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EfficiencyMaking the most of resources bymaximising the output from a

given level of inputs. Labourefficiency is output per worker.Production efficiency ispercentage of scrap from theproduction process.Labour productivityThe average output of each

worker over a period of time -Current output / number of

workersUnit labour costThe cost of labour needed toproduce one unit of outputUnit cost

Average cost per unit of output:External growthExpansion achieved through

buying or merging with anotherbusinessMergerThe joining of two businesses to

create a new organisationEconomies of scaleThe reduction in average costper unit (purchasing, technical,management specialisation)Diseconomies of scaleIncrease in average cost per unit

(inefficiency, poorcommunications)


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CapacityThe maximum possible outputthat can be produced with the

given resourcesCapacity managementPlanning and controlling thecapacity of an organisation tomeet the demands of customersCapacity utilisationThe proportion of capacity used

over a period of time: Currentoutput / Maximum output x 100Under utilisationUsing less than the 100%capacity of the firm. Lowutilisation causes fixed costs to

be spread over fewer units and

so the firm may need to increasecapacity utilisation throughincreasing demand and thusoutput or rationalisingRationalisationReorganising a business toreduce capacity and increase

efficiencySubcontractingUsing the resources of anotherorganisation, or letting out the

business's resources in order toincrease efficiencyLabour intensive

High proportion of labourcompared to capital


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Capital intensiveHigh proportion of capital(machinery) compared to

labourFlow/Mass productionContinuous movement of itemsthrough each stage ofproductionBatch productionManufacture of groups of

products to meet a specificorder. The products will movethrough the stages ofproduction at the same time.StockStored materials such as rawmaterials, work in progress or

finished goods

Buffer stockStock kept in order thatproduction can be increased tomeet unexpected demandOpportunity cost

The benefit lost from the nextbest alternative foregone. Forexample, if the firm spendsmoney on training then it maynot be able to use the money fornew machinery - which will bethe benefit lost

Stock-out costs


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Cost of lost production, lostsales and customerdissatisfaction when the

business runs out of stockLead timeThe time taken for the supplierto process and deliver an orderOvertimeStaff working beyond theircontracted hours in exchange

for a higher hourly wageStocksMaterials or finished goods held

by a firm as needed to supplycustomers demandQuality product

A product or service that meets

customer' expectations and istherefore "fit for purpose"Quality standardsThe expectations of customersexpressed in terms of theminimum acceptableproduction or service standards

Quality controlInspection of products to checkthey meet necessary standards.Quality assuranceEnsuring quality is guaranteedthroughout an organisation to

meet customer expectations.


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Each employee is responsiblefor the quality of his or her ownproduction ie self checking.

ISO 9000/9001Internationally recognisedcertificate that acknowledgesthe existence of a qualityprocedure that meets certainconditionsTotal Quality Management

(TQM) is an approach to qualitythat aims to involve allemployees in the qualityimprovement processJob productionThe manufacture of one-offgoods tailor made to meet the

specifications of the customer.Inforation technologyThe use of electronic technologyto gather, store, process andcommunicate informationContinuous improvement(kaizen)

The philosophy of ongoingimprovement based aroundsmall changes by all employeesKaizen groupsFormed to encourage new ideasand suggestions from all

workers as part of a continuous

improvement strategyOutsource


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The contracting of an outsideorganisation to provide aproduct or service that might be

too expensive, complicated ortime-consuming for the

business to do itselfDowntime

A period when machinery is notbeing used, either as a result ofmaintenance or when parts of

the machinery have to beadapted to produce a slightlydifferent unit of productionMinimum efficient scaleThe smallest output that a

business can produce whilemaking sure that its average

costs are minimisedOmbudsmenCommonly known as

watchdogs: independentorganisations that policespecific industries andinvestigate complaints on behalf

of customersCustomer/After sales serviceSupport, advice andinformation about a product orservice given to customers oncethey have made a purchaseGuarantees

Official reassurance given freeof charge by the manufacturer


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of a product to the customerthat if the product proves faulty

within a specified period their

money will be refunded.WarrantiesSimilar to guarantees, butnormally the customer pays forthe extra protection. They areoften known as extended

warranties or insurance policies

against repair and replacementcostsOperational targetsSpecific and measurableobjectives set for eachoperations activity of a businessSupply chain

All the stages in the productionprocess from obtaining rawmaterials to selling to theconsumer - from point of originto point of consumptionSustainabilityProduction systems that prevent

waste by using the minimum ofnon-renewable resources sothat levels of production can besustained in the future

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