effort.
Responsibility assignment matrix (RAM): Shows who in the organization is responsible for doing the work in the project.
Scope statement: A document that provides an understanding, justiﬁcation and expected result for the project.
Slack: The amount by which an activity can be delayed without delaying any of the activities that follow it or the project as a whole.
Statement of work: A written description of the objectives of a project.
Work breakdown structure (WBS): A method for subdividing a project into different hierarchical levels of components.

CHAPTER 10: Supply Chain Management Strategy and Design

Bullwhip effect: Occurs when demand variability is magniﬁed at various upstream points in the supply chain.
Collaborative planning, forecasting, and replenishment (CPFR): A process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand.
E-business: The replacement of physical business processes with electronic ones.
Electronic data interchange (EDI): A computer-to-computer exchange of business documents.
Enterprise resource planning (ERP): Software that connects the components of a company by sharing and organizing information and data.
ﬁll rate: The fraction of orders placed by a customer with a supplier distribution center or warehouse which are ﬁlled within 24 hours.
Inventory: Insurance against supply chain uncertainty held between supply chain stages. Inventory turns a supply chain performance metric computed by dividing the cost of goods sold by the average aggregate value of inventory.
Key performance indicator (KPI): A metric used to measure supply chain performance.
Point-of-sale data: Computer records of sales at retail sites.
Procurement: Purchasing goods and services from suppliers.
Radio frequency identiﬁcation (RFID): Radio waves used to transfer data, like an electronic product code, between an item with an embedded microchip and a reader.
SCOR: The supply chain operations reference model; a diagnostic tool that provides a cross-industry standard for supply chain management.
Supply chain: The facilities, functions, and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers).
Supply chain management (SCM): Managing the ﬂow of information through the supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs.
Sustainability: Meeting present needs without compromising the ability of future generation to meet their needs.
Value: The creation of value for the customer is an important aspect of supply chain management.

CHAPTER 11: Global Supply Chain Procurement and Distribution

Continuous replenishment: Supplying orders in a short period of time according to a predetermined schedule.
Core competencies: The activities that a company does best.
Cross-docking: Crossing of goods from one loading dock to another without being placed in storage.
E-marketplaces: Web sites where companies and suppliers conduct business-to-business activities.
E-procurement: Business-to-business commerce in which purchases are made directly through a supplier’s Web site.
Intermodal transportation: Combines several modes of transportation.
Landed cost: Total cost of producing, storing, and transporting a product to the site of consumption.
Logistics: The transportation and distribution of goods and services.
Nation: Group’s nations joined together into trading groups.
On-demand (direct-response) delivery: Requires the supplier to deliver goods when demanded by the customer.
Order fulﬁllment: The process of ensuring on-time delivery of a customer’s order.
Outsourcing: Purchasing goods and services that were originally produced in-house from an outside supplier.
Postponement: Moving some ﬁnal manufacturing steps like ﬁnal assembly or product customization into the warehouse or distribution center.
Procurement: Purchasing goods and services from suppliers.
Reverse auction: A company posts items it wants to purchase on an Internet e-marketplace for suppliers to bid on.
Sourcing: The selection of suppliers.
Supply chain: The facilities, functions, and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers).
Supply chain management (SCM): Managing the ﬂow of information through the supply chain in order to attain the level of synchronization that will make it more responsive to customer needs while lowering costs.
Tariffs (duties): Taxes on imported goods.
Trade specialists: Specialists who help manage transportation and distribution operations in foreign countries.
Value added tax (VAT): An indirect tax on the increase in value of a good at any stage in the supply chain from raw material to ﬁnal product.
Vendor-managed inventory (VMI): A system in which manufacturers instead of distributors generate orders.
Warehouse management system (WMS): An automated system that runs the day-to-day operations of a warehouse or distribution center and keeps track of inventory.

CHAPTER 11 (Supplement): Operational Decision-Making Tools: Transportation and Transshipment Models

Prohibited route: A transportation route over which items cannot be transported.
Transportation model: Transporting items from sources with ﬁxed supplies to destinations with ﬁxed demands at the minimum cost, time, etc.
Transshipment model: A special case of the transportation problem in which intermediate shipping points exist between the sources and ﬁnal destinations.

CHAPTER 12: Forecasting

Adjusted exponential smoothing: An exponential smoothing forecast adjusted for trend.
Average error: The cumulative error averaged over the number of time periods.
Coefﬁcient of determination: The correlation coefﬁcient squared; it measures the portion of the variation in the dependent variable that can be attributed to the independent variable.
Correlation: A measure of the strength of the causal relationship between the independent and dependent variables in a linear regression equation.
Cumulative error: A sum of the forecast errors; also known as bias.
Cycle: An up-and-down movement in demand over time.
Delphi method: A procedure for acquiring informed judgments and opinions from knowledgeable individuals to use as a subjective forecast.
Exponential smoothing: An averaging method that weights the most recent data more strongly than more distant data.
Forecast error: The difference between actual and forecasted demand.
Linear regression: A mathematical technique that relates a dependent variable to an independent variable in the form of a linear equation.
Linear trend line: A forecast using the linear regression equation to relate demand to time.
Long-range forecast: A forecast encompassing a period longer than two years into the future.
Mean absolute deviation (MAD): The per-period average of the absolute difference between actual and forecasted demand.
Mean absolute percent deviation (MAPD): The absolute forecast error measured as a percentage of demand.
Mean squared error (MSE): The average of the squared forecast errors.
Moving average: Average demand for a ﬁxed sequence of periods including the most recent period.
Multiple regression: A mathematical relationship that relates a dependent variable to two or more independent variables.
Qualitative forecast methods: Nonquantitative, subjective forecasts based on judgment, opinion, experience, and expert opinion.
Quantitative forecast methods: Forecasts derived from a mathematical formula.
Random variations: Movements in demand that are not predictable and follow no pattern.
Regression forecasting methods: A class of mathematical techniques that relate demand to factors that cause demand behavior.
Seasonal factor: A numerical value that is multiplied by the normal forecast to get a seasonally adjusted forecast.
Seasonal pattern: An oscillating movement in demand that occurs periodically in the short run and is repetitive.
Short- to mid-range forecast: A forecast encompassing the immediate future, usually days or weeks, but up to two years.
Smoothing constant: The weighting factor given to the most recent data in exponential smoothing forecasts.
Time frame: How far into the future something is forecasted.
Time series methods: A class of statistical methods that uses historical demand data over a period of time to predict future demand.
Tracking signal: A measure computed by dividing the cumulative error by MAD; used for monitoring bias in a forecast.
Trend: A gradual, long-term up or down movement of demand.
Weighted moving average: A moving average with more recent demand values adjusted with weights.

CHAPTER 13: Inventory Management

ABC system: A method for classifying inventory items according to their dollar value to the ﬁrm based on the principle that only a few items account for the greatest dollar value of total inventory.
Carrying costs: the cost of holding an item in inventory, including lost opportunity costs, storage, rent, cooling, lighting, interest on loans, and so on.
Continuous inventory system: A system in which the inventory level is continually monitored; when it decreases to a certain level, the reorder point, a ﬁxed amount is ordered.
Dependent demand: Typically, component parts or materials used in the process to produce a ﬁnal product.
Economic order quantity (EOQ): A ﬁxed-order quantity that minimizes total inventory costs.
ﬁxed-time-period system: Also known as a periodic system; an inventory system in which a variable amount is ordered after a predetermined, constant passage of time.
Independent demand: Final or ﬁnished products whose demand is not a function of, or dependent on, internal production activity.
Inventory: A stock of items kept by an organization to meet internal or external customer demand.
Order cycle: The time between the receipt of orders in an inventory system.
Ordering costs: The cost of replenishing the stock of inventory including requisition cost, transportation and shipping, receiving, inspection, handling, and so forth.
Periodic inventory system: A system in which the inventory level is checked after a speciﬁc time period and a variable amount is ordered, depending on the inventory in stock.
Production quantity model: Also known as the production lot-size model; an inventory system in which an order is received gradually and the inventory level is depleted at the same time it is being replenished.
Quantity discount: A pricing schedule in which lower prices are provided for speciﬁc (higher) order quantities.
Reorder point: A level of inventory in stock at which a new order is placed.
Safety stock: An amount added to the expected amount demanded during the lead time (the reorder point level) as a hedge against a stockout.
Service level: The probability that the amount of inventory on hand during the lead time is sufﬁcient to meet expected demand.
Shortage costs: Temporary or permanent loss of sales that will result when customer demand cannot be met.
Stockout: An inventory shortage occurring when demand exceeds the inventory in stock.

CHAPTER 13 (Supplement): Operational Decision-Making Tools: Simulation

Monte Carlo technique: A technique for selecting numbers randomly from a probability distribution for use in a simulation model.
Random numbers: Numbers in a table or generated by a computer, each of which has an equal likelihood of being selected at random.
Simulation: An approach to operational problem solving in which a real-world problem situation is replicated within a mathematical model.
Steady-state result: An average model result that approaches constancy after a sufﬁcient passage of time or enough repetitions or trials.

CHAPTER 14: Sales and Operations Planning

Aggregate planning: The process of determining the quantity and timing of production over an intermediate time frame.
Available-to-promise: The quantity of items that can be promised to the customer; the difference between planned production and customer orders already received.
Backlog: Accumulated customer orders to be completed at a later date.
Backordering: Ordering an item that is temporarily out-of-stock.
Capable-to-promise: The quantity of items that can be produced and made available at a later date.
Chase demand: An aggregate planning strategy that schedules production to match demand and absorbs variations in demand by adjusting the size of the workforce.
Collaborative planning: Sharing information and synchronizing production plans across the supply chain.
Disaggregation: The process of breaking down the aggregate plan into more detailed plans.
Level production: An aggregate planning strategy that produces units at a constant rate and uses inventory to absorb variations in demand.
Linear decision rule (LDR): A mathematical technique for aggregate planning.
Lost sales: Forfeited sales for out-of-stock items
Management coefﬁcients model: A regression technique for aggregate planning.
Mixed strategy: Varying two or more capacity factors to determine a feasible production plan.
Peak demand: Stafﬁng for high levels of customer service.
Pure strategy: Varying only one capacity factor in aggregate planning.
Sales & operations planning (S&OP): A process for coordinating supply and demand
Search decision rule (SDR): A pattern search technique for aggregate planning.
Revenue management: The process of determining the percentage of seats or rooms to be allocated to different fare classes.

CHAPTER 14 (Supplement): Operational Decision-Making Tools: Linear Programming

Constraints: Linear relationships of decision variables representing the restrictions placed on the decision situation by the operating environment.
Decision variables: Mathematical symbols that represent levels of activity of an operation.
Extreme points: Corner points, or protrusions, on the boundary of the feasible solution space in a linear programming model.
Feasible solution space: An area that satisﬁes all constraints in a linear programming model simultaneously.
Graphical solution method: A method for determining the solution of a linear programming problem using a two-dimensional graph of the model.
Linear programming: A technique for general decision situations in which the decision is to determine a level of operational activity in order to achieve an objective, subject to restrictions.
Objective function: A linear mathematical relationship that describes the objective of an operation in terms of decision variables.
Optimal solution: The single best solution to a problem.
Simplex method: A series of mathematical steps conducted within a tabular structure for solving a linear programming model.
Slack variable: A variable added to a linear programming constraint to make it an equality.
Surplus variable: A variable subtracted from a model constraint in a linear programming model in order to make it an equality

CHAPTER 15: Resource Planning

Assemble-to-order: A manufacturing environment in which major subassemblies are produced in advance of a customer’s order and are then conﬁgured to order.
Backward scheduling: Scheduling backward from a due date to determine when to begin a job.
Best-of-breed: The selection of ERP modules from different vendors.
Bill of material (BOM) : A list of all the materials, parts, and assemblies that make up a product, including quantities, parent– component relationships, and order of assembly.
Capacity: The maximum capability to produce.
Capacity requirements planning (CRP): A computerized system that projects the load from a given material plan onto the capacity of a system and identiﬁes underloads and overloads.
Cloud computing: On-demand IT services usually delivered over the Internet.
Cumulative lead time: The total length of time required to manufacture a product; also, the longest path through a product structure.
Customer relationship management (CRM): Software that plans and executes business processes that involve customer interaction, such as sales, marketing, fulﬁllment, and customer service.
Cycle counting: A method for auditing inventory accuracy that counts inventory and reconciles errors on a cyclical schedule rather than once a year.
Efﬁciency: How well a machine or worker performs compared to a standard output level.
Enterprise resource planning (ERP): Software that organizes and manages a company’s business processes by sharing information across functional areas.
Expedite: To speed up orders so that they are completed in less than their normal lead time.
Explosion: The process of determining requirements for lowerlevel items by multiplying the planned orders of parent items by the quantity per assembly of component items.
Forward scheduling: Scheduling forward from today’s date to determine the earliest time a job can be completed.
Item master ﬁle: A ﬁle that contains inventory status and descriptive information on every item in inventory.
Load: The standard hours of work assigned to a facility.
Load leveling: The process of balancing underloads and overloads.
Load percent: The ratio of load to capacity.
Load proﬁle: A chart that compares released orders and planned orders with the capacity of a facility.
Lot sizing: Determining the quantities in which items are usually made or purchased.
Master production schedule (MPS): A schedule for the production of end items (usually ﬁnal products). It drives the MRP process that schedules the production of component parts.
Material requirements planning (MRP): A computerized inventory control and production planning system for generating purchase orders and work orders of materials, components, and assemblies.
Modular bill of material: A special bill of material used to plan the production of products with many optional features.
Netting: The process of subtracting on-hand quantities and scheduled receipts from gross requirements to produce net requirements.
Periodic order quantity: A lot sizing technique that orders at set time intervals.
Product lifecycle management (PLM): Software that manages the product development process, product lifecycles, and design collaboration with suppliers and customers.
Product structure ﬁle: A ﬁle that contains computerized bills of material for all products.
Software as a service (SaaS): Software as a service; on-demand access of software from a provider’s site.
SOA: Service oriented architecture; a software architecture that bundles together stand-alone services.
Supply chain management (SCM): Software that plans and executes business processes related to supply chains.
Time fence: A date speciﬁed by management beyond which no changes in the master schedule are allowed.
Time-phased bill of material: An assembly chart shown against a time scale.
Time phasing: The process of subtracting an item’s lead time from its due date to determine when an order should be released.
Utilization: The percentage of available working time that a worker spends working or a machine operating.
XML: Extensible markup language; used to help different ERP systems communicate over the Internet.

CHAPTER 16: Lean Systems

Andons: Call lights installed at workstations to notify management and other workers of a quality problem in production.
Breakdown maintenance: A maintenance activity that involves repairs needed to make a failed machine operational.
External setup: Setup activities that can be performed in advance while the machine is operating.
5 Why’s: Repeatedly ask “why?” until a root cause is identiﬁed.
Internal setup: Setup activities that can be performed only when the machine is stopped.
Jidoka authority: Given to the workers to stop the assembly line when quality problems are encountered.
Just-in-time (JIT): Smoothing the ﬂow of material to arrive just as it is needed; evolved into a system for eliminating waste.
Kaizen: A Japanese term for a system of continuous improvement.
Kanban: A card corresponding to a standard quantity of production (or size container) used in the pull system to authorize the production or withdrawal of goods.
Kanban square: A marked area designated to hold a certain amount of items; an empty square is the signal to produce more items.
Lean production: Both a philosophy and an integrated system of management that emphasizes the elimination of waste and the continuous improvement of operations.
Lean six sigma: A combination of lean’s principles for eliminating waste with Six Sigma’s reduction of variability.
Manufacturing cell: A group of dissimilar machines brought together to manufacture a family of parts with similar shapes or processing requirements.
Material Kanban: A rectangular-shaped Kanban used to order material in advance of a process.
Muda: Anything other than the minimum amount of equipment, materials, parts, space, and time that are absolutely essential to add value to the product.
Multifunctional workers: Workers who have been trained to perform more than one job or function.
Poka-yoke: Any foolproof device or mechanism that prevents defects from occurring.
Preventive maintenance: A system of daily maintenance, periodic inspection, and preventive repairs designed to reduce the probability of machine breakdown.
Production Kanban: A card authorizing the production of a container of goods.
Pull system: A production system in which items are manufactured only when called for by the users of those items.
Push system: A production system in which items are manufactured according to a schedule prepared in advance.
Signal Kanban: A triangular Kanban used as a reorder point to signal production at the previous workstation.
Supplier Kanban: A Kanban that rotates between a factory and its supplier.
Takt time: The cycle time of an operation paced to the rate of customer demand.
Total productive maintenance (TPM): An approach to machine maintenance that combines the practice of preventive maintenance with the concepts of total quality and employer involvement.
Undercapacity scheduling: The allocation of extra time in a schedule for nonproductive tasks such as problem solving or maintenance.
Uniform production levels: The result of smoothing production requirements on the final assembly line.
Visual control: Procedures and mechanisms for making problems visible.
Withdrawal Kanban: A card authorizing the withdrawal and movement of a container of goods.

CHAPTER 17: Scheduling

Advanced planning and scheduling (APS): A software system that uses intelligent analytical tools and techniques to develop realistic schedules.
Dispatch list: A shop paper that speciﬁes the sequence in which jobs should be processed; it is often derived from speciﬁc sequencing rules.
Drum-buffer-rope: A concept in theory of constraints where the drum sets the pace of production, buffer is placed in front of the bottleneck, and rope communicates changes.
Finite scheduling: An approach to scheduling that loads jobs in priority order and delays those jobs for which current capacity is exceeded.
Flow time: The time that it takes for a job to “ﬂow” through the system; that is, its completion time.
Gantt chart: A bar chart that shows a job’s progress graphically or compares actual against planned performance.
Genetic algorithms: A method that generates possible solutions based on genetic combinations of previous solutions.
Inﬁnite scheduling: An approach to scheduling that initially assumes inﬁnite capacity and then manually “levels the load” of resources that have exceeded capacity.
Input/output (I/O) control: A procedure for monitoring the input to and output from a work center to regulate the ﬂow of work through a system.
Johnson’s rule: An algorithm for sequencing any number of jobs through two serial operations to minimize makespan.
Load leveling: The process of smoothing out the work assigned across time and the available resources.
Loading: The process of assigning work to individual workers or machines.
Makespan: The time that it takes for a group of jobs to be completed—that is, the completion time of the last job in a group.
Manufacturing execution systems (MES): Manufacturing software that monitors operations, collects data, and controls processes on the shop ﬂoor.
Scheduling: The determination of when labor, equipment, and facilities are needed to produce a product or provide a service.
Sequencing: The process of assigning priorities to jobs so that they are processed in a particular order.
Shop ﬂoor control (SFC): Scheduling and monitoring day-to-day production in a job shop; also known as production control or production activity control.
Tardiness: The difference between a job’s due date and its completion time for jobs completed after their due date.
Theory of constraints: A ﬁnite scheduling approach that differentiates between bottleneck and nonbottleneck resources and between transfer batches and process batches.
Work package: Shop paperwork that travels with a job to specify what work needs to be done at a particular machine center and where the item should be routed next.

Hatem Masri

MGT 636: Key Terms

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Hatem Masri

MGT 636: Key Terms

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