O

Objective function
The goal or function that is to be optimized in a model. Most often it is a cost function that should be minimized subject to some restrictions or a profit function that should be maximized subject to some restrictions.

Object-oriented programming (OOP)
Within computer programming, the use of coding techniques and tools that reflect the concept of viewing the business environment as a set of elements (or objects) with associated properties, e.g., data, data manipulation/actions, inheritance. The objects encapsulate, through data and functions, the properties of the business that are of interest.

Obligated material
Syn: Reserved material.

Observational research
A form of research (frequently used in marketing research) where data are gathered by direct observation of consumers in the market place. See: marketing research.

Obsolescence
1) The condition of being out of date. A loss of value occasioned by new developments that place the older property at a competitive disadvantage. A factor in depreciation. 2) A decrease in the value of an asset brought about by the development of new and more economical methods, processes, or machinery. 3) The loss of usefulness or worth of a product or facility as a result of the appearance of better or more economical products, methods, or facilities.

Obsolete inventory
Inventory items that have met the obsolescence criteria established by the organization. For example, inventory that has been superceded by a new model or otherwise made obsolescent. Obsolete inventory will never be used or sold at full value. Disposing of the inventory may reduce a company’s profit.

Occupational Safety and Health Act (OSHA)
A federal (U.S.) law that applies to all employers in the United States who are engaged in interstate commerce. Its purpose is to ensure safe and healthful working conditions by authorizing enforcement of the standards provided under the act.

Occurrence factor
Within the repair/remanufacturing environment, the occurrence factor is associated with how often a repair is required to bring the average part to a serviceable condition (some repair operations do not occur 100% of the time). The factor is expressed at the operation level in the routing. See: repair factor, replacement factor.

OC curve
Abbreviation for operating characteristic curve.

OCR
Abbreviation for optical character recognition.

OD
Abbreviation for organizational development.

ODD
Abbreviation for earliest operation due date.

OEM
Abbreviation for original equipment manufacturers.

Offal material
The by-product or waste of production processes, e.g., chips, shavings, and turnings.

Offer
A contractual communication that proposes definite terms. A contract is created if the other party accepts those terms.

Off-grade
A product whose physical or chemical properties fall outside the acceptable ranges.

Offload
To reschedule or use alternate routings to reduce the workload on a machine, work center, or facility.

Offset quantity
Syn: Overlap quantity.

Offsetting
Syn: Lead-time offset.

OJT
Abbreviation for on-the-job training.

One-card kanban system
A kanban system where only a move card is employed. Typically, the work centers are adjacent, therefore no production card is required. In many cases, squares located between work centers are used as the kanban system. An empty square signals the supplying work center to produce a standard container of the item. Syn: Single-card kanban system. See: Two-card kanban system.

One less at a time
A process of gradually reducing the lot size of the number of items in the manufacturing pipeline to expose, prioritize, and eliminate waste.

One-piece flow
A concept that items are processed directly from one step to the next, one unit at a time. This helps to shorten lead times and lines of communication, thus more quickly identifying problems.

One-to-one marketing
A marketing strategy for sending a particular message to a single customer, often assisted by a marketing database.

One-touch exchange of die (OTED)
The ideal of reducing or eliminating the setup effort required between operations on the same equipment.

On-hand balance
The quantity shown in the inventory records as being physically in stock.

Online processing
A method of computer processing in which data are processed immediately on entry into the computer.

Online service
The processing of transaction data as soon as the transaction occurs. It is real-time processing as opposed to batch processing. See: Real time.

On-order stock
The total of all outstanding replenishment orders. The on-order balance increases when a new order is released, and it decreases when material is received against an order or when an order is canceled.

On-the-job training (OJT)
Learning the skills and necessary related knowledge useful for the job at the place of work or possibly while at work.

On-time schedule performance
A measure (percentage) of meeting the customer’s originally negotiated delivery request date. Performance can be expressed as a percentage based on the number of orders, line items, or dollar value shipped on time.

OOP
Abbreviation for Object-oriented programming.

Open order
1) A released manufacturing order or purchase order. Syn: Released order. See: Scheduled receipt. 2) An unfilled customer order.

Open period
Accounting time period for which the books will still accept adjusting entries and postings. Ant: Closed period.

Open system architecture
The capability of software and diverse hardware environments to communicate with each other through the use of standard messaging and protocols respectively. See Modular system.

Open systems interconnection (OSI)
A seven-layer network system architecture that specifies how to communicate messages from an application on one computer to an application on another computer. Each layer is self contained, allowing for advances in one layer to be implemented without affecting the other layers. See Modular system.

Open-to-buy
A control technique used in aggregate inventory management in which authorizations to purchase are made without being committed to specific suppliers. These authorizations are often reviewed by management using such measures as commodity in dollars and by time period.

Open-to-receive
Authorization to receive goods, such as a blanket release, firm purchase order item, or supplier schedule. Open-to-receive represents near-term impact on inventory, and is often monitored as a control technique in aggregate inventory management. The total of open-to-receive, other longer term purchase commitments, and open-to-buy represents the material and services cash exposure of the company.

Operating assets
An accounting/financial term representing the resources owned by a company for productive purposes (to generate a profit) including cash, accounts receivable, inventories, equipment, and facilities.

Operating characteristic curve (OC curve)
A graph used to determine the probability of accepting lots as a function of the quality level of the lots or processes when using various sampling plans. There are three types: Type A curves, which give the probability of acceptance for an individual lot coming from finite production (will not continue in the future); Type B curves, which give the probability of acceptance for lots coming from a continuous process; and Type C curves, which, for a continuous sampling plan, give the long-run percentage of product accepted during the sampling phase.

Operating cycle
The three primary activities of a company are purchasing, producing, and selling a product. The operating cycle is calculated by adding the inventory conversion period to the receivables conversion period.

Operating efficiency
A ratio (represented as a percentage) of the actual output of a piece of equipment, department, or plant as compared to the planned or standard output.

Operating environment
The global, domestic, environmental, and stakeholder influences that affect the key competitive factors, customer needs, culture, and philosophy of each individual company. This environment becomes the framework in which business strategy is developed and implemented. Syn: business environment.

Operating expense
In the theory of constraints, the quantity of money spent by the firm to convert inventory into sales in a specific time period.

Operating profit margin ratio
Earnings before interest and taxes divided by sales.

Operating system
A set of software programs that control the execution of the hardware and application programs. The operating system manages the computer and network resources through storage management, disk input/output, communications linkages, program scheduling, and monitoring system usage for performance and cost allocations.

Operation
1) A job or task, consisting of one or more work elements, usually done essentially in one location. 2) The performance of any planned work or method associated with an individual, machine, process, department, or inspection. 3) One or more elements that involve one of the following: the intentional changing of an object in any of its physical or chemical characteristics; the assembly or disassembly of parts or objects; the preparation of an object for another operation, transportation, inspection, or storage; planning, calculating, or giving or receiving information.

Operational performance measurements
1) In traditional management, performance measurements related to machine, worker, or department efficiency or utilization. These performance measurements are usually poorly correlated with organizational performance. 2) In theory of constraints, performance measurements that link causally to organizational performance measurements. Throughput, inventory, and operating expense are examples. See: global performance measurements, local performance measurements, strategic performance measurements.

Operational plan(s)
The set of short-range plans and schedules detailing specific actions. Operational plans are more detailed than strategic and tactical plans and cover a shorter time horizon. See: operational planning, strategic plan, tactical plan.

Operational planning
The process of setting goals and targets and establishing measures constrained by and targeted for achieving the strategic and tactical plans. See: operational plan, strategic planning, tactical planning.

Operation chart
Syn: routing.

Operation costing
A method of costing used in batch manufacturing environments when products produced have common, as well as distinguishing, characteristics; for example, suits. The products are identified and costed by batches or by production runs, based on the variations.

Operation description
The details or description of an activity or operation to be performed. The operation description is normally contained in the routing document and could include setup instructions, operating instructions (feeds, speeds, heats, pressure, etc.), and required product specifications or tolerances.

Operation due date
1) The date when an operation should be completed so that its order due date can be met. It can be calculated based on scheduled quantities and lead times. 2) A job sequencing algorithm (dispatching rule) giving earlier operation due dates higher priority.

Operation duration
The total time that elapses between the start of the set up of an operation and the completion of the operation. Syn: operation time.

Operation list
Syn: routing.

Operation number
A sequential number, usually two, three, or four digits long, such as 010, 020, 030, that indicates the sequence in which operations are to be performed within an item’s routing.

Operation overlapping
Syn: overlapped schedule.

Operation priority
1) The relative importance an operation is given based on its scheduled due date and/or start date, usually as determined by the back-scheduling process. 2) The relative importance a job is given in a queue of jobs by a priority dispatching heuristic such as shortest processing time first or least slack remaining first.

Operation/Process yield
The ratio of usable output from a process, process stage, or operation to the input quantity, usually expressed as a percentage.

Operation reporting
The recording and reporting of every manufacturing (shop order) operation occurrence on an operation-to-operation basis.

Operation setback chart
A graphical display of the bill of materials and lead-time information provided by the routing for each part. The horizontal axis provides the lead time from raw materials purchase to component manufacture to assembly of the finished product.

Operation sheet
Syn: routing.

Operations management
1) The planning, scheduling, and control of the activities that transform inputs into finished goods and services. 2) A field of study that focuses on the effective planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the operation.

Operations planning
The planning of activities that transform inputs into finished goods and services.

Operation splitting
Syn: lot splitting.

Operations research
1) The development and application of quantitative techniques to the solution of problems. More specifically, theory and methodology in mathematics, statistics, and computing are adapted and applied to the identification, formulation, solution, validation, implementation, and control of decision-making problems. 2) An academic field of study concerned with the development and application of quantitative analysis to the solution of problems faced by management in public and private organizations. Syn: management science.

Operations scheduling
The actual assignment of starting or completion dates to operations or groups of operations to show when these operations must be done if the manufacturing order is to be completed on time. These dates are used in the dispatching function. Syn: detailed scheduling, order scheduling, shop scheduling.

Operations sequence
The sequential steps for an item to follow in its flow through the plant. For instance, operation 1: cut bar stock; operation 2: grind bar stock; operation 3: shape; operation 4: polish; operation 5: inspect and send to stock. This information is normally maintained in the routing file.

Operations sequencing
A technique for short-term planning of actual jobs to be run in each work center based upon capacity (i.e., existing workforce and machine availability) and priorities. The result is a set of projected completion times for the operations and simulated queue levels for facilities.

Operation start date
The date when an operation should be started so that its order due date can be met. It can be calculated based on scheduled quantities and lead times or on the work remaining and the time remaining to complete the job.

Operation time
The total of set up and run time for a specific task. Syn: operation duration.

Opportunity cost
1) The return on capital that could have resulted had the capital been used for some purpose other than its present use. 2) The rate of return investors must earn to continue to supply capital to a firm.

Optical character
A printed character frequently used in utilities billing and credit applications that can be read by a machine without the aid of magnetic ink.

Optical character recognition (OCR)
A mechanized method of collecting data involving the reading of hand-printed material or special character fonts. If handwritten, the information must adhere to predefined rules of size, format, and locations on the form.

Optical scanning
A technique for machine recognition of characters by their images.

Optimization
Achieving the best possible solution to a problem in terms of a specified objective function.

Option
A choice that must be made by the customer or company when customizing the end product. In many companies, the term option means a mandatory choice from a limited selection. See: feature.

Optional replenishment model
A form of independent demand item management model in which a review of inventory on hand plus on order is made at fixed intervals. If the actual quantity is lower than some predetermined threshold, a reorder is placed for a quantity M – x, where M is the maximum allowable inventory and x is the current inventory quantity. The reorder point, R, may be deterministic or stochastic, and in either instance is large enough to cover the maximum expected demand during the review interval plus the replenishment lead time. The optional replenishment model is sometimes called a hybrid system because it combines certain aspects of the fixed reorder cycle inventory model and the fixed reorder quantity inventory model. See: fixed reorder cycle inventory model, fixed reorder quantity inventory model, hybrid inventory system, independent demand item management models.

Option overplanning
Typically, scheduling extra quantities of a master schedule option greater than the expected sales for that option to protect against unanticipated demand. This schedule quantity may only be planned in the period where new customer orders are currently being accepted, typically just after the demand time fence. This technique is usually used on the second level of a two-level master scheduling approach to create a situation where more of the individual options are available than of the overall family. The historical average of demand for an item is quantified in a planning bill of material. Option overplanning is accomplished by increasing this percentage to allow for demands greater than forecast. See: demand time fence, hedge, planning bill of material.

Order
A general term that may refer to such diverse items as a purchase order, shop order, customer order, planned order, or schedule.

Order backlog
Syn: backlog, past due order.

Order control
Control of manufacturing activities by individual manufacturing, job, or shop orders, released by planning personnel and authorizing production personnel to complete a given batch or lot size of a particular manufactured item. Information needed to complete the order (components required, work centers and operations required, tooling required, etc.) may be printed on paper or tickets, often called shop orders or work orders, which are distributed to production personnel. This use of order control sometimes implies an environment where all the components for a given order are picked and issued from a stocking location, all at one time, and then moved as a kit to manufacturing before any activity begins. It is most frequently seen in job shop manufacturing. See: shop floor control.

Order dating
Syn: order promising.

Order entry
The process of accepting and translating what a customer wants into terms used by the manufacturer or distributor. The commitment should be based on the available-to-promise line (ATP) in the master schedule. This can be as simple as creating shipping documents for finished goods in a make-to-stock environment, or it might be a more complicated series of activities, including design efforts for make-to-order products. See: master schedule, order service.

Order-fill ratio
Syn: customer service ratio.

Ordering cost
Used in calculating order quantities, the costs that increase as the number of orders placed increases. It includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable. See: acquisition cost, inventory costs.

Order interval
The time period between the placement of orders.

Order level system
Syn: fixed reorder cycle inventory model.

Order losers
Capabilities of an organization in which poor performance can cause loss of business. Failure to meet customer expectations with delivery of the product is an order loser. See: order qualifiers, order winners.

Order management
The planning, directing, monitoring, and controlling of the processes related to customer orders, manufacturing orders, and purchase orders. Regarding customer orders, order management includes order promising, order entry, order pick, pack and ship, billing, and reconciliation of the customer account. Regarding manufacturing orders, order management includes order release, routing, manufacture, monitoring, and receipt into stores or finished goods inventories. Regarding purchasing orders, order management includes order placement, monitoring, receiving, acceptance, and payment of supplier.

Order multiples
An order quantity modifier applied after the lot size has been calculated that increases the order quantity to a predetermined multiple.

Order penetration point
The key variable in a logistics configuration; the point (in time) at which a product becomes earmarked for a particular customer. Downstream from this point, the system is driven by customer orders; upstream processes are driven by forecasts and plans. Syn: principle of postponement.

Order picking
Selecting or “picking” the required quantity of specific products for movement to a packaging area (usually in response to one or more shipping orders) and documenting that the material was moved from one location to shipping. Syn: order selection. See: batch picking, discrete order picking, zone picking.

Order placement
The commitment of a customer to buy a product and the subsequent administrative and data processing steps followed by the supplier.

Order point
A set inventory level where, if the total stock on hand plus on order falls to or below that point, action is taken to replenish the stock. The order point is normally calculated as forecasted usage during the replenishment lead time plus safety stock. Syn: reorder point, statistical order point, trigger level. See: fixed reorder quantity inventory model.

Order point-order quantity system
Syn: fixed reorder quantity inventory model.

Order point system
The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the order point. Syn: statistical order point system. See: fixed reorder quantity inventory model, hybrid system.

Order policy
A set of procedures for determining the lot size and other parameters related to an order. See: lot sizing.

Order policy code
Syn: lot-size code.

Order preparation
All activities relating to the administration, picking, and packaging of individual customer or work orders.

Order preparation lead time
The time needed to analyze requirements and open order status and to create the paperwork necessary to release a purchase order or a production order.

Order priority
The scheduled due date to complete all the operations required for a specific order.

Order processing
The activity required to administratively process a customer’s order and make it ready for shipment or production.

Order promising
The process of making a delivery commitment, i.e., answering the question, When can you ship? For make-to-order products, this usually involves a check of uncommitted material and availability of capacity, often as represented by the master schedule available-to-promise. Syn: customer order promising, order dating. See: available-to-promise, order service.

Order qualifiers
Those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace. For example, a firm may seek to compete on characteristics other than price, but in order to “qualify” to compete, its costs and the related price must be within a certain range to be considered by its customers. Syn: qualifiers. See: order losers, order winners.

Order quantity
Syn: lot size.

Order quantity modifiers
Adjustments made to a calculated order quantity. Order quantities are calculated based upon a given lot-sizing rule, but it may be necessary to adjust the calculated lot size because of special considerations (scrap, testing, etc.).

Order release
The activity of releasing materials to a production process to support a manufacturing order. See: planned order release.

Order reporting
Recording and reporting the start and completion of the manufacturing order (shop order) in its entirety.

Order scheduling
Syn: operations scheduling.

Order selection
Syn: order picking.

Order service
The function that encompasses receiving, entering, and promising orders from customers, distribution centers, and interplant operations. Order service is also typically responsible for responding to customer inquiries and interacting with the master scheduler on availability of products. In some companies, distribution and interplant requirements are handled separately. See: order entry, order promising.

Order shipment
Activity that extends from the time the order is placed upon the vehicle for movement until the order is received, verified, and unloaded at the buyer’s destination.

Order-up-to level
Syn: target inventory level.

Order winners
Those competitive characteristics that cause a firm’s customers to choose that firm’s goods and services over those of its competitors. Order winners can be considered to be competitive advantages for the firm. Order winners usually focus on one (rarely more than two) of the following strategic initiatives: price/cost, quality, delivery speed, delivery reliability, product design, flexibility, after-market service, and image. See: order losers, order qualifiers.

Organizational breakdown structure
In project management, a representation of a project’s organization relating work packages to organizational units.

Organizational change management
The fostering and support of people who champion new technologies, new operating practices, and new products and services that will transform the organization, maintaining its viability and improving its competitive position in step with the change in the business environment in which it functions.

Organizational design
The creation of an organizational structure to support the strategic business plans and goals of an enterprise; e.g., for-profit and not-for-profit companies. Given the mission and business strategy, the organizational structure design provides the framework within which the business operational and management activities will be performed.

Organizational development (OD)
The process of building and strengthening core competencies and organizational capabilities that enable the execution of the business strategy and provide a sustainable competitive advantage over time. Organizational development includes staffing the organization, building core competencies and organizational capabilities, and continuous improvement initiatives in response to the changing business environment.

Organizational environment
Consists of an external environment (e.g., laws and regulations, technology, economy, competition) and an internal environment (e.g., the domain of products and services to be provided, the processes to be executed, and the organizational structure). See external environment, internal environment.

Original equipment manufacturer (OEM)
A manufacturer that buys and incorporates another supplier’s products into its own products. Also, products supplied to the original equipment manufacturer or sold as part of an assembly. For example, an engine may be sold to an OEM for use as that company’s power source for its generator units.

OS&D
Abbreviation for over, short, and damaged.

OSHA
Acronym for Occupational Safety and Health Act.

OSI
Abbreviation for open systems interconnection.

OTED
Abbreviation for one-touch exchange of die.

Outbound stockpoint
The designated locations near the point of use on a plant floor to which material produced is taken until it is pulled to the next operation.

Outlier
A data point that differs significantly from other data for a similar phenomenon. For example, if the average sales for a product were 10 units per month, and one month the product had sales of 500 units, this sales point might be considered an outlier. See: abnormal demand.

Out-of-control process
A process in which the statistical measure being evaluated is not in a state of statistical control (i.e., the variations among the observed sampling results can be attributed to a constant system of chance causes). Ant: in-control process.

Out-of-pocket costs
Costs that involve direct payments such as labor, freight, or insurance, as opposed to depreciation, which does not.

Out of spec
A term used to indicate that a unit does not meet a given specification.

Outpartnering
The process of involving the supplier in a close partnership with the firm and its operations management system. Outpartnering is characterized by close working relationships between buyers and suppliers, high levels of trust, mutual respect, and emphasis on joint problem solving and cooperation. With outpartnering, the supplier is viewed not as an alternative source of goods and services (as observed under outsourcing) but rather as a source of knowledge, expertise, and complementary core competencies. Outpartnering is typically found during the early stages of the product life cycle when dealing with products that are viewed as critical to the strategic survival of the firm. See: customer-supplier partnership, supplier partner, and customer partner.

Output
The product being completed by a process or facility.

Output control
A technique for controlling output where actual output is compared to planned output to identify problems at the work center or facility.

Output standard
The expected number of units from a process against which actual output will be measured.

Outside shop
Suppliers. This term is used to convey the idea that suppliers are an extension of the inside shop or the firm’s production facilities.

Outsourcing
The process of having suppliers provide goods and services that were previously provided internally. Outsourcing involves substitution—the replacement of internal capacity and production by that of the supplier. See: subcontracting.

Overall factors
Syn: capacity planning using overall factors.

Overhead
The costs incurred in the operation of a business that cannot be directly related to the individual goods or services produced. These costs, such as light, heat, supervision, and maintenance, are grouped in several pools (e.g., department overhead, factory overhead, general overhead) and distributed to units of goods or services by some standard allocation method such as direct labor hours, direct labor dollars, or direct materials dollars. Syn: burden. See: expense.

Overhead allocation
In accounting, the process of applying overhead to a product on the basis of a predetermined rate.

Overhead base
The denominator used to calculate the predetermined overhead rate used in applying overhead, e.g., estimated direct labor hours or estimated direct labor dollars.

Overhead pool
The collection of overhead costs that are to be allocated over a specified group of products.

Overissue
Syn: excess issue.

Overlapped schedule
A manufacturing schedule that “overlaps” successive operations. Overlapping occurs when the completed portion of an order at one work center is processed at one or more succeeding work centers before the pieces left behind are finished at the preceding work centers. Syn: lap phasing, operation overlapping, telescoping. See: send ahead. Ant: gapped schedule.

Overlap quantity
The number of items that need to be run and sent ahead to the following operation before the following “overlap” operation can begin. Syn: offset quantity. See: process batch, transfer batch.

Overload
A condition when the total hours of work outstanding at a work center exceed that work center’s capacity.

Overrun
1) The quantity received from manufacturing or a supplier that is in excess of the quantity ordered. 2) The condition resulting when expenditures exceed the budget.

Over, short, and damaged (OS&D) report
A report submitted by a freight agent showing discrepancies in billing received and actual merchandise received.

Overstated master production schedule
A schedule that includes either past due quantities or quantities that are greater than the ability to produce, given current capacity and material availability. An overstated MPS should be made feasible before MRP is run.

Overtime
Work beyond normal established working hours that usually requires that a premium be paid to the workers.

Owner's equity
An accounting/financial term (balance sheet classification of accounts) representing the residual claim by the company’s owners or shareholders, or both, to the company’s assets less its liabilities. See: assets, balance sheet, liabilities.

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