Operations Management – Final Exam

Operations Management
Systematic design, direction, and control of processes that transform inputs into services/products for internal/external customers.
Process
Any activity/group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers.
Operations
Group of resources performing all or part of one or more processes.
Supply Chain
Interrelated series of processes within and across firms that produces a service or product to the satisfaction of customers.
Supply Chain Management
Synchronization of firm’s processes with those of its suppliers and customers to match flow of materials, services, and information with customer demand.
Operations
Key function that transforms material/service inputs into product/service outputs.
Marketing
Key function responsible for producing sales revenue of outputs, which becomes returns to investors and capital for supporting operations.
Finance
Key Function that generates resources, capital, and funds from investors and sales of its goods and service in the marketplace.
External Customer
Customer who is either end user or an intermediary (manufacturers, financial institutions, or retailers) buying firm’s finished services/products.
Internal Customers
One or more employees or processes that rely on inputs from other employees/processes in order to perform their work.
External Suppliers
Businesses or individuals who provide resources, services, products, and materials for firm’s short-term and long-term needs.
Internal Suppliers
Employees or processes that supply important information or materials to firm’s processes.
Effectiveness
Getting the result, goal. (e.g. production goal)
Efficiency
How you get to that goal (e.g. reducing costs to product at a certain capacity)
Manufacturing Process
-Physical, durable output
-Outputs can be inventoried
-Low Customer Contact during process
-Long response time
-Capital Intensive
-Quality easily measured
Service Process
-Intangible, perishable output
-Output cannot be inventoried
-High Customer Contact
-Short response time
-Labor Intensive
-Quality not easily measured
Core Processes
1. Supplier Relationship Process
2. New Service/Product Development
3. Order Fulfillment Process
4. Customer Relationship Process
Supplier Relationship Process
Core Process of employees select the suppliers of services, materials, and information and facilitates the timely and efficient flow of these items into the firm.
New Service/Product Development
Core Process of the designing and developing of services or products from inputs received from external customer specifications or form market in general through customer relationship process.
Order Fulfillment Process
Core Process including activities required to produce and deliver the product/service to the external customer.
Customer Relationship Process
Core Process of identifying, attracting, and building relationships with external customers, and facilitates placement of order by customers.
Support Processes
Provide vital resources and inputs to the core processes and is essential to the management of the business.
Operations Strategy
Specifies the means by which operations implements corporate strategy and helps build a customer-driven firm.
Environmental Scanning
Process by which managers monitor trends in the environment for potential opportunities or threats.
Core Competencies
Unique resources and strengths that an organization’s management considers when formulating a strategy.
Workforce
Core Competency of well-trained and flexible staff that allows organizations to respond to market needs in a timely fashion.
Facilities
Core Competency having well-located buildings is a primary advantage because of the long lead time needed to build new ones.
Market and Financial Know-How
Core Competency of an organization that can easily attract capital from stock sales, market and distributes its services or products, or differentiate them from similar services or products in the market has a competitive edge.
Systems and Technology
Core Competency of organizations with expertise in information systems have an edge in industries that are data intensive, such as banking.
Global Strategies
Includes offshoring decisions, combating foreign substitutions, and entering new foreign markets.
Strategic Alliances
1. Collaborative Effort
2. Joint Venture
3. Technology Licensing
Market Segmentation
Process of identifying groups of customers with enough in common to warrant the design and provision of services/products that that the group wants or needs.
Needs Assessment
Identifies the needs of each segment and assesses how well competitors are addressing those needs.
Competitive Priorities
Critical dimensions that a process or supply chain must possess to satisfy its internal or external customers, both now and in future.
Competitive Priorities
-Cost
-Quality
-Time
-Flexibility
Competitive Capabilities
Cost, quality, time and flexibility dimensions that a process or supply chain actually possesses and is able to deliver.
Performance Gap
Difference between a companies competitive capabilities and competitive priorities.
Order Winner
Criterion customers use to differentiate the services or products of one firm from those of another.
Order Qualifier
Minimal level required from a set of criteria for a firm to do business in a particular market segment.
Low-Cost Operations
Competitive Priority of delivering service/product at lowest possible cost to the satisfaction of external/internal customers of the process or supply chain – Costco.
Top Quality
Competitive Priority of delivering an outstanding service/product – Rolex.
Consistent Quality
Competitive Priority of producing services/products that meet design specifications on a consistent basis – McDonald’s.
Delivery Speed
Competitive Priority of quickly filling a customer’s orders – Dell.
On-Time Delivery
Competitive Priority of meeting delivery-time promises – UPS.
Development Speed
Competitive Priority of quickly introducing a new service/product – Zara.
Customization
Competitive Priority of Satisfying the unique needs of each customer by changing service/product designs – Ritz Carlton.
Variety
Competitive Priority of handling a wide assortment of services/products efficiently – Amazon.com.
Volume Flexibility
Accelerating or decelerating the rate of production of services/products quickly to handle large fluctuations in demand – USPS.
Process Strategy
Pattern of decisions made in managing processes, so that processes will achieve their competitive priorities.
Process Structure
Process type relative to kinds of resources needed, how resources are partitioned between them, and their key characteristics.
Customer Involvement
Way in which customers become part of the process and extent of their participation.
High Customer Involvement
Customers going through buying and selling processes, arranging order fulfillment and delivery.
Pros of High Customer Involvement
-Possibility for lower prices and delivery times
-Better quality, greater flexibility
-Can help coordinate across supply chain
-Supplier relationships
Cons of High Customer Involvement
-Disruptive, making process less efficient
-Managing timing/volume of customer demand more challenging
-Exposing facilities/employees to customer may have quality implications
Resource Flexibility
Ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions.
Specialized
Resource Flexibility in which range of tasks in which resources can be used is minimal – bread line.
Enlarged
Resource Flexibility in which range of tasks in which resources can be used spans wide range – custom cakes.
Capital Intensity
Mix of equipment and human skills in a process.
Process Divergence
Extent to which the process is highly customizable with considerable latitude as to how its tasks are performed.
Flexible Flow
Customers, materials, or information move in diverse ways, with the path of one customer or job often crisscrossing with path that next one takes.
Front Office
Process with high customer contact where the service provider interacts directly with internal/external customer.
Hybrid Office
Process with moderate levels of customer contact and standard services with some options available.
Back Office
Process with low customer contact and little customization.
Job Shop
Customized process with flexible and unique sequence of tasks, low-volume products, made to customer order.
Batch Process
Process that differs from the job process with respect to volume, variety, and quantity – repetitive, multiple products with low to moderate volumes.
Line Process
Process that lies between batch and continuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organized around particular products.
Continuous Flow
Process at the extreme end of high-volume standardized production and rigid line flows, with production not starting and stopping for long time intervals.
Make-to-Order
Strategy used by manufacturers that make products to customer specifications in low volumes.
Assemble-to-Order
Strategy for producing a wide variety of products from relatively few subassemblies and components after the customer orders are received – Involves Postponement and Mass Customization (Nike iD).
Make-to-Stock
Strategy that involves holding items in stock for immediate delivery, thereby minimizing customer delivery times – Mass Production.
Defect
Any instance when a process fails to satisfy customer.
Prevention Costs
Costs associated with preventing defects before they happen.
Appraisal Costs
Costs incurred when the firm assesses the performance level of its processes.
Internal Failure Costs
Costs resulting from defects that are discovered during the production of a service or product.
External Failure Costs
Costs that arise when a defect is discovered after the customer receives the service or product.
Total Quality Management
Philosophy that stresses three principles for achieving high levels of process performance and quality:
1. Customer Satisfaction
2. Employee Involvement
3. Continuous Improvement
Quality
Term used by customers to describe their general satisfaction with a service/product.
Conformance to Specifications
Quality Element including processes that produced the service/product that lend to consistent quality, on-time delivery, or delivery speed.
Value
Quality Element including how well the service/product services its intended purpose at price customers are willing to pay.
Fitness for Use
Quality Element assessing how well service/product performs intended purpose – i.e. convenience, mechanical features, appearance, style, durability.
Support
Quality Element including service and product support provided by company – i.e. warranties support lines.
Psychological Impressions
Quality Element of evaluating quality based on atmosphere, image, or aesthetics, as well as appearance and actions of provider.
Customer Satisfaction
Customers are satisfied when their expectations regarding service/product have been met/exceeded.
Employee Involvement
Programs including cultural changes and encouraging teamwork.
Continuous Improvement
Philosophy of continually seeking ways to improve processes based on Japanese concept called Kaizen.
Plan Do Study Act
Cycle, also called Deming Wheel, used by firms actively engaged in continuous improvement to train their work teams in problem solving.
Six Sigma
Comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes.
Six Sigma Improvement Model
-Define
-Measure
-Analyze
-Improve
-Control
Acceptance Sampling
Application of statistical techniques to determine if quantity of materials from supplier should be accepted based on inspection of one or more samples.
Lean System
Operations Systems that maximize value added by each company’s activities by removing waste/delay from system.
Muda
Japanese for Waste.
Overproduction
Type of Waste involving manufacturing item before it’s needed, creating excessive lead times.
Inappropriate Processing
Type of Waste involving expensive equipment when simpler machines would’ve sufficed.
Waiting
Type of Waste involving wasteful time when product isn’t being moved/processed.
Transportation
Type of Waste involving excessive movement and material handling between processes.
Motion
Type of Waste involving unnecessary efforts of bending, stretching, reaching, lifting, and walking.
Inventory
Type of Waste involving excessive inventory that hides problems on floors, consumes space.
Defects
Type of Waste involving the resulting rework and scrap, and adding of wasteful costs to system in form of lost capacity, rescheduling, increased inspection, and loss of customer goodwill.
Underutilization of Employees
Type of Waste involving failure of firm to learn from/capitalize on employees.
5S Environment
-Sort
-Straighten
-Shine
-Standardize
-Sustain
Just-In-Time
Belief that waste can be eliminated by cutting unnecessary capacity or inventory and removing no-value-added activities/operations.
Takt Time
How much time per unit.
Jidoka
Japanese for Stop and Fix:
-Manual or automatic line stop
-Separate operator and machine activities
-Error-proofing
-Visual control
Heijunka
Regular demand into smooth production.
New Service/Product Development
1. Design
2. Analysis
3. Development
4. Full Launch
Statistical Process Control
Application of statistical techniques to determine whether a process is delivering what the customer wants.
Variables
Service or product characteristics, such as weight, length, volume, or time, that can be measured.
Attributes
Service or product characteristics that can be quickly counted for acceptable performance.
Common Cause
Variation that is random, unidentifiable, and unavoidable.
Assignable Cause
Variation that can be identified and eliminated.
Sampling Plan
A plan that specifies a sample size, the time between successive samples, and decision rules that determine when action should be taken.
Control Chart
Time-ordered diagram that is used to determine whether observed variations are normal.
Type 1
Error occurs when employee concludes that process is out of control based on sample result that falls outside limits, when in fact it was due to pure randomness.
Type 2
Error that occurs when the employee concludes that the process in in control and only randomness is present, when actually the process is out of statistical control.
R-Chart
Chart used to measure the variability of processes.
X-Bar Chart
Chart used to see whether the process is generating output, on average, consistent with target set by management for process or whether performance, with respect to average of performance measure, is consistent with past performance.
P-Chart
Chart used for controlling portion of defective services or products generated by process.
C-Chart
Chart used for controlling number of defects when more than one defect can be present in a service/product.
Process Capability
Ability of the process to meet the design specifications for a service/product.
Inventory Management
Planning and controlling of inventories to meet competitive priorities of the organization.
Cost of Capital
Opportunity costs of investing in an asset relative to the expected return on assets of similar risk.
Storage/Handling Costs
Costs incurred to store excess inventory or if a firm could use storage space productively in some other way.
Pilferage
Form of Shrinkage in which there’s theft of inventory by customers/employees.
Obsolescence
Form of Shrinkage in which inventory cannot be used/sold at full value, owing to model changes, engineering modifications, or unexpectedly low demand.
Deterioration
Form of Shrinkage in which physical spoilage or damage due to rough or excessive material handling results in lost value.
Stockout
Order that can’t be satisfied, resulting in loss of sale.
Backorder
Order that can’t be filled when promised or demanded but if filled later.
Cycle Inventory
Portion of total inventory that varies directly with lot size.
Safety Stock Inventory
Surplus inventory that protects against uncertainties in inventory, lead time, and supply changes.
Anticipation Inventory
Inventory used to absorb uneven rates of demand/supply.
Pipeline Inventory
Inventory created when an order for an item is issued but not yet received.
Lot Sizing
Determination of how frequently and in what quantity to order inventory.
ABC Analysis
Process of dividing SKUs into three classes, according to their dollar usage, so that managers can focus on items that have the highest dollar value.
Economic Order Quantity
Lot size that minimizes total annual inventory holding and ordering costs.
Annual Holding Cost + Annual Ordering/Setup Costs
Total Cost of Inventory
Continuous Review System
Inventory Management system in which an order is placed every time the inventory position (IP) drops to the reorder point (ROP); the EOQ is ordered.
Periodic Review System
Inventory Management system in which every P units of time the inventory position (IP) is checked and an amount is ordered to bring the IP up to a target level.
Protection Interval
Period over which safety stock must protect the user from running out of stock.
Advantages of Continuous
-Review frequency may be individualized
-Fixed lot sizes can result in quantity discounts
-Lower safety stocks
Advantages of Periodic
-Convenient
-Orders can be combined
-Only need to know IP when review is made
-Not as costly to implement
One-Period Decision
Model used for when items lose value after given period, known as the Newsboy Problem – useful for seasonal, fashion, or perishable items.
Time Series
Repeated observations of demand for a service/product in their order of occurrence.
Cumulative Sum of Forecast Error
Measurement of the total forecast error that assesses the BIAS in a forecast.
Trend Projection with Regression
Forecasting model that is a hybrid between a time-series technique and the casual method.
Forecast Error
Difference found by subtracting the forecast from actual demand for a given period.
MSE SD and MAD
Measurements of the dispersion of forecast error.
Mean Absolute Percent Error
Measurement that relates the forecast error to the level of demand and is useful for putting forecast performance in the proper perspective.
Judgment Method
A forecasting method that translates the opinions of managers, expert opinions, consumer surveys, and salesforce estimates into quantitative estimates.
Techniques of Judgment Method
-Salesforce Estimates
-Executive Opinion
-Market Research
-Delphi Method
Exponential Smoothing
Weighted moving average method that calculates the average of a time series by implicitly giving recent demands more weight than earlier demands.
Causal Method
A quantitative forecasting method that uses historical data on independent variables, such as promotional campaigns, economic conditions, and competitors’ actions, to predict demand.