Unit 4

• production


  The amount of output produced or the number of customers served
• productivity


  Measures the output compared to the inputs/resources used. For examples, labour productivity measures the amount of output produced by workers over a period of time. (= output/ number of employees)
• efficiency


  Refers to how well resources are used to produce products with minimum waste and low cost
• inventory


  Can consist of raw materials, components, parts, work-in-progress, and finished goods
• lean production


  • A Japanese philosophy of production that tries to improve efficiency by reducing time, waste, resources and labour time in the production process
  • Two of the key elements in this are just-in-time stock control and Kaizen (continuous improvement)
• just-in-time (JIT) inventory control

  Involves holding minimal level of stock and arranging deliveries so that orders arrive just as they are needed in the production process
• Kaizen


  Means continual improvement and involves making small incremental improvements in the production process, often based on ideas from the workforce
• job production


  • Involves making each product individually to the specific requirements of the customer. E.g. a tailor-made suit
• batch production


  • Involves producing small quantities of identical products at the same time in a group or batch. E.g. bakery products
• flow production


  • Involves large scale production of identical products along a continuous production line, which is often automated. E.g. electronic goods
• fixed costs (FC)


  Costs that do not change with the level of output. E.g. rent
• variable costs (VC)


  Costs which change directly in line with output. E.g. raw materials
• average costs (AC)


  The costs of producing one unit of output (= total costs / output)
• total costs (TC)


  The total sum of all the costs involved in the business (= fixed costs + variable costs)
• economies of scale


  The cost benefits and efficiencies of large-scale production which lead to lower unit costs (average costs)
• purchasing economies


  • When buying in large quantities discounts can often be negotiated which reduces the unit costs (costs per item)
• marketing economies


  • Many marketing costs (such as adverting on TV) are fixed costs. When spread over a larger output or number of customers these costs are shared and unit costs fall
• financial economies


  • Larger businesses have a access to a greater range of sources of finance and can negotiate better terms and lower interest rates, leading to lower unit costs
• managerial economies


  • Larger businesses can afford to employ specialist managers who are expert in their particular field, leading to greater efficiency and better decision-making, leading to lower unit costs
• technical economies


  • Larger businesses can afford to invest in better technology and machinery which increases productivity and reduces waste, leading to lower unit costs
• diseconomies of scale


  The cost disadvantages and inefficiencies of large-scale production, which lead to higher unit costs (average costs)
• break-even output


  The level of output at which total costs are exactly matched by total revenue and the business makes neither a profit nor a loss
• margin of safety


  The difference between the actual level of output and the break-even point
• quality control


  Where a product is checked at the end of a production process
• quality assurance


  Involves self-checking throughout the production process by all employees to prevent mistakes from happening
• Production


  The effective management of resources in producing goods and services
• Operations department


  • Oversees the production process
  • Use resources in a cost-effective and efficient manner
  • Manage inventory effectively
  • Produce the required output to meet customer demands
  • Meet the quality standards expected by customers
• Productivity


  A measure of the efficiency of inputs used in the production process over a period of time
• Labour productivity


  The output measured against the inputs used to produce it
• Increasing productivity


  Output increases per employee, average costs of production fall, able to sell more and lower prices
• Ways to increase productivity

  • Improving labour skills through training
  • Introducing automation
  • Improving employee motivation
  • Improving quality control and assurance
• Inventory


  Stocks of raw materials, work-in-progress, and finished unsold goods
• Reorder level


  The point at which inventory is reordered to bring the level back up to the maximum
• Lead time


  The time it takes for the reorder supply to arrive
• Buffer inventory level


  The minimum level of inventory the business should hold to satisfy customer demand at all times
• Lean production


  Techniques to reduce wastage and increase efficiency/productivity
• Seven types of wastage

  • Overproduction
  • Waiting
  • Transportation
  • Unnecessary inventory
  • Motion
  • Over-processing
  • Defects
• Benefits of avoiding wastage

  • Less storage of raw materials, components and finished goods
  • Quicker production of goods and services
  • No need to repair faulty goods
  • Costs will lower, making the business more competitive and earn higher profits
• Kaizen


  A Japanese term meaning 'continuous improvement', aims to increase efficiency and reduce wastage
• Just-in-Time inventory control


  Eliminates the need to hold any kind of inventory by ensuring that supplies arrive just in time they are needed for production