MGMT 300

Capacity

The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time.

Design Capacity

The maximum theoretical output of a system, normally expressed as a rate.

Effective Capacity

The capacity a firm expects to achieve given current operating constraints; it is often lower than design capacity.

Utilization Formula

Utilization = Actual Output / Design Capacity (expressed as a %)

Efficiency Formula

Efficiency = Actual Output / Effective Capacity

Economies and Diseconomies of Scale

Economies of scale occur when unit costs decrease as facility size increases up to an optimal point; diseconomies occur when a facility becomes too large and unit costs rise.

Break-Even Analysis

A technique for evaluating process and equipment alternatives with the objective of finding the point in dollars and units at which total cost equals total revenue.

Single-Product Break-Even Point in Units (BEP X)

Expected Monetary Value (EMV)

A decision-making tool used under risk where you multiply the payoff of each alternative under different states of nature by their respective probability values.

Objective of Inventory Management

To strike a balance between inventory investment and customer service.

ABC Analysis

A method that divides on-hand inventory into three classifications (A = high annual dollar volume, B = medium, C = low) to focus control on critical items.

Cycle Counting

A continuous reconciliation procedure where items are counted and records are updated on a periodic basis (often paired with ABC analysis).

Holding Costs

The costs associated with holding or carrying inventory over time (includes housing, material handling, labor, investment/borrowing costs, pilferage, scrap, and obsolescence).

Economic Order Quantity (EOQ / Q*)

Reorder Point (ROP)

ROP = d x L (tells management when to order)

Used when inventory builds up over time as units are produced and sold simultaneously:

Safety Stock

Extra stock held as a buffer to mitigate the risk of stockouts due to probabilistic (uncertain) demand or fluctuating lead times.

Single-Period Model

Used for seasonal or perishable items where only one order is placed and items have little or no value at the end of the period

Total Quality Management (TQM)

An organization-wide commitment to continuous quality improvement, encompassing everyone from suppliers to customers

The Four Costs of Quality

Prevention costs, Appraisal costs, Internal Failure costs, and External Failure costs

Prevention Costs

reducing potential defects

Appraisal Costs

evaluating products, parts, and services

Internal Failure Costs

producing defects before delivery

External Failure Costs

defects discovered after delivery to the customer

PDCA Cycle (Plan-Do-Check-Act)

A continuous improvement circular model: Plan (identify pattern/make plan), Do (test), Check (evaluate results), Act (implement and document).

Six Sigma

A rigorous quality program aimed at reducing defects, lowering costs, and improving customer satisfaction, targeting a performance capability of no more than 3.4 defects per million opportunities.

DMAIC Approach

The core Six Sigma continuous improvement process standing for Define, Measure, Analyze, Improve, and Control.

Taguchi Concepts (Quality Robustness)

Engineering methods showing that products should be designed to be immune to small environmental and manufacturing variations, and utilizing a Quality Loss Function to show that costs increase exponentially the further a product moves away from the target value.

Source Inspection

Controlling or inspecting quality at the source (at the point of production or purchase) where individual employees perform self-checks on their own work.

Check Sheet

An organized tally sheet used for collecting and recording data in real time.

Scatter Diagram

A graph that plots the value of one variable versus another to see if a relationship exists (e.g., productivity vs. absenteeism)

Cause-and-Effect Diagram (Fishbone / Ishikawa Diagram)

A tool used to identify and organize potential process elements (causes categorized typically as Manpower, Machinery, Material, Methods, Measurement, and Environment) that affect an outcome.

Pareto Chart

A specialized bar graph that plots problems or defects in descending order of frequency to prioritize the vital few issues (following the 80/20 rule).

Flowchart (Process Diagram)

A visual chart that maps out the sequential steps and decision points in a process.

Histogram

A bar graph showing the frequency distribution (spread and central tendency) of continuous data variables.

Statistical Process Control (SPC) Chart

A time-ordered graph of a statistic with Upper Control Limits (UCL), Lower Control Limits (LCL), and a target value used to monitor whether a process is stable or experiencing assignable causes of variation.