Operations Management: Forecasting, Product Design, and Capacity Planning

Comprehensive vocabulary flashcards covering operations management concepts including forecasting methods, error metrics, strategic capacity planning, and product/service design.

Capacity

An upper limit or ceiling on the load that an operating unit can handle, measured as the number of physical units produced or services performed.

Strategic Capacity Planning

The systematic process of matching the long-term supply capabilities of an organization with the predicted level of long-term demand.

Design Capacity

The maximum output rate or service capacity that an operation, process, or facility is specifically engineered or designed for.

Effective Capacity

Design capacity minus allowable operational reductions such as personal time, routine maintenance, and scrap.

Efficiency (Capacity)

The ratio of actual output to effective capacity, calculated as $\text{Efficiency} = \frac{\text{Actual output}}{\text{Effective capacity}} \times 100\%$.

Capacity Utilization

The ratio of actual output to design capacity, calculated as $\text{Utilization} = \frac{\text{Actual output}}{\text{Design capacity}} \times 100\%$.

Economies of Scale

An economic condition where increasing the output rate results in decreasing average unit costs because output is below the optimal operating level.

Diseconomies of Scale

An economic condition where increasing output beyond the optimal level causes average unit costs to rise due to factors like complexity, traffic, and bureaucracy.

Constraint

Any factor that limits the performance of a process or system in achieving its goals, categorized into market, resource, material, financial, supplier, competency, or policy constraints.

Cost–Volume Analysis

A quantitative tool that focuses on relationships between cost, revenue, and output volume to estimate operating income and compare capacity alternatives.

Contribution Margin

The difference between revenue per unit ($R$) and variable cost per unit ($v$), represented as $R - v$.

Break-Even Point (BEP)

The volume of output at which total revenue equals total cost, resulting in zero profit.

Indifference Point

The specific quantity of output at which a decision maker earns identical profit from two competing operational alternatives.

Present Value (PV)

A financial method that expresses in current value the sum of all future cash flows of an investment proposal, taking into account the time value of money.

Internal Rate of Return (IRR)

A financial analysis method that calculates the equivalent interest rate equating an investment's estimated future returns with its initial cost.

Manufacturability

The capability of an organization to produce a manufactured item at an acceptable profit.

Serviceability

The capability of an organization to provide a service at an acceptable cost or profit.

Reverse Engineering

The practice of dismantling and inspecting a competitor's product to discover possible product improvements.

Basic Research

Organized research with the objective of advancing the state of knowledge about a subject, without any near-term expectation of commercial applications.

Applied Research

Research directed toward achieving specific commercial applications.

Development (in R&D)

The stage of research and development that converts the findings of applied research into useful commercial applications.

Product Liability

The legal responsibility of a manufacturer for any injuries or damages caused by a faulty or defective product.

Uniform Commercial Code

A legal standard specifying that a manufactured product must be suitable for its intended purpose.

Cradle-to-Grave Assessment

Also known as life cycle analysis; the evaluation of the environmental impact of a product or service throughout its useful life, focusing on global warming, smog, oxygen depletion, and solid waste.

End-of-Life (EOL) Programs

Environmental programs designed to handle consumer products and commercial equipment that have reached the end of their useful lives.

Value Analysis

An examination of the function of parts and materials undertaken to reduce cost and/or improve performance as part of the Reduce sustainability strategy.

Remanufacturing

Refurbishing used products by replacing worn-out or defective components and reselling the finished units under the Reuse strategy.

Mass Customization

A operational strategy of producing standardized goods or services while incorporating a degree of customization in the final product or service.

Delayed Differentiation

A postponement tactic in production where goods are produced to a generic standard and specific differentiating features are delayed until customer orders arrive.

Modular Design

A form of standardization where component parts are grouped into interchangeable, easily replaceable modules.

Robust Design

Product or service design that results in items capable of functioning effectively over a broad range of operating conditions.

Quality Function Deployment (QFD)

A structured approach for integrating the 'voice of the customer' into the development process using a cross-functional matrix known as the House of Quality.

Kano Model

A design theory developed by Dr. Noriaki Kano that segments customer quality expectations into basic, performance, and excitement attributes.

Service Blueprint

A visual design tool that maps out a service delivery system across customer actions, contact persons, backstage activities, and support operations separated by lines of visibility and interaction.

Forecast Error

The numerical difference between the actual value that occurs and the value predicted for a given time period: $e_t = A_t - F_t$.

Mean Absolute Deviation (MAD)

A measure of overall forecast accuracy representing the average absolute error across periods: $\text{MAD} = \frac{\sum |\text{Actual}_t - \text{Forecast}_t|}{n}$.

Mean Squared Error (MSE)

A forecast error metric computed as the average of the squared errors: $\text{MSE} = \frac{\sum (\text{Actual}_t - \text{Forecast}_t)^2}{n - 1}$.

Mean Absolute Percent Error (MAPE)

The average absolute percent error of a forecast: $\text{MAPE} = \frac{\sum \frac{|\text{Actual}_t - \text{Forecast}_t|}{\text{Actual}_t} \times 100}{n}$.

Delphi Method

An iterative qualitative forecasting method where managers and experts complete successive questionnaires to arrive at a consensus projection.

Time Series

A time-ordered sequence of data observations recorded at uniform time intervals such as daily, weekly, monthly, or annually.

Trend (Time Series)

A persistent long-term upward or downward movement in time-series data driven by fundamental changes such as population, income, or cultural shifts.

Seasonality

Short-term, regular and repeating variations in time series linked to calendar intervals, holidays, or times of the day.

Cycles (Time Series)

Wavelike variations in time series extending beyond one year in duration, typically tied to broad macroeconomic or political conditions.

Naive Forecast

A straightforward forecasting technique that adopts a single previous period's value as the forecast for the upcoming period without additional manipulation.

Moving Average

A smoothing technique that forecasts future demand by calculating the unweighted average of a predetermined number of the most recent actual data values: $F_t = \frac{\sum_{i=1}^{n} A_{t-i}}{n}$.

Weighted Moving Average

An averaging technique where past periods are assigned unequal weights, typically giving greater weight to more recent observations: $F_t = \sum w_{t-i} A_{t-i}$.

Exponential Smoothing

A weighted averaging forecasting method where the next forecast equals the prior forecast plus a fraction of the latest forecast error: $F_t = F_{t-1} + \alpha(A_{t-1} - F_{t-1})$.

Smoothing Constant (\alpha)

A percentage weighting factor between $0$ and $1$ in exponential smoothing that controls the responsiveness of the forecast to prediction errors.

Tracking Signal

The ratio of cumulative forecast error to the corresponding value of $\text{MAD}$, used to detect persistent bias in a forecasting model: $\text{Tracking signal}_t = \frac{\sum (\text{Actual}_t - \text{Forecast}_t)}{\text{MAD}_t}$.

Forecast Bias

A persistent tendency for forecasting errors to deviate systematically on one side of zero, resulting in predictions that are consistently higher or lower than actual demand.