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Essential Business Definitions

26 May 2019 · v1.2.0 · Prof. Dr. Ulrich Anders


Capacity is the number of units a system or facility can hold, receive, store, or produce in a period of time. Capacity in a period is the capacity that results from dividing the Operating Time of the system in the period by the Bottleneck Time.

Design Capacity is the maximum theoretical number of a system or facility. Effective Capacity is the maximum number that can be expected given current operating constraints.

Complexity means that a system can not easily be predicted or not even predicted at all in its behavior because the system has too many elements in it, which have mutual relationships that also behave nonlinear.


  • The purpose of a company is to continuously create valuable products (the WHAT) that have customer benefit from organising the utilization of resources (the HOW).
  • The value of a company results from its ability to (a) create products and to (b) sell them, (c) from how successfully it is doing both, and (d) from how likely it is expected to do so or better in the future.

Design is the considerate and explicit specification of:

  • Function — how and how good does the object function and fulfil its purpose.
  • Esthetics — how beautiful, simple, elegant, or pure is the object.
  • Information — what information does the object contain and how easy is this transported by:
    • explicit communication (how is information given?)
    • implicit usability (how much explanation does an object need?)
    • symbolics (what does the object represent?)

Efficiency is the ability to avoid wasting resources, such as materials, energy, efforts, money, and time when producing a result: Efficiency = Output / Effective Capacity

Effectiveness is the ability to achieve the desired effect, i.e. the desired output.

Flexibility is the ability to respond with little penalty in time, cost, or customer value.

Management is the task to organise the operating interaction of resources for achieving a certain objective and to decide accordingly.

Productivity = Output / Input

A Process is a set of sequential process steps to recurringly produce a specified output. Each process step can be comprised of a set of activities.

Process Measurements:

  • (Customer) Lead Time: The time between placing and receiving an order.

  • Process (Duration) Time: The time it takes to produce a unit from a process start to end, with waiting. Astonishingly, this can also be computed by

  • Process Time = Things-in-Process / Average Completion Rate. This is known as Little's Law after the mathematician who proved it.

  • Value-Added Time: The time for any process step or activity that transforms the form, fit, or function of the product that generates value from the customer perspective.

  • [Average] Completion Rate: The [average] number of outputs from a process over a defined period.

  • Process Efficiency = Value-Added Time / Process Time

  • Bottleneck Time: The time of the slowest process step (the one that takes the longest) in a process.

  • Time Trap: Any process step that inserts delay / waiting time into a process.

  • Tact Time: Time by which a process step has to be completed in order to synchronize the overall process.

  • Cycle Time: The time it takes for one process, process step or activity to complete before it starts anew.

  • Lot Sizes: The number of units in a set of the same type.

  • Setup Time: The time lapse between the end of processing one type of output and starting the process the next with a different type of output. The smaller the Setup Time, the smaller the Lot Sizes can be.

  • Operating Time: is the time a plant or company operates its processes.

  • Work-in-Progress (WIP): Any work item that has been started but not yet been completed.

  • Things-in-Process (TIP): Any item that has entered the process and not yet exited.

A Project is a one-time endeavor untertaken to achieve a clear goal (or set of goals). Projects are typically limited by budget, time, and resources.

Strategy is the set of activities planned to achieve a certain objective.

Utilization = Output / Design Capacity

© Prof. Dr. Ulrich

Last change: 2024-06-22|17:34


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