IB Business Management Unit 5: Operations Management Key Terms

Comprehensive question-and-answer flashcards covering key definitions, formulas, and concepts from IB Business Management Unit 5: Operations Management.

What is the fundamental purpose of operations management defined as 'adding value'?

To ensure through the production process that the price customers pay for a product is greater than the costs of producing it.

What are artificial neural networks (ANN)?

A feature of critical infrastructure referring to learning algorithms that can learn things, solve problems, and make decisions independently by processing new data as it is received.

How does the glossary define batch production?

An operations method involving the production of a set of identical products, where work on each batch is fully completed before production switches to another batch that may have slightly different specifications.

What is benchmarking in operations management?

The routine process of an organization comparing its products, processes (operations), and performance to that of its competitors or to its own historical standards or measures.

What formula is used to calculate the break-even quantity (BEQ)?

$$\text{BEQ} = \frac{\text{Fixed costs}}{\text{Price} - \text{Average variable cost}}$$

What is the difference between bulk-increasing industries and bulk-reducing industries?

Bulk-increasing industries locate near customers because the final product is bulkier and heavier than its raw materials; bulk-reducing industries locate near raw materials because the weight of the final output is less than that of the raw materials.

How is a firm's capacity utilization rate defined?

It measures a firm's actual output as a percentage of its capacity (maximum potential output) at a particular point in time.

What is the difference between capital-intensive production and labour-intensive production?

Capital-intensive production relies mainly on machinery and capital equipment, whereas labour-intensive production relies mainly on human labour inputs (physical and intellectual effort).

What does clustering mean in business location decisions?

It occurs when businesses choose to locate near other firms operating in related industries to benefit from passing trade and demand for products in complementary markets.

What are the four factors identified that affect the effectiveness of crisis management?

Communication, control, speed, and transparency.

How is contribution per unit calculated?

It is calculated as selling price minus average variable costs of production: $\text{P} - \text{AVC}$.

In a make or buy decision, what is the difference between Cost to Make (CTM) and Cost to Buy (CTB)?

Cost to Make (CTM) calculates the total cost of producing the product in-house, whereas Cost to Buy (CTB) calculates the total cost of subcontracting production to a third-party supplier.

What is the cradle to cradle (C2C) approach to waste management?

A lean approach involving sustainable, waste-free design and manufacturing where all material inputs can be recycled, reused, or are consumable or compostable.

How do descriptive, diagnostic, and predictive data analytics differ?

Descriptive analytics examines what has already happened, diagnostic analytics examines why something has happened, and predictive analytics examines what is likely to happen.

What is Digital Taylorism?

A management approach that relies on management information systems to improve productivity by managing employees and their tasks in the most systematic and methodical ways.

How does disruptive innovation differ from incremental innovation?

Disruptive innovation introduces a new good or service designed to replace an existing one by radically altering the market, whereas incremental innovation involves gradual but continual adjustments to an existing product or process.

What are footloose organizations?

Businesses that do not have to locate in any particular area and can choose to locate almost anywhere because there are no cost advantages tied to any specific location.

What is industrial inertia?

A condition that exists when a business chooses to remain in the same location even though there are no longer cost advantages in doing so.

What is job production?

An operations method involving the output of a customized or one-off good or service that meets the specific needs of a specific customer.

How does Just-in-case (JIC) stock control differ from Just-in-time (JIT)?

JIC requires holding large quantities of stock in case of unexpected orders or supply disruptions, while JIT is a lean method where materials arrive precisely when needed in production.

What is Kaizen?

A Japanese philosophy and process of lean production that involves making continuous improvements in small, incremental steps to achieve greater efficiency.

What is lead time in stock management?

The timeframe (or time lag) from when a business places an order for stock to when the firm receives delivery of the stock.

How is margin of safety defined?

The numerical difference between a firm's volume of sales and its break-even quantity.

What is mass customization?

An operations method that combines the benefits of mass production with the personalization of job production to meet the individual needs and preferences of customers.

What is operating leverage?

A measure of a firm's total fixed costs as a proportion of its total variable costs, meaning a business with relatively high fixed costs has high operating leverage.

What is the distinction between outsourcing, offshoring, and reshoring?

Outsourcing uses third parties for non-core activities, offshoring relocates functions overseas, and reshoring brings business functions back to the domestic country from overseas.

How does Quality Control (QC) differ from Quality Assurance (QA)?

QC is a traditional method where inspectors check output for defects periodically (usually at the end), whereas QA is a lean approach involving all employees throughout the quality process.

What is Total Quality Management (TQM)?

An approach to quality management that involves all workers having responsibility for maintaining quality standards throughout the entire production process.

What is the difference between quantifiable risks and unquantifiable risks?

Quantifiable risks are measurable threats that can be insured against (such as fire or theft), whereas unquantifiable risks are immeasurable and unpredictable threats that cannot be insured (such as the COVID-19 pandemic).

How do sunrise industries differ from sunset industries?

A sunrise industry is a growing industry with significant potential that justifies R&D spending, while a sunset industry is declining with no or negative growth, making R&D spending difficult to justify.

What is total contribution and how is it calculated?

The total difference between sales revenues and total variable costs ($\text{TVC}$), calculated as $(\text{Price} - \text{Average variable cost}) \times \text{Quantity}$, which contributes to paying fixed costs.

What does the concept of 'zero defects' focus on in lean production?

Preventing mistakes from being made by getting things done right the first time round.