SCM 411 Exam 1 Cram Sheet

Operations Management

The management of systems or processes that create goods and provide services.

Transformation Process

A process where inputs are transformed into outputs and value is added.

Four Inputs of Operations

Land, labor, capital, and information.

Outputs of Operations

Goods and services.

Feedback (Operations)

Measurements taken at various points in the transformation process.

Control (Operations)

Comparing feedback with established standards to determine if corrective action is needed.

Supply Chain

A sequence of activities and organizations involved in producing and delivering a good or service.

Four Sources of Variation

Variety of goods/services, structural variation in demand, random variation, and assignable variation.

Effects of Variation

Extra costs, delays, shortages, poor quality, and inefficient work systems.

Three Basic Business Functions

Operations (produces goods/services), Finance (manages funds), and Marketing (provides demand information).

System Design Decisions

Strategic, long-term decisions about capacity, facility location, layout, product planning, and equipment.

System Operation Decisions

Tactical and operational decisions about personnel, inventory, scheduling, projects, and quality.

Model

A simplified representation of reality used to focus on important factors and compare alternatives.

Systems Approach

Viewing the organization as a whole because decisions in one area affect other areas.

Forecast

A statement about the future value of a variable of interest.

Two Important Aspects of Forecasts

Expected level of demand and forecast accuracy or error size.

Qualitative vs. Quantitative Forecasting

Qualitative uses subjective opinions; quantitative uses hard data and historical projections.

Four Qualitative Forecasting Techniques

Executive opinions, salesforce opinions, consumer surveys, and the Delphi method.

Naive Forecast Formula

F_t = A(t-1)

Moving Average Formula

F_t = [A(t-1) + ... + A(t-n)] / n

Exponential Smoothing Formula

F_t = F(t-1) + alpha[A(t-1) - F(t-1)]

Linear Trend Equation

Y_t = a + bt (where a is intercept, b is slope, t is time period).

Simple Linear Regression Equation

Y = a + bX (where Y is predicted value, X is predictor variable).

Correlation Coefficient (r)

Measures the strength and direction of the linear relationship between two variables (-1.00 to +1.00).

Coefficient of Determination (r^2)

The percentage of variation in Y explained by the independent variable.

MAD (Mean Absolute Deviation)

MAD = sum(|A_t - F_t|) / n. Treats all errors evenly.

MSE (Mean Squared Error)

MSE = sum[(A_t - F_t)^2] / (n - 1). Gives more weight to large errors.

MAPE (Mean Absolute Percentage Error)

MAPE = [sum(|A_t - F_t| / A_t) * 100] / n.

Design Capacity

The maximum output rate or service capacity a facility is designed for.

Effective Capacity

Design capacity minus allowances such as personal time and maintenance.

Bottleneck

An operation whose capacity is lower than the capacity of the other operations.

Constraint

Anything that limits a process or system from achieving its goals.

Economies of Scale

When output is below optimal, increasing output decreases average cost per unit.

Diseconomies of Scale

When output is above optimal, increasing output increases average cost per unit.

Total Cost Formula

TC = FC + vQ

Total Revenue Formula

TR = RQ

Profit Formula

P = TR - TC or P = Q(R - v) - FC

Break-Even Quantity Formula

BEP = FC / (R - v)

Contribution Margin per Unit

R - v (Revenue per unit minus variable cost per unit).

Decision Theory

A method for making decisions when there are alternatives, future conditions, and known payoffs.

Three Decision Environments

Certainty (parameters known), Risk (probabilities estimated), and Uncertainty (probabilities unknown).

Maximax Criterion

Choose the alternative with the best possible payoff.

Maximin Criterion

Choose the alternative with the best of the worst possible payoffs.

Laplace Criterion

Assume all states of nature are equally likely and choose the alternative with the best average payoff.

Minimax Regret Criterion

Choose the alternative with the smallest maximum regret.

Expected Monetary Value (EMV)

EMV = sum(Probability of state * Payoff). Choose the alternative with the highest EMV.

Decision Tree Node Types

Square node represents a decision point; circular node represents a chance event.

Expected Value of Perfect Information (EVPI)

EVPI = Expected payoff under certainty - Best EMV under risk.