Batch production

Involves producing a collection of identical products (known as a batch). Work on each batch
is fully completed before production switches to another batch. It is used where the level of
demand for a product is frequent and stead.
Capital intensive
Means that the manufacturing or provision of a product relies heavily on machinery and
equipment, such as automated production systems. Hence the cost of capital accounts for a
higher proportion of a firms overall production.
Cell production
Is a production method that organises workers into independent cells (team). Each cell
comprises of multiskilled employees who have responsibility and autonomy in completing a
whole unit in the production process.
Flow production
Is a form of mass production whereby different operations are continuously and progressively
carried out in sequence.
Line production
Is a form of flow production whereby a product is assembled in various stages along a
conveyor belt (or assembly line) until a finished product is made.
Mass production
Is the manufacturing of large amounts of homogeneous (standardized) product. Unit costs of
production are relatively low when using mass production methods.
Job production
Is a method of production that involves the production of a unique or one-off job. The job is
entirely completed by one person (such as a tailor) or by a team of people (such as
architects).
Productivity
Measures the level of labour and/or capital efficiency of a business by comparing its level of
inputs with the level of its output.
Production process
Also known at the transformation process, refers to the method of turning inputs into outputs
by adding value in a cost-effective way.
Purchasing
Is the buying of raw materials, components and/or equipment needed for the production
process. Large firms will often centralize this function to allow the business to negotiate better
prices with suppliers in order to gain purchasing economics of scale.
Specialization
Means the division of a large task or project into smaller tasks that allow individuals to
concentrate on one or two areas of expertise. Specialization is an essential part of mass
production.

Standardization
Means producing an identical or homogeneous product in large quantities, such as printing a
particular magazine, book or news paper.
Average cost
Refers to the amount a firm spend on producing one unit of output. It is calculated by dividing
the total costs of production by the quantity produced, or by adding up the average fixed costs
and the average variable costs.
Average revenue
Is found by dividing a firms total revenue by its level of output. It is the same as the price
charged since average revenue is the amount of money received for each unit sold.
Contribution
The difference between sales revenues and total variable costs. The difference is then used
to contribute towards payment of fixed costs. Once all costs, fixed and variable, are covered
then the firm has made a profit.
Contribution per unit
Is found by dividing the contribution of a firm by its sales level (or using the formula Price
minus Average Variable Costs). It works out the contribution made by selling a single unit of a
product.
Cost centres
Are clearly identifiable autonomous parts of an organisation for which costs can be attributed.
Direct costs
Are those that are directly linked to the production of a specific product.
Fixed costs
Are the costs that do not vary with the level of output. They exist even if there is no output,
such as the cost of rent, management salaries and interest repayments on bank loans.
Indirect costs
Also known as overheads are costs which do not directly link to the production or sale of a
specific product. Examples include rent, management salaries, cleaning staff and lighting.
Profit centres
Are clearly identifiable autonomous divisions of an organisation for which both costs and
revenues can be worked out.
Revenue
Refers to the money that a business collects from the sale of its goods and services. It is
calculated by multiplying the unit price of each product by the quantity sold.
Semi-variable costs
Are those that have an element of both fixed costs and variable costs, such as power and
electricity.

Variable costs
Are those that change in proportion to the level of output, such as raw materials and piecerate earnings of production workers.
Break-Even Chart
the name given to the graph that shows a firms costs, revenues and profits (or losses) at
various levels of output
Break-Even Point
refers to the position on a break-even chart where the total cost line intersects the total
revenue line, i.e. where TC=TR
Break-Even Quantity
refers to the level of output that generates neither any profit nor loss. It is shown on the x-axis
on a break-even chart
Contribution Per Unit
Is used to work out the break-even quantity. Unit contribution is the difference between the
selling price of a product and its variable costs of production. The surplus then goes towards
the fixed costs of production.
Margin of Safety
Refers to the difference between a firms level of demand and its break-even quantity. A
positive safety margin means the firm can decrease output (sales) by that amount without
making a loss. A negative safety margin means that the firm is making a loss.
Profit
Is the positive difference between a products revenue and its costs at each level of output.
On a break-even chart, profit can be seen to the right of the break-even quantity.
Special Order Decisions
Are unique and/or unusual orders for which a customer will pay a price that differs from the
norm
Benchmark
Is the process of identifying best practise in an industry, in relation to products, processes and
operations. It sets the standards laid down by the best business in the industry for the
organization to emulate.
Computer-aided design
Is the process of using dedicated computer hardware and software in the design process,
such as three-dimensional designs of a product.
Computer-aided manufacturing
Is the process of using sophisticated machinery and equipment in the production process.
International Standards organization

Is the most prominent global organization for quality assurance. Founded in 1947, the ISO is
made up of representatives from around 160 countries.
Kaizen
Is the Japanese term for continues improvement. It is a philosophy followed by those who
strive for a total quality culture.
Lean production
Refers to the approach used to eliminate waste (muda) in an organization. As a result, lean
organization benefit from lower costs and higher productivity.
Muda
Is the Japanese term for wastage. Businesses that strive to achieve lean production try to
eliminate the cause of muda, such as time wasting, overproduction, defected products and
excess stockpiling.
Quality
Means that a good or service must be fit for its purpose by meeting or exceeding the
exceptions of the consumers.
Quality assurance
Refers to the method used by a business to reassure customers about the quality of their
products in meeting certain quality standards, such as the ISO 9000.
Quality circles
Are groups of workers that meet on a regular basis to identify problems related to quality
assurance. They then give consideration to alternative solutions to the identified problems,
before finally making recommendations to management.
Quality Control
Is the traditional way of quality management that involves checking and reviewing work
process. This is usually carried out by quality controllers and inspectors.
Total quality culture
Is a philosophy which occurs in organizations the embed quality in all aspects of business
activity, with every employee accustomed to being responsible for quality control and quality
assurance.
Total quality management
Is the process that attempts to encourage all employees to make quality assurance
paramount to the various functions (production, finance marketing and personnel) of the
organization.
Zero Defects
Refers to the objective of producing each and every product with any defects (mistakes or
imperfections). The benefits of such an approach are eliminating waste and reworking time
(the time taken to correct faults). Achieving zero defects can also lead to be a better
reputation for a business.

Assisted areas & enterprise zones

Are those regions identified by governments to be suffering from a relatively high
unemployment and low incomes. Hence, government assistance (thorough the use of
financial incentives) is used to regenerate these areas.
Bulk-Increasing business & Weight-gaining business
Are those that need to locate near their customers to in order to reduce costs. This is because
the products increase in weight during the production process.
Bulk-reducing business
Are those that need to located near the source of the raw materials because they are heavier
(and hence more costly) to transport than the final product.
Clustering
Clustering means that a business located near other organizations which operate in similar or
complementary markets.
Footloose corporation
Refers to a business that does not acquire any cost-reducing advantages apart from locating
in a particular location. Therefore, the firm can locate in almost any area
Industrial inertia
describes the reluctance to relocate due to the inconvenience of moving. Manages who hold
this perception believe that the potential consequences and costs of relocation cancel out any
end benefits.
Infrastructure
Is the term used to describe the transportation, communication and support networks of one
area
Location
refers to the geographical position of a business. The location is a crucial one, and well
depend on both quantitative and qualitative factors
Sunk costs
Are those that cannot be recovered if the business collapses ; such as purchasing the lease
and licence fees for a commercial property
Buffer Stack
Refers to the minimum stock level held by a business in case there are any unexpected
occurrences, such as late deliveries of raw materials or a sudden increase in demand for the
firms product.
Capacity Utilisation
Measures the existing level of output of a firm as a proportion of its total potential output. High
capacity utilisation means that the output level is close to the firms maximum limit (productive
capacity).
Cost-benefit analysis

Is a financial decision making tool. It compares the financial costs of a decision with the
quantitative benefit of that decision.
Electronic Point of Sale
Is a computerised system that automatically keeps a running balance of stock level and
reorders them as and when necessary.
Just-in-case
Is the traditional stock management system that recognises the need to maintain large
amount of stock in case there are any emergencies (such as delayed delivery of stocks) or
supply and demand fluctuations.
Just-in-time
Is a stock control system system that originated in Japan. Under a JIT system, materials and
components are scheduled to arrive precisely when they are needed in the production
process.
Lead time
Measures the amount of time between placing an order and receiving the stock. The longer
the lead time, the higher buffer stocks tend to be.
Make-or-buy Decision
Refers to a situation where a firm has to decide between manufacturing a product and
purchasing it from a supplier
Maximum Stock Level
Refers to the upper limit of inventories that a business wishes to hold at any point in time.
Minimum Stock Level
Refers to the least amount of inventories that a business wishes to hold. For most businesses
this minimum is zero, as a precautionary measure.
Offshoring
Is an extension of outsourcing by using an overseas firm in another country, as the
subcontractor.
Optimum stock level or the Economic Order Quantity
Refers to the best inventory level for a firm, which ensures that there are sufficient stocks for
production to take place without any interruptions, yet also allows the firm to incur only
minimal costs.
Outsourcing
Refers to the practice of using external firms to provide goods or services as a method of
reducing costs. Subcontracting should be able to carry out the work for less than the business
would be able to, without compromising quality.
Productive Capacity
Refers to the maximum output of a firm if all its resources were fully and efficiently employed.

Reorder Level
Refers to the desired level of stock when a new order must be placed. Since there is a time
lag between the firm placing an inventory order and it being delivered, the reorder level helps
to prevent production problems arising from a lack of stock.
Reorder quantity
Refers to the amount of new stock ordered. It can be seen from a stock control chart and is
calculated by the difference between the maximum and minimum stock levels.