Business terms in Operations management

Creativity that improves, modifies or finds new uses for existing products, processes or ideas, usually to meet needs that customers already recognise.

Systematic and unfair discrimination in the outputs of an automated decision-making system, usually caused by biased training data or by the design of the algorithm.

A visual signal, usually a board of lights above a production line, that shows when and where a worker or machine has stopped production because of a problem, so that it can be fixed at once.

Research that uses existing knowledge to solve a specific practical problem or to develop a particular product or process.

The ability of computer systems to perform tasks that normally require human intelligence, such as recognising patterns, understanding language, learning from data and making decisions.

A computing system made of layers of connected nodes that learns to recognise patterns and make predictions by adjusting the strength (weight) of its connections as it is trained on examples.

Technology that adds computer-generated images or information to a live view of the real world, through a phone, tablet or glasses, such as showing how furniture would look in a room.

Research carried out to increase knowledge and understanding, without a specific commercial product or use in mind.

A method of production in which a group of identical products is made together, with each batch completing one stage of production before moving to the next.

The process of comparing a business's products, processes or performance with those of the best-performing organisations, in its own or another industry, and adopting their practices in order to improve.

Extremely large and complex sets of data, generated at high speed from many sources and in many formats, that need specialised technology and analytics to store, process and interpret.

Materials in a product, such as natural fibres, that are designed to biodegrade safely at the end of its life and return to the soil or water without causing harm.

A decision-making tool that uses fixed costs, variable costs and selling price to find the output at which total revenue equals total cost, and the profit or loss at other outputs.

A graph showing a business's fixed cost, total cost and total revenue lines against output, on which the break-even point is where the total revenue and total cost lines intersect.

The level of output at which total revenue equals total cost, so that the business makes neither a profit nor a loss; fixed costs divided by contribution per unit.

The value of sales at which total revenue equals total cost; the break-even quantity multiplied by the selling price.

The minimum level of stock a business aims to hold at all times as a safety margin against late deliveries or unexpectedly high usage.

The ability of an organisation to keep its essential activities running, or restore them quickly, during and after a disruption; a business continuity plan sets out how this will be done.

The maximum output a business can produce in a given period with its existing resources, such as its premises, machinery and workforce.

The percentage of a business's productive capacity that is actually being used in a period: actual output divided by productive capacity, multiplied by 100.

The output produced per unit of capital input, such as per machine, per machine hour or per dollar of capital, in a given period.

Describes production that uses a high proportion of machinery and equipment relative to labour, so that capital costs make up a large share of total costs.

A mark that a manufacturer places on a product to show that it meets the European Union's safety, health and environmental protection requirements, needed for many products to be sold in the European Economic Area.

The time during which machinery is stopped and reset to switch production from one product or batch to another, so that no output is made.

The delivery of computing services, such as data storage, processing power and software, over the internet from remote data centres owned by a provider, usually paid for according to use.

The process of preparing in advance for unexpected events that could disrupt a business, by identifying possible risks and deciding how the business would respond to each one.

The difference between sales revenue and variable costs, which is used first to pay a business's fixed costs and then provides its profit.

The selling price of one unit minus its variable cost per unit; the amount each unit sold adds towards fixed costs and then profit.

The total cost of buying a given quantity of a product or component from an external supplier: the price per unit multiplied by the quantity.

The total cost of producing a given quantity of a product or component in-house: total fixed costs plus average variable cost multiplied by the quantity.

An approach to design and manufacturing in which products are designed so that all their materials can be safely returned to nature or recovered and reused at the same quality, creating no waste.

An unexpected event or situation that threatens to cause serious harm to a business, its stakeholders or the public, and that needs an urgent response.

The steps an organisation takes to respond to a crisis once it has happened, to limit harm to people, operations, finances and reputation and return to normal as quickly as possible.

The essential physical and digital systems, such as energy, communications, data centres and payment networks, whose disruption would seriously harm the economy, public safety or the functioning of society.

A marketing scheme that rewards customers for repeat purchases, through points, discounts, member prices or other benefits, to encourage loyalty and to collect data on their buying behaviour.

Criminal activity carried out using computers, networks or the internet, or directed at them, such as hacking, data theft, phishing, fraud and ransomware attacks.

The technologies, processes and practices that protect computers, networks, programs and data from attack, damage or unauthorised access, including staff training and access controls.

The process of examining, cleaning, transforming and modelling data to discover useful information, draw conclusions and support decision-making, ranging from descriptive to predictive and prescriptive analysis.

A dedicated facility that houses computer servers, data storage and networking equipment, with the power, cooling and security needed to process and store data for one or many organisations.

The process of analysing large data sets with statistical and computational techniques to discover hidden patterns, relationships and trends that can inform business decisions.

A central store that combines data copied from many operational databases and other sources, organised for analysis and reporting rather than for day-to-day transactions.

An organised collection of structured data, stored electronically, that can be easily searched, sorted, updated, combined and analysed, usually held in linked tables of records and fields.

The percentage of total output that is faulty and fails to meet the required quality standard: defective units divided by total units produced, multiplied by 100.

The use of digital technology to standardise, measure and control work in detail, breaking jobs into simple tasks, setting targets and monitoring each worker continuously, as in Taylor’s scientific management.

An innovation that creates a new market or enters the bottom of an existing one with a simpler, cheaper or more convenient product, and improves until it displaces established products and firms.

The ability of an organisation to operate profitably and efficiently over the long term, using its resources in ways that allow it to survive, invest and grow.

The extent to which an organisation achieves its intended objectives, such as producing what customers want, at the quality they expect and when they need it.

How well an organisation uses its resources to produce output, measured by the inputs or cost needed for each unit of output, such as cost per unit or output per worker.

The use of technology by an employer to collect data on employees’ activities, location, communications or output, in order to manage performance, productivity, safety or security.

Operating in a way that does not damage the natural environment or use up natural resources faster than they can be replaced, for example by cutting emissions, waste and pollution.

The benefit a business can gain by being first to enter a new market or launch a new type of product, such as brand recognition, customer loyalty, economies of scale and control of patents.

The European Union law, in force since 2018, that regulates how organisations collect, store and use personal data, gives individuals rights over their data, and allows large fines for breaches.

A supply chain in which sourcing, production and distribution take place in several countries, linking suppliers, producers and customers across national borders.

A series of small improvements to an existing product, service or process that makes it better, cheaper or more convenient without changing its basic nature or the market it serves.

A geographical concentration of interconnected businesses, suppliers and related institutions in one industry, giving each firm access to shared skilled labour, specialist suppliers and knowledge.

The successful commercial introduction of a new or improved good, service or process, or of a new way of doing business, that creates value for customers and the business.

Creativity that produces completely new products, processes or ideas, often meeting needs that customers were not aware of before.

Bringing a business activity that was previously outsourced back in-house, so that it is carried out by the business's own employees and resources.

Creations of the mind, such as inventions, designs, brand names, software and artistic works, that can be owned and legally protected so that others cannot use them without permission.

The network of physical devices, such as machines, vehicles, meters and wearables, embedded with sensors, software and connectivity that collect and exchange data automatically over the internet.

The creation of a new product, device or process, or of a new idea for one, that did not exist before; it becomes an innovation only when brought successfully into use.

The international standard for quality management systems, setting requirements for how an organisation plans, controls and continuously improves its processes to meet customer needs; organisations are certified by independent bodies.

The international standard for environmental management systems, requiring an organisation to identify and control its environmental impacts, meet legal requirements and continuously improve its environmental performance.

A principle of the Toyota Production System in which machines or workers stop production as soon as an abnormality appears, so that faults are fixed at their source and defective output is not passed on.

A method of production in which a single, unique product or service is made to an individual customer’s specification, one job at a time, usually by skilled workers.

An approach to stock management in which a business holds large stocks of materials, components and finished goods as a buffer against supply disruption or unexpected rises in demand.

A method of lean production in which materials, components and finished goods are produced or delivered only when they are needed and in the quantities needed, so that very little stock is held.

A method of lean production in which all employees make frequent, small, incremental improvements to processes, products and working practices in order to remove waste and raise quality.

A signal, traditionally a card attached to a container of parts, that tells the previous stage of production or a supplier to make or deliver more of an item in a just-in-time pull system.

The cost of labour needed to produce one unit of output, found by dividing the wage cost per hour by the output per worker per hour; it combines wage rates with productivity.

The output produced per unit of labour input, such as per worker or per hour worked, in a given period.

Describes production that uses a high proportion of labour relative to machinery and equipment, so that labour costs make up a large share of total costs.

Needs that customers have but are not aware of, or cannot express, until a new product or service shows them what is possible.

The time between placing an order with a supplier and receiving the delivery.

An approach to operations that aims to minimise waste of all resources, including materials, time, space and labour, while meeting customer needs, so that output is produced with fewer inputs and at higher quality.

The percentage of a transport operator's available capacity, such as the seats on a flight, that is actually sold or used in a period.

The geographical site where a business carries out its production or other operations, chosen by weighing the costs and benefits of the alternative sites available.

The management of the movement and storage of materials, components and finished goods, and of the related information, from suppliers to a business and from the business to its customers.

A branch of artificial intelligence in which computer systems learn to make predictions or decisions from patterns in data, improving with experience, instead of following rules written by a programmer.

An organised system of people, hardware, software, data and procedures that collects, stores and processes data from inside and outside a business and gives managers information to plan, control and make decisions.

The amount by which actual or forecast output exceeds the break-even quantity, showing how far sales could fall before the business makes a loss.

A method of production that combines the high volume and low unit costs of mass production with the ability to tailor each product to an individual customer’s choices, usually using flexible technology.

A method of production in which large quantities of standardised products are made continuously, each unit moving from one stage to the next along a production line.

The highest level of stock a business plans to hold, reached when a delivery arrives; the buffer stock plus the reorder quantity.

The relocation of business activities to a country close to the home country, usually a neighbouring country with lower costs, combining lower costs with shorter and less risky supply chains.

The relocation of a business activity, such as manufacturing or customer service, from the home country to another country, either to the business's own operations abroad or to a foreign subcontractor.

The extent to which a business's costs are fixed rather than variable, so that a change in sales revenue causes a more than proportionate change in profit before interest and tax.

The planning, organising, controlling and improvement of the activities that transform resources into goods and services, so that they meet customers’ needs efficiently and effectively.

The five aspects of performance that operations managers aim to improve to satisfy customers and support a business’s strategy: quality, speed, dependability, flexibility and cost.

The transfer of a business activity, such as manufacturing, IT, cleaning or customer service, to an external business that carries it out under contract instead of the business doing it in-house.

The process of asking customers to return a product, or withdrawing it from sale, because it has been found to be faulty or unsafe.

The process of using resources such as land, labour, capital and enterprise to make goods or provide services that satisfy customers’ needs and wants.

A measure of the efficiency of production that compares the quantity of output with the quantity of inputs, such as workers, labour hours or machines, used to produce it.

Total output divided by total input, multiplied by 100, usually with both measured in money; a rate above 100% means output is worth more than the inputs used.

The regions of a break-even chart between the total revenue and total cost lines: the loss area left of the break-even point and the profit area to its right.

Factors affecting a location decision that are difficult to measure in money, such as infrastructure, access to markets, skilled labour, political stability, regulations and local culture.

The extent to which a good or service meets or exceeds customers' expectations and is fit for its intended purpose, consistently and at an acceptable price.

A system for preventing faults by setting and checking quality standards at every stage of production, from suppliers and design to delivery, so that output is right first time.

A small group of employees doing similar work who meet regularly to identify, analyse and solve problems related to quality and working methods, and present their solutions to management.

The process of checking finished output, or samples of it, against agreed standards, so that faulty products are found and rejected or reworked before they reach customers.

An agreed set of requirements for a product, service or management process, set by a national or international body, against which a business can be independently assessed and certified.

Factors affecting a location decision that can be measured numerically, such as the costs of land, labour and transport and the value of government incentives.

Research and development spending expressed as a percentage of sales revenue, used to compare how much businesses of different sizes invest in R&D.

The level of stock at which a new order is placed, equal to the buffer stock plus the usage rate multiplied by the lead time.

The amount of stock ordered each time an order is placed, equal to the maximum stock level minus the buffer stock.

The systematic investigation and creative work a business carries out to discover new knowledge and use it to develop new or improved goods, services and production processes.

The return of production or other business activities from another country to the business's home country, reversing an earlier decision to offshore them.

The process of identifying the risks a business faces and judging how likely each one is to happen and how serious its impact would be, so that the most important risks are planned for first.

Operating in a way that respects the rights and wellbeing of people, including employees, workers in the supply chain, customers and local communities, now and in the future.

A line graph showing the stock level of an item over time, with its maximum stock level, reorder level and buffer stock, used to plan when to reorder and how much to order.

The situation in which a business has no stock of an item left when it is needed, so that production stops or customers cannot be supplied.

The network of organisations, activities and resources involved in moving a good or service from raw materials, through production, to the final consumer.

The planning, coordination and control of all the activities and organisations in a supply chain, from sourcing raw materials to delivering the final product, so that it runs efficiently and meets customer needs.

The selling price per unit needed to achieve a target profit at a given level of output; fixed costs plus target profit divided by output, plus variable cost per unit.

The level of profit that a business sets out to achieve in a given period.

The level of output a business must sell to achieve a chosen target profit; fixed costs plus target profit, divided by contribution per unit.

Synthetic or mineral materials in a product, such as metals and plastics, that are designed to be recovered and reused in continuous industrial cycles without losing quality.

The contribution made by all the units sold in a period, equal to contribution per unit multiplied by quantity sold, or total revenue minus total variable costs.

An approach to quality in which every employee, in every department, is responsible for continuously improving quality to meet customers' needs, so that quality becomes part of the organisation's culture.

Confidential business information, such as a recipe, formula, process or customer list, that gives a business an advantage and is protected by keeping it secret rather than by registration.

The process by which an organisation converts inputs such as materials, labour, information and equipment into goods and services that are worth more to customers than the inputs alone.

Needs or problems of customers that existing goods and services do not satisfy, or satisfy only poorly, which a business can address with a new or improved product.

The quantity of an item of stock used or sold per period of time, such as 100 units per week.

A computer-generated, three-dimensional simulated environment that a user experiences and interacts with, usually through a headset, as if they were inside it; used for training, design and marketing.

Any activity or use of resources that adds cost or time but no value for the customer, such as excess stock, waiting, unnecessary movement, overproduction or defects; called muda in lean production.

A method of manufacturing that builds an object layer by layer from a digital design, so that each item can be different without new tools or moulds.