Hill A.V. The Encyclopedia of Operations Management: A Field Manual and Glossary of Operations Management Terms and Concepts
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product rationalization – Production Operations Management Society (POMS)
The Encyclopedia of Operations Management Page 276
Benefits of product line extensions include:
• Meet the ever-changing customer needs.
• Increase sales and capture larger market share.
• Help firms explore new products and markets. Hamel and Prahalad (1991) argue for the use of
“expeditionary marketing” to test new markets because of the difficulties of conducting marketing research.
• Create a barrier to entry for competitors.
Problems of product line extensions (and product proliferation) include:
• Products competing with one another in the same market.
• Consumer confusion about the products.
• Cannibalization of the existing product line of the company.
• Higher complexity, which increases costs and makes service more difficult throughout the product life cycle.
The marketing, sales, and R&D organizations are responsible for identifying new products and are held
accountable for growing sales each year. However, as Mariotti (2008) points out, no organization within a firm
is responsible for balancing the drive to increase (proliferate) the number of SKUs. His book argues persuasively
that product proliferation leads to complexity that has significant hidden costs.
Product rationalization is the process of evaluating which products should be kept in a product portfolio.
Product rationalization is based on several factors, such as sales, margin, product life cycle, support for
complementary products, and similarity of product attributes. As mentioned above, it tends to be a difficult
process in many firms because of goal misalignment between the sales and marketing organizations, which want
a broad product line to satisfy a wide variety of customers and win new ones, and the manufacturing and supply
chain organizations, which want to reduce cost, complexity, and inventory.
See Activity Based Costing (ABC), assortment, focused factory, market share, mass customization, product
mix, standard products.
product rationalization – See product proliferation.
product simplification – See value engineering.
product structure – See bill of material (BOM).
production activity control – See shop floor control.
production function – A microeconomics concept that defines the relationship between an organization’s inputs
and outputs.
The production function is a mathematical model that indicates what outputs can be obtained from various
amounts and combinations of factor inputs. In its most general mathematical form, a production function is
expressed as
1 2
( , ,..., )
n
Q f x x x
, where Q is the quantity of output and
1 2
( , ,..., )
n
x
x x
are the factor inputs, such
as capital, labor, raw materials, land, technology, and management.
The production function can be specified in a number of ways, including an additive (linear) function
1 1 2 2
...
n n
Q a b x b x b x
or a multiplicative (Cobb-Douglas) production function
1 2
1 2
...
n
b
b b
n
Q ax x x
.
Other forms include the “constant elasticity of substitution” production function (CES), which is a generalized
form of the Cobb-Douglas function, and the quadratic production function, which is a specific type of additive
function. The best form of the equation and the best values of the parameters depend on the firm and industry.
See Data Envelopment Analysis (DEA), economics.
production line – A manufacturing term for a sequence of workstations or machines that make a product (or family
of products); most often used in a high-volume, repetitive manufacturing environment where the machines
(workcenters) are connected by conveyers.
Levitt (1972) wrote an HBR article entitled the “Production-line approach to service” that used McDonald’s
as an example to support his argument that services should be managed more like factories with respect to
standardization, technology, systems, and metrics.
See assembly line, manufacturing processes, service management.
production linearity – See heijunka.
Production Operations Management Society (POMS) – An international professional society representing
the interests of production and operations management professionals from around the world.
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production order − production planning
Page 277 The Encyclopedia of Operations Management
The purposes of the society are to (1) extend and integrate knowledge that contributes to the improved
understanding and practice of production and operations management (POM), (2) disseminate information on
POM to managers, scientists, educators, students, public and private organizations, national and local
governments, and the general public, and (3) promote the improvement of POM and its teaching in public and
private manufacturing and service organizations throughout the world.
Professor Kalyan Singhal founded POMS on June 30, 1989, in collaboration with about three hundred
professors and executives. The society held its first international meeting in Washington, D.C. in October 1990.
The first issue of the POMS journal Production and Operations Management was published in March 1992.
The POMS website is www.poms.org.
See operations management (OM).
production order – See manufacturing order.
production plan – See production planning.
production planning – The process of creating a high-level production plan, usually in monthly time buckets for
families of items, and often measured in a high-level common unit of measure, such as units, gallons, pounds, or
shop hours; called aggregate planning or aggregate production planning in the academic literature.
In academic circles, the result of the aggregate production planning process is called the aggregate plan,
whereas in many practitioner circles (including APICS) it is known simply as the production plan. Aggregate
planning is particularly difficult for firms with seasonal demand for their products. Firms such as Polaris (a
manufacturer of snowmobiles and ATVs) and Toro (a manufacturer of snow blowers and lawnmowers) have to
build inventory in the off season in anticipation of seasonal demand.
Production planning is just one step in the Sales & Operations Planning (S&OP) process. S&OP is a broader
and higher-level business process that includes sales, marketing, finance, and operations and that oversees the
creation of the business plan, the sales plan, and the production plan. (See the Sales & Operations Planning
(S&OP) entry for more information on this topic.)
Whereas the business plan is usually defined in dollars (profit, revenue, and cost), the production plan is
usually defined by units or some other aggregate output (or input) measure, such as shop hours worked, gallons
produced, crude oil started, etc. An aggregate measure is particularly useful when the production plan includes
many dissimilar products.
The goal is to meet customer demand at the lowest cost. Relevant costs for production planning decisions
include inventory carrying costs, capacity change costs (hiring, training, firing, facility expansion or contraction,
equipment expansion or reduction), and possibly the opportunity costs of lost sales.
The linear programming formulation for the aggregate production planning problem has been in the
operations management and operations research literature since the 1960s. It assumes that the demand is known
with certainty over the T-period planning horizon. The problem is to find the optimal production plan, workforce
plan, and inventory plan to meet the demand at the lowest cost. Mathematical statement of the problem is below.
The aggregate production planning problem
Minimize
1
( )
T
H
t F t OT t W t C t
t
z c H c F c OT c W c I
Subject to
1t t t t
I I P D
, for t = 1, 2, … , T
( )
t t t
P r W OT
, for t = 1, 2, … , T
1.5
t t
OT W
, for t = 1, 2, … , T
1t t t t
W W H F
, for t = 1, 2, … , T
where,
T Number of periods in the planning horizon.
t Period index, t = 1, 2, …, T.
c
H
Cost of hiring one worker.
H
t
Number of workers hired in period t.
c
F
Cost of firing one worker.
F
t
Number of workers fired in period t.
c
OT
Cost of using one full-time equivalent worker to work overtime for one period.
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production smoothing – productivity
The Encyclopedia of Operations Management Page 278
OT
t
Number of workers working over time in period t, expressed in full-time equivalents. (The constraint
above assumes that overtime is limited to 1.5 times regular time.)
c
W
Cost of employing one worker for one period.
W
t
Number of workers employed in period t.
c
C
Cost of carrying one unit for one period.
I
t
Inventory (in units) at the end of period t.
P
t
The production rate in period t. This is the number of units produced in period t.
D
t
Number of units demanded in period t.
R Number of units produced by one worker per period.
The objective function is to minimize the sum of the hiring, firing, overtime, regular time, and carrying costs.
The first constraint is the inventory balancing equation, which requires the new inventory at the end of period t to
be equal to the old inventory plus what is produced minus what is sold. The second constraint defines the
number of units produced in period t as a function of the number of workers working in that period. The third
constraint limits overtime labor hours to 1.5 times the regular time labor hours. Finally, the fourth constraint
defines the number of regular time workers as the old number plus the number hired less the number fired.
Although the model has been around for a long time, very few firms have found it useful. The basic model
requires the assumption that demand is known with certainty, which is usually far from reality. The model also
requires the estimation of a number of cost parameters, such as the firing cost, hiring cost, and carrying cost,
which are often hard to estimate. Finally, the linear programming modeling approach does not seem to fit well
with the organizational dynamics that surround such difficult decisions as firing employees or building inventory.
See aggregate inventory management, anticipation inventory, Business Requirements Planning (BRP),
carrying charge, carrying cost, chase strategy, flexibility, hockey stick effect, level strategy, linear programming
(LP), Master Production Schedule (MPS), Materials Requirements Planning (MRP), Resource Requirements
Planning (RRP), Rough Cut Capacity Planning (RCCP), Sales & Operations Planning (S&OP), seasonality,
time bucket, unit of measure.
production smoothing – See heijunka.
productivity – A measure of the value produced by a system for a given level of inputs.
Productivity is normally defined and measured as the ratio of an output measure divided by an input measure
(e.g., hamburgers created per hour). It is a measure of how well a country, industry, business unit, person, or
machine is using its resources. Productivity for a firm can be compared to another firm or to itself over time.
Total factor productivity is measured in monetary units. Partial factor productivity is measured in
individual inputs or monetary units. For example, labor productivity could be measured as units per labor hour.
Partial factor productivity can be misleading because a decline in the productivity of one input may be due to
an increase in the productivity of another input. For example, a firm might improve labor productivity by
outsourcing production, but find that the overall cost per unit is up due to the high cost of managing the
outsourcing partner.
Whereas total factor productivity is total output divided by total input, partial factor productivity can be
defined as output/labor hour, output/capital, output/materials, output/energy, etc. Multi-factor productivity is
defined as output/(labor + capital + energy), output/(labor + materials), etc.
Many firms define and report productivity in terms of cost/unit, which is really the inverse of productivity.
This is not output divided by input, but rather input (cost) divided by output (units). For example, a firm
consumed 2400 hours of labor to process 560 insurance forms. What is the labor productivity? Answer:
2400/560 = 4.29 forms/hour. However, the firm prefers to express this in terms of hours per form (e.g., 0.23
hours/form) and dollars/form (e.g., $4.67/form).
The above definition of productivity is indistinquishable from the economics definition of efficiency.
However, the industrial definition of efficiency is quite different from the above definition of productivity.
See Data Envelopment Analysis (DEA), earned hours, efficiency, High Performance Work Systems (HPWS),
human resources, job design, operations performance metrics, Overall Equipment Effectiveness (OEE), Results-
Only Work Environment (ROWE), utilization.
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product-process matrix − program
Page 279 The Encyclopedia of Operations Management
product-process matrix – A descriptive model that relates the production volume requirements to the type of
production process.
The product-process matrix
Product structure/product life cycle
Production volume Very low Low Medium High Very high
Flexibility &
unit cost
Standardization None Very low Low High Very high
Number of
products
Very high Many Many Few Very few
Process structure/process life cycle
No flow
(project layout)
Project
(e.g., building,
ship building)
NOT
FEASIBLE
NOT
FEASIBLE
High
Jumbled flow
(job shop)
Job shop
(e.g., printer,
restaurant)
NOT
FEASIBLE
Disconnected
line flow
(batch)
Batch
(e.g., heavy
equipment)
Connected line
flow
(assembly line)
NOT
FEASIBLE
47
Assembly line
(e.g., autos,
Burger King)
Continuous
flow
(continuous)
NOT
FEASIBLE
48
NOT
FEASIBLE
Continuous
(e.g., refinery,
consumer
products)
Low
Adapted from Hayes & Wheelwright 1979a, 1979b
The product-process matrix was first introduced by Robert H. Hayes and Steven C. Wheelwright in two
Harvard Business Review articles published in 1979 entitled “Link Manufacturing Process and Product Life
Cycles” and “The Dynamics of Process-Product Life Cycles” (Hayes & Wheelwright 1979a, 1979b). The matrix
consists of two dimensions, product structure/product life cycle and process structure/process life cycle. The
process structure/process life cycle dimension describes the process choice (job shop, batch, assembly line, and
continuous flow) and process structure (jumbled flow, disconnected line flow, connected line flow and
continuous flow), while the product structure/product life cycle describes the four stages of the product life cycle
(low to high volume) and product structure (low to high standardization).
Later writers have added an additional stage in the upper-left for the project layout. The product-process
matrix is shown below with some examples along the main diagonal. Many authors argue that the ideal
configuration is the main diagonal (the shaded boxes in the matrix) so that the product and process match.
Others point out that mass customization and flexible manufacturing systems are strategies to move down the
matrix while still offering product variety.
See facility layout, Flexible Manufacturing System (FMS), mass customization.
profit center – An accounting term for an area of responsibility held accountable for its contribution to profit.
Multi-divisional firms often hold each division responsible for its own profit. However, most public firms do
not report profits for each profit center to external audiences.
See cost center, investment center, revenue center.
program – A set of projects that are coordinated to achieve certain organizational objectives.
A program is an on going activity with no set end date with a long-term goal, usually implemented with a
series of many interrelated projects. Programs are often managed by a program management office (PMO)
47
In some cases, it is possible to still have an assembly line for low-volume products by using mixed model assembly.
48
It is possible to have continuous flow for low-volume products by using automation and mass customization strategies.
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program management office – project charter
The Encyclopedia of Operations Management Page 280
with a dedicated leadership team. An example of a program might be a process improvement program, such as
lean sigma, or a large-scale construction project, such as a nuclear reactor that requires years to complete.
See program management office, project charter, project management.
program management office – An individual or group of people who are charged with overseeing a set of
projects intended to achieve some overarching objective; often called a PMO.
One of the keys to success of process improvement programs, such as lean sigma, is managing the hopper of
potential projects so the firm is carefully selecting the projects from a strategic point of view and matching them
to resources (black belts and green belts) to develop the leadership capability in the firm. According to Englund,
Graham, and Dinsmore (2003, p. xii), “The project office adds value to the organization by ensuring that projects
are performed within procedures, are in line with organizational strategies, and are completed in a way that adds
economic value to the organization.”
A research project by Zhang, Hill, Schroeder, and Linderman (2008) found two keys to success for any
process improvement program: Strategic Project Selection (SPS) and Discipline Project Management
(DPM). The research found a causal linkage from DPM to SPS to operating performance. SPS and DPM are
both outcomes of a well-managed program management office.
Other related terms include project management office and project control (Englund, Graham, & Dinsmore
2003). Still other firms use the name of the program to name the office (e.g., lean sigma champion, lean
promotion office, director of management information systems, etc.). These programs could be related to new
product development projects, building projects, process improvement projects, or marketing research projects.
See champion, lean promotion office, lean sigma, lean thinking, process improvement program, program,
project charter, project hopper, project management.
project – See project management.
project charter – A document that clearly defines the key attributes of a project, such as the purpose, scope,
deliverables, and timeline; closely related to a statement of work (SoW).
The charter is essentially an informal contract between the project sponsor and the project leader and team.
Like a good product design or building blueprint, a well-designed project charter provides a strong foundation for
a successful project.
The following project charter format has been developed over the course of several years by Gene Heupel
and Professor Arthur Hill. Mr. Heupel was the Director of Project Control at Xcel Energy for many years and is
now the president of GMHeupel Associates, a consultancy that provides process improvement and project
management services. This framework draws from his experience, a large number of company examples, and
the Project Management Institute’s recommended format.
• Project name: Usually a short descriptive name.
• Project number: Often a budget number or project designator in the “portfolio” of projects.
• Problem: A clear and concise business case for the project. This statement should include enough
background to motivate the project. (See the business case entry for detailed suggestions on how to write a
business case.)
• Objectives: The targeted benefits (improvement) in cost, sales, errors, etc. This requires selection of the
metrics to be used and the target values for these metrics. In some cases, the benefits may be hard to
quantify (e.g., customer satisfaction); however, in general, it is best to define quantifiable objectives. Some
firms require separate sections for “financial impact” and “customer impact.”
• Deliverables: A list of products to be delivered (e.g., improved procedures, NPV analysis, training,
implementation plan) and how these will be delivered to the project sponsor (e.g., workshop, PowerPoint
presentation, Excel workbook, or training).
• Scope: A clear statement of the project boundaries, including clear and deliberate identification of what is
out of scope. Many experts break this section into “inclusions” and “exclusions.”
• Assumptions: Key beliefs about the problem (e.g., an assumption that the process improvement efforts will
not require changes to the information systems).
• Schedule: A short list of the most important planned completion dates (milestones) for each of the main
activities and deliverables in the project.
• Budget: The estimated labor hours and cost for key resources plus any other expenses.
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Project Evaluation and Review Technique (PERT) − project hopper
Page 281 The Encyclopedia of Operations Management
• Risk mitigation: The barriers that might keep the project from being completely successful, including a
statement about how these should be addressed. For example, a project might be at risk if one user group
fails to embrace a new process. The mitigation for this might be to assign a key representative of this user
group to the process design team and to provide training for all the users before the new process is
implemented.
• Team: A list of the team members’ names and titles along with their roles (e.g., team leader, team member,
team support person). Some organizations add planned utilization, start dates, and end dates. Subject matter
experts (SMEs) should also be listed with an explanation of their roles (e.g., advising, reviewing, etc.).
SMEs are not formal team members and therefore can be included without increasing the size of the team.
• Sponsor: The name of the project sponsor or sponsors. Sponsors should be included from every
organization that is significantly impacted by the project.
• Approvals: Signatures from all project sponsors before the project is started. It is important to revise the
charter and get new approvals whenever the scope is changed. In some situations, such as new product
development, signoffs are required at the end of each phase of the project.
A statement of work (SoW) is a description of the business need, scope, and deliverables for a project. The
SoW usually follows the project charter and provides more detail. However, some organizations use a SoW in
place of a project charter. At a minimum, the SoW should include the business need, scope, and deliverables.
However, some experts insist that the SoW also include acceptance criteria and schedule. Still others include all
the details of the project charter, including executive summary, background, objectives, staffing, assumptions,
risks, scope, deliverables, milestones, and signatures.
See A3 Report, business case, champion, change management, deliverables, implementation, lean sigma,
lean thinking, New Product Development (NPD), post-project review, program, program management office,
project management, RACI Matrix, scope creep, scoping, sponsor, stage-gate process, stakeholder, stakeholder
analysis, Subject Matter Expert (SME).
Project Evaluation and Review Technique (PERT) – A project planning and scheduling method developed
by the U.S. Navy for the Polaris submarine project.
In its original form, PERT required each task to have three task time estimates: the optimistic task time (a),
the most likely task time (m), and the pessimistic task time (b) (Malcolm, Roseboom, Clark, & Fazar, 1959). The
expected task time is then estimated as E(T) = (a + 4m + b)/6 and the task time variance as V(T) = (b a)
2
/36.
These equations were supposedly based on the beta distribution. Sasieni (1986) asserts that these equations have
little scientific basis, but Littlefield and Randolph (1987) attempt to refute Sasieni’s assertions. In this author’s
view, Sasieni was probably closer to the truth on this issue.
The expected critical path time is estimated by adding the expected times for the tasks along the critical path;
similarly, the variance of the critical path time is estimated by adding the variances along the critical path. The
earliest and latest project completion time are then estimated as the expected critical path time plus or minus z
standard deviations of the critical path time.
This approach assumes that (1) the distribution of the project completion time is determined only by the
critical path time (i.e., that no other path could become critical), (2) the project completion time is normally
distributed, and (3) the equations for the mean and variance are correct. In reality, these assumptions are almost
always incorrect. Few organizations find that the three-task time approach is worth the time, confusion, or cost.
See beta distribution, critical chain, Critical Path Method (CPM), project management, slack time, work
breakdown structure (WBS).
project hopper – A simple tool that helps a process improvement program leader (champion) manage the set of
current and potential projects.
The project hopper is a tool used to help store and prioritize potential process improvement projects. This is
usually done with an Excel workbook. Ecolab and other firms prioritize potential projects based on two
dimensions: (1) benefits (sales growth, cost reduction, improved service) and (2) effort (cost, resources, time to
achieve benefits). Ecolab graphs each project on these two dimensions and uses that information as a visual tool
to help managers prioritize potential projects
49
. Preliminary project charters are then written for the most
49
The is from a private conversation with Cathy Clements, former Vice President, Fueling the Future, Ecolab, in 2007.
ptg6843605
project management – project management
The Encyclopedia of Operations Management Page 282
promising projects, and then the benefit and cost assessment is performed one more time to select which projects
to charter, resource, and initiate.
See lean sigma, process improvement program, program management office.
project management – The planning, organizing, scheduling, directing, and controlling of a one-time activity to
meet stakeholder-defined goals and constraints on scope, schedule, and cost.
According to the Project Management Institute’s Project Management Body of Knowledge (PMBOK 1996,
p. 167), “A project is a temporary endeavor undertaken to create a unique product or service.”
Key success factors for project management include conducting a careful stakeholder analysis, creating a
clear project charter with well-defined roles and responsibilities (using the RACI Matrix), assigning a strong
project leader, avoiding scope creep, and finally conducting a careful post-project review (also called a post-
mortem review) so the organization learns from its project management mistakes and successes.
Well-managed projects also make proper trade-offs between the goals of time, cost, and scope (as illustrated
by the project management triangle). The project management triangle emphasizes the point that all projects
require trade-offs between scope (quality), cost, and time. See the project management triangle entry.
In most cases, the ideal project team will not have more than five or six members. If additional expertise is
needed, Subject Matter Experts (SMEs) can assist the team, but need not be on the team. SMEs should be listed
in the project charter. The project should have one or more clearly defined sponsors who have signed the charter.
This author has collected and adapted the following list of pessimistic project management “laws” (with a
little humor) over many years. Of course, well-managed organizations do not have to be victims of these laws.
• Murphy’s Law: If it can go wrong, it will.
• Second Law of Thermodynamics (Law of Entropy): All systems tend toward their highest state of
disorder. (Murphy’s Law is an application of this law.)
• Parkinson’s Law: Work expands to fill the time allotted to it. (Parkinson’s exact wording was “Work
expands so as to fill the time available for its completion.”) This is only one of many laws found in his book
(Parkinson 1958).
• The Pi Rule: Poorly managed projects take pi (π ≈ 3.1416.) times longer than originally planned. People
tend to think that the path is across the diameter of the circle, when it is in fact the entire circumference.
• The optimistic time estimate law: Projects rarely do what was promised and are rarely completed on time,
within budget, or with the same staff that started them. Corollary a: It is highly unlikely that your project
will be the first exception. Corollary b: A carelessly planned project will take π ≈ 3.1416 times longer to
complete than expected, and a carefully planned project will take only e ≈ 2.7183 times as long. Corollary
c: When the project is going well, something will go wrong. Corollary d: When things cannot get any
worse, they will. Corollary e: When things appear to be going better, you have overlooked something.
• The last 10 percent law: Projects progress rapidly until they are 90 percent complete. The last 10 percent
takes about 50 percent of the time.
• Brooke’s Law: Adding people to a late project generally makes it later.
• The project employment law: A project requiring more than 18 months tends to lose its identity as a
project and becomes a permanent part of the organization. Corollary: If the project objectives are allowed
to change freely, the team might unintentionally turn the project into guaranteed long-term employment.
• The project charter law: A project without a clearly written charter will experience scope creep and will
help stakeholders discover their organization’s worst political problems.
• The project correction law: The effort required to correct a project that is off course increases every day it
is allowed to continue off course.
• The matrix organization law: Matrix organizations tend to be dysfunctional. All employees really have
only one boss and that is the person who makes their next salary decision. (However, matrix organizations
are essential in the modern firm, particularly for project management.)
• The project leader law: A great way to sabotage an important project is to assign whoever is completely
available as the project leader.
• The technical leadership law: The greater the project’s scope and organizational complexity, the less likely
a technician is needed to manage it. Corollary: Get the best project manager who can be found. A good
project manager will find the right technical people for the project.
ptg6843605
Project Management Institute (PMI)
−
project team
Page 283 The Encyclopedia of Operations Management
Time
Cost
Sco
p
e
•
The belief in the system law:
If the user does not believe in the system, a parallel informal system will be
developed, and neither will work very well.
•
The post-project review law:
Organizations that do not have a disciplined post-project review process are
doomed to repeat their mistakes over and over again.
Project Management Institute’s
Project Management Body of Knowledge
(PMBOK) is the accepted
standard for project management practices. Another source of project management knowledge is the
Automotive
Project Management Guide
published by AIAG (Automotive Industry Action Group, www.aiag.org). AIAG
publishes a set of books used by Ford, GM, and others for managing automotive projects and suppliers. Brown
and Hyer (2009) wrote a good project management book entitled
Managing Projects: A Team-Based Approach
.
See 6Ps, change management, co-location, committee, co-opt, critical chain, critical path, Critical Path
Method (CPM), cross-functional team, Design Structure Matrix (DSM), Earned Value Management (EVM),
facility layout, finite scheduling, forming-storming-norming-performing model, Gantt Chart, groupware, infinite
loading, issue log, just do it, load, load leveling, matrix organization, milestone, Murphy’s Law, New Product
Development (NPD), Parkinson’s Laws, post-project review, process improvement program, program, program
management office, project charter, Project Evaluation and Review Technique (PERT), Project Management
Institute (PMI), project management triangle, project network, scope creep, scoping, slack time, sponsor, stage-
gate process, stakeholder, stakeholder analysis, steering committee, Subject Matter Expert (SME), waterfall
scheduling, work breakdown structure (WBS).
Project Management Institute (PMI) – The leading association for the project management profession.
Founded in 1969, PMI is one of the world’s largest professional membership associations, with a half million
members and credential holders in more than 180 countries. It is a not-for-profit organization that advances the
project management profession through globally recognized standards and certifications, collaborative
communities, an extensive research program, and professional development opportunities. PMI’s Project
Management Professional certification is the most widely recognized in the profession.
The latest version of PMI’s
A Guide to the
Project Management Body of Knowledge
can be purchased from
the PMI website (www.pmi.org).
See operations management (OM), project management.
project management office – See program management office.
project management triangle – A graphic used to emphasize that projects require trade-offs
between time, cost, and scope and that the project sponsor can usually only control two of
these; also called the project triangle and the triple constraint.
The graphic on the right shows the three goals of most projects – time, cost, and
scope. Scope is sometimes replaced by quality or features.
One humorous way to use this tool is to fold a piece of paper into a triangle
and hand it to the project sponsor or user. The sponsor will invariably take it
with two hands and grasp two sides. The point is then made that the sponsor
can control two sides, but the third side must be under control of the project
team.
See project management, scope creep, sponsor.
project network – A database that shows the predecessor/successor relationships between the pairs of activities
required to complete a project.
For the pair A
B, activity A is called the predecessor and B the successor. A predecessor activity usually
needs to be completed before the successor can be started. However, four possible types of logical relationships
are possible in most modern project management software packages:
• Finish-to-start – The “from” activity must finish before the “to” activity may start.
• Finish-to-finish – The “from” activity must finish before the “to” activity may finish.
• Start-to-start – The “from” activity must start before the “to” activity may start.
• Start-to-finish – The “from” activity must start before the “to” activity may finish.
See Critical Path Method (CPM), mindmap, project management, slack time.
project team – See project management.
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promotion – (1) Marketing communications used in the marketplace (e.g., advertisements). (2) A temporary price
reduction often accompanied by advertising.
Promotion is one of the four “P’s” of the marketing mix (product, price, place, and promotion). Everyday
low pricing (EDLP) avoids price reductions and encourages customers to reduce forward buying and stabilize
demand.
See forward buy.
prospective validation – See process validation.
prototype – In the product development context, an example built for evaluation purposes.
A prototype is a trial model used for evaluation purposes or a standard for subsequent units produced.
Prototypes are often built quickly to help users evaluate features and capabilities. In the software development
context, prototyping is particularly important for getting user input before the final design is implemented.
Prototyping is closely related to the software development concept of agile design.
A beta test is the test of new software by a user under actual work conditions and is the final test before the
software is released. In contrast, an alpha test is the first test conducted by the developer in test conditions.
See agile software development, beta test, breadboard, catchball, New Product Development (NPD), pilot
test, scrum, sprint burndown chart.
pseudo bill of material – See bill of material (BOM).
public warehouse – See warehouse.
public-private partnership – A form of cooperation between government and private enterprise with the goal of
providing a service to society through both private for-profit and not-for-profit organizations.
For example, PPL (http://www.pplindustries.org) is a public-private partnership in the city of Minneapolis,
Minnesota, that has served Hennepin County for more than thirty years. The mission of PPL is to “work with
lower-income individuals and families to achieve greater self-sufficiency through housing, employment training,
support services, and education.” One of PPL’s main divisions is called “PPL Industries Disassembly and
Reclamation,” which employs hundreds of ex-convicts to disassemble tens of thousands of electronic products,
such as televisions, stereos, telephones, VCRs, and computers collected by Hennepin County each year. This
service provides value to society by giving jobs and job training to just-released convicts, and it also helps
protect the environment.
See triple bottom line.
Pugh Matrix – A decision tool that facilitates a disciplined, team-based process for concept generation, evaluation,
and selection.
The Pugh Matrix is a scoring matrix that defines the important criteria for a decision, defines the weights for
each criterion, defines the alternatives, and then scores each alternative. The selection is made based on the
consolidated scores. The Pugh Matrix allows an organization to compare different concepts, create strong
alternative concepts from weaker concepts, and arrive at the best concept, which may be a variant of other
concepts. This tool is very similar to the Kepner-Tregoe Model.
Several concepts are evaluated according to their strengths and weaknesses against a reference concept called
the datum (base concept), which is the best current concept at each iteration of the methodology. The Pugh
Matrix encourages comparison of several different concepts against a base concept, creating stronger concepts
and eliminating weaker ones until an optimal concept is finally reached.
See Analytic Hierarchy Process (AHP), decision tree, Design for Six Sigma (DFSS), force field analysis,
Kano Analysis, Kepner-Tregoe Model, lean sigma, New Product Development (NPD), Quality Function
Deployment (QFD), TRIZ, voice of the customer (VOC).
pull system – A system that determines how much to order and when to order in response to customer demand,
where the customer may be either an internal or external customer.
All production and inventory control systems deal with two fundamental decision variables: (1) when to
order, and (2) how much to order. It is easiest to understand “push” and “pull” systems for managing these two
variables in a logistics context. Suppose, for example, a factory supplies two warehouses. With a push system,
the people at the factory decide when and how much to ship to each of the two warehouses based on forecasted
demand and inventory position information. With a pull system, the problem is disaggregated so the people at
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each warehouse decide when and how much to order from the factory based on their needs. Of course, the
factory might not have the inventory, so some of these orders might not be filled.
The following table compares push and pull systems.
A comparison of push and pull systems
Dimension Push Pull
Signal to produce more Schedule or plan Customer signal
Timing of signal Advance of the need At the time of the need
Typical signal Paper or computer Container, square, cart, or paper
Information scope Global Local only
Planning horizon Fairly long Very short
Level demand needed No Generally yes
Standard parts/products Not necessary Generally necessary
Large queues possible Yes No
Negatives Too much inventory
Not visual
Requires more information
Long planned leadtimes
No planning
Misses customer demand at the
beginning of the product life cycle and
too much inventory at the end
Best for Non-repetitive, batch, seasonal demand,
short product life cycles
Long leadtime purchasing
Repetitive, high-volume manufacturing,
with stable demand
Visibility Not visible Visible
Stress to improve Little Much
Problems found from Computer reports Shop floor/visible signals
Source: Professor Arthur V. Hill
Hopp and Spearman (2004) provide a different perspective in their comparison of push and pull systems.
They define a pull system as one that limits the amount of work in process that can be in the system and a push
system as one that has no limit on the amount of work in process that can be in the system. They argue further
that the definition of push and pull is largely independent of the make to order/make to stock decision.
See CONWIP, inventory management, kanban, lean thinking, push-pull boundary, repetitive manufacturing,
standard parts, two-bin system, warehouse.
purchase order (PO) – A commercial document (or electronic communication) that requests materials or services;
often abbreviated PO or P.O.
Purchase orders usually specify the quantity, price, and terms for the purchase. A purchase order may
request many different items, with each item having a separate “line.”
See Accounts Receivable (A/R), blanket purchase order, buyer/planner, Electronic Data Interchange (EDI),
interplant order, invoice, leadtime, lotsizing methods, manufacturing order, Materials Requirements Planning
(MRP), planned order, purchasing, requisition, service level, supplier.
purchasing – The business function (department) responsible for selecting suppliers, negotiating contracts, and
ensuring the reliable supply of materials; also known as procurement, supply management, supplier management,
supplier development, strategic sourcing, and buying.
The goals of a purchasing organization are usually defined in terms of on-time delivery, quality, and cost.
Some purchasing organizations, particularly in the larger firms, also get involved helping their suppliers improve
their performance. The sourcing, supplier scorecard, and spend analysis entries have much more information on
this topic.
Purchasing practices in the U.S. are constrained by a number of important laws. Bribery, kickbacks, price
fixing, and GATT rules are important issues for purchasing managers. See the antitrust law and GATT entries
for more details.
See Accounts Receivable (A/R), acquisition, antitrust laws, bill of lading, blanket purchase order, bribery,
business process outsourcing, buy-back contract, buyer/planner, commodity, due diligence, Electronic Data
Interchange (EDI), e-procurement, fixed price contract, forward buy, futures contract, General Agreement on
Tariffs and Trade (GATT), Institute for Supply Management (ISM), inventory management, invoice, joint