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Key Terminology

Operations management requires making many strategic and tactical decisions. Here we look at some key operations management decisions and associated key terminology:

  • Capacity planning—The process of determining the production capacity needed by an organization to meet changing demands for its products. Different types of capacity exist. For example, design capacity is the maximum amount of work that an organization is capable of completing in a given period; effective capacity is the maximum amount of work that an organization is capable of completing in a given period due to constraints such as quality problems, delays, and material management.
  • Efficiency—Performing activities at the lowest possible cost.
  • 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.
  • Forecasting—The process of predicting future events, including product demand.
  • Just-in-time—A philosophy designed to achieve high-volume production through elimination of waste and continuous improvement.
  • Lean systems—Sometimes synonymous with just-in-time, it is a philosophy that takes a total system approach to creating efficient operations through the elimination of waste.
  • Location analysis—Identifying the best location for facilities.
  • Mass customization—The ability of a firm to highly customize its goods and services at high volumes through its operations management function.
  • Operations management (OM)—The business function that refers to the transformation process of converting raw materials into finished goods and services; OM used to be called production and operations management (P&OM) or just production. As the field evolved from being primarily tactical (e.g., making inventory and scheduling decisions on the manufacturing floor) to being strategic (today there are many CEOs from the OM field), the term moved to focus on the broad notion of operations rather than mere production.
  • Product design—The process of deciding on the unique and specific features of a product.
  • Process selection—The process of identifying the unique features of the production process that will give the product its unique characteristics. Process selection typically goes hand in hand with product design, as we need to create a process that gives rise to the particular product design desired. An excellent product design is worthless if a process for its creation cannot be developed.
  • Productivity—A measure of how efficiently an organization converts inputs into outputs. It is usually measured by a ratio of output divided by input. Productivity is essentially a scorecard of how efficiently resources are used and a measure of competitiveness. Productivity is measured on many organizational levels—from measuring labor and machine productivity to measuring the productivity of an entire organization or even a nation. As a result it is of interest to a wide range of people.
  • Quality management—The process used to ensure the quality of a product, including measuring quality and identifying quality problems.
  • Reengineering—The process of redesigning a company’s processes to increase efficiency, improve quality, and reduce costs. In many companies things are done in a certain way that has been passed down over the years. Operations management is a key player in a company’s reengineering efforts.
  • Scheduling—The process of deciding on the timing and use of resources within an operation; it addresses questions such as who will work on what work schedule and in what sequence jobs will be processed.
  • Total quality management (TQM)—A philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization. With TQM everyone in the company is responsible for quality. Practiced by some companies in the 1980s, TQM became pervasive in the 1990s and is an area of operations management that no competitive company has been able to ignore.
  • Value added—A term used to describe the net increase created during the transformation of inputs into outputs. The OM function seeks to create value added in the transformation process.
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