Efficiency

Making the most of resources by maximising the

output from a given level of inputs. Labour
efficiency is output per worker. Production
efficiency is percentage of scrap from the
production process.

Labour productivity
The average output of each worker over a period
of time - Current output / number of workers

Unit labour cost

The cost of labour needed to produce one unit of
output

Unit cost
Average cost per unit of output:

External growth
Expansion achieved through buying or merging
with another business

Merger
The joining of two businesses to create a new
organisation

Economies of scale
The reduction in average cost per unit
(purchasing, technical, management
specialisation)

Diseconomies of scale
Increase in average cost per unit (inefficiency,
poor communications)

Capacity
The maximum possible output that can be
produced with the given resources

Capacity management
Planning and controlling the capacity of an
organisation to meet the demands of customers

Capacity utilisation
The proportion of capacity used over a period of
time: Current output / Maximum output x 100

Under utilisation
Using less than the 100% capacity of the firm.
Low utilisation causes fixed costs to be spread
over fewer units and so the firm may need to
increase capacity utilisation through increasing
demand and thus output or rationalising

Rationalisation
Reorganising a business to reduce capacity and
increase efficiency

Subcontracting
Using the resources of another organisation, or
letting out the business's resources in order to
increase efficiency

Labour intensive
High proportion of labour compared to capital

Capital intensive
High proportion of capital (machinery)
compared to labour

Flow/Mass production
Continuous movement of items through each
stage of production

Batch production
Manufacture of groups of products to meet a
specific order. The products will move through
the stages of production at the same time.

Stock
Stored materials such as raw materials, work in
progress or finished goods

Buffer stock
Stock kept in order that production can be
increased to meet unexpected demand


Opportunity cost
The benefit lost from the next best alternative
foregone. For example, if the firm spends money
on training then it may not be able to use the
money for new machinery - which will be the
benefit lost

Stock-out costs
Cost of lost production, lost sales and customer
dissatisfaction when the business runs out of
stock

Lead time
The time taken for the supplier to process and
deliver an order

Overtime
Staff working beyond their contracted hours in
exchange for a higher hourly wage

Stocks
Materials or finished goods held by a firm as
needed to supply customers demand

Quality product
A product or service that meets customer'
expectations and is therefore "fit for purpose"

Quality standards
The expectations of customers expressed in
terms of the minimum acceptable production or
service standards

Quality control
Inspection of products to check they meet
necessary standards.

Quality assurance
Ensuring quality is guaranteed throughout an
organisation to meet customer expectations.
Each employee is responsible for the quality of
his or her own production ie self checking.


ISO 9000/9001
Internationally recognised certificate that
acknowledges the existence of a quality
procedure that meets certain conditions

Total Quality Management

(TQM) is an approach to quality that aims to
involve all employees in the quality
improvement process

Job production
The manufacture of one-off goods tailor made to
meet the specifications of the customer.

Information technology
The use of electronic technology to gather, store,
process and communicate information

Continuous improvement (kaizen)

The philosophy of ongoing improvement based
around small changes by all employees

Kaizen groups
Formed to encourage new ideas and suggestions
from all workers as part of a continuous
improvement strategy

Outsource
The contracting of an outside organisation to
provide a product or service that might be too
expensive, complicated or time-consuming for
the business to do itself

Downtime
A period when machinery is not being used,
either as a result of maintenance or when parts
of the machinery have to be adapted to produce
a slightly different unit of production

Minimum efficient scale

The smallest output that a business can produce
while making sure that its average costs are
minimised


Ombudsmen
Commonly known as watchdogs: independent
organisations that police specific industries and
investigate complaints on behalf of customers

Customer/After sales service

Support, advice and information about a
product or service given to customers once they
have made a purchase

Guarantees
Official reassurance given free of charge by the
manufacturer of a product to the customer that
if the product proves faulty within a specified
period their money will be refunded.

Warranties
Similar to guarantees, but normally the
customer pays for the extra protection. They are
often known as extended warranties or
insurance policies against repair and
replacement costs

Operational targets
Specific and measurable objectives set for each
operations activity of a business

Supply chain
All the stages in the production process from
obtaining raw materials to selling to the
consumer - from point of origin to point of
consumption

Sustainability
Production systems that prevent waste by using
the minimum of non-renewable resources so
that levels of production can be sustained in the
future