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Operations Management Terms (A-F)


Activity – Pieces of work within a project that consume time.

Activity-system map – A diagram that shows how a company’s strategy is delivered through a set of supporting activities.

Aggregate Operations Plan – Translating Annual and quarterly business plans into labor and production output plans for the intermediate term.

Arrival Rate – The expected number of customers that arrive each period.

Assembly Line – A process structure designed to make discrete parts where parts are moved through a set of specially designed workstations at a controlled rate.

Assembly-Line Balancing – The problem of assigning all the tasks to a series of workstations so that each workstation has no more than can be done in the workstation cycle time, and so that idle time across all workstations is minimized.

Assignment Method – A special case of the transportation method of linear programming that is used to allocate a specific number of jobs to the same number of machines.

Available to Promise – A feature of MPR systems that identifies the differences between the number of units currently included in the master schedule and actual customer orders.

Average Aggregate Inventory Value – The total value of all items held in inventory for the firm valued at cost.


Backflush – Calculating how many of each part were used in production and using these calculations to adjust actual on-hand inventory balances.

Backward Scheduling – Stars from some date in the future and schedules the required operations in reverse sequence.

Batch Shop – A process structure that produces a variety of standard products at relatively low volume.

Best Operating Level – The level of capacity for which the process was designed and the volume of output at which average unit cost is minimized.

Bill of Materials (BOM) – A computer file that contains the complete product description, listing the materials, parts, and component and the sequence in which the product is created.

Bottleneck – A resource that limits the capacity or maximum output of the process.

Blocking – The activities in the stage must stop because there is no place to deposit the item just completed.

Buffering – A storage area between stages where the output of a stage is placed prior to being used in downstream stage.

Bullwhip Effect – The variability in demand is magnified as we move from the customer to the producer in the supply chain.


Capacity – The amount of output that a system is capable of achieving over a specific period of time.

Capacity Constrained Resource (CCR) – A resource whose utilization is close to capacity and could be a bottleneck if not scheduled carefully.

Capacity Cushion – Capacity in excess of expected demand.

Capacity Focus – Can be operationalized through the plants-within-plants concept, where a plant has several sub-organizations specialized for different products – even though they are under the same roof. This permits finding the best operating level for each sub-organization.

Capacity Requirement Planning – Allocation of production resource capacity to specific orders.

Capacity Utilization Rate – Measures how close a firm is to its best operating level.

Causal Relationship – A situation in which one event causes another.

Centroid Method – A technique for locating single facilities that considers the existing facilities, the distances between tem, and the volume of goods to be shipped.

Closed-loop MRP – The use of actual data from the production system to continually update the MRP system.

Cost of Goods Sold – The annual cost for a company to produce the goods or services provided to customers.

Collaborate Planning, Forecasting, and Replenishment (CPFR) – An Internal tool to coordinate forecasting, production, and purchasing in a firm’s supply chain.

Concurrent Engineering – Emphasizes cross-functional integration and concurrent development of a product and its associated processes.

Conformance Quality – The degree to which the product or service design specifications are met.

Contract Manufacturer – An organization capable of manufacturing and/or purchasing all the components needed to products a finished product or device.

Continuous Improvement – The philosophy of continually seeking improvements in processes through the use of team efforts.

Continuous Flow — An often automated process structure that converts raw materials into finished product in one continuous process.

Core Capabilities (or Competencies) – The skills that differentiate the service or manufacturing firm from its competitors.

Core Services – The basic things that customers want from products they purchase.

Cost of quality – expenditures related to achieving product or service quality, such as the costs of prevention, appraisal, internal failure, and external failure.

Critical Path – The sequence of activities in a project that forms the longest chain in terms of their time to complete.

CRAFT (Computerized Relative Allocation of facilities Technique) – A method to help devise good process layouts.

Cycle Time – The average time between completions of successive units in a process.

Cycle Counting – A physical inventory-taking technique in which inventory is counted on a frequent basis rather that once or twice a year.


Dependent Demand Requirements for a product or service caused by the demand for other products or services.

Design Quality The inherent value of the product in the marketplace.

Design for Logistics – This concept involves consideration of material procurement and distribution costs during the product design phase.

Dimensions of Quality Criteria by which quality is measured.

Dispatching – The activity of initiating scheduled work.

DMPO (defects per million opportunities) – A metric used to describe the variability of a process.


Early Start Schedule – A project schedule that lists all activities by their early start time.

Economies of scope – Exist when multiple products can be produced at a lower cost in combination than they can separately.

Electronic Commerce – The use of the Internet as an essential element of business activity.

Elemental Data – Used to derive a job time by summing times from a database of similar combinations of movements.

Ergonomics – study of the physical arrangement of the work space together with the tools used to perform a task.

Exponential Distribution – A probability distribution often associated with inter-arrival times.

Exponential Smoothing – A time series forecasting technique in which each increment of past demand data is decreased by (1-alpha).

External Benchmarking – Looking outside the company to examine what excellent performers inside and outside the company’s industry are doing in the way of quality.

e-SERVICE QUALITY –A version of SERVQUAL designed to evaluate service on the Internet.


Facility-based Services – Customers must go to the place of business.

Factor Rating System – An approach for selecting a facility location by combining a diverse set of factors.

Field Based Services – Production and consumption take place in the customer’s environment.

Finite Loading – Each resource is scheduled in detail using the setup and run time required for each other.

Fixed Position Layout – The product remains at one location and equipment is moved to the product.

Fixed-order Quantity Model – An inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory.

Fixed-time Period Model – An inventory control model that specifies inventory is ordered at the end of a predetermined time period.

Flow Manufacturing – Hybrid production planning systems that combine the information integration and planning capabilities of MRP with the response of a JIT Kanban system.

Focus Forecasting – An approach to forecasting in which several different techniques are tried in a computer simulation and the best technique or combination of techniques is used to make the actual forecast.

Forward Scheduling – Schedules from now into the future to tell the earliest that an order can be completed.

Free Trade Zone – A closed facility under the supervision of government customs officials into which foreign goods can be brought without being subject to the payment of normal import duties.

Freeze Window – The period of time during which the schedule is fixed and no further changes are possible.

Functional Project – A structure where team members are assigned from the functional units of the organization.

Functional Products – Staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations.

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