Unit 5 (all) Business Management HL

Factors of production

are the resources needed to produce a good or service, namely land, labour, capital and enterprise.

Operations management (or production)

is concerned with providing the right goods and services in the right quantities and at the right quality level in a cost-effective and timely manner.

'The production process' (or the transformation process)

refers to the method of turning factor inputs into outputs by adding value in a cost-effective way.

Productivity

is a measure of a firm's operational efficiency level, calculating the rate at which inputs (factors of production) are transformed into outputs (good and services).

Sustainability

is the practice of enabling production and consumption of goods and services for the people of today without compromising the needs of future generations.

Value added

occurs during the production process when the value of output is greater than the costs of production. Firms earn profit if value added exists in the production process.

Batch production

involves producing a set of identical products. Work on each batch is fully completed before production switches to another batch.

Capital intensive

means that the manufacturing or provision of a product relies heavily on machinery and equipment, such as automated production systems.

Flow production

is a form of mass production that uses continuous and progressive processes, carried out in sequence. When one task is completed, the next stage of production starts immediately

Mass customization

is an operations method that uses flexible manufacturing systems to mass produce products that meet individual consumer needs and wants.

Mass production

is the large-scale manufacturing of a homogeneous (standardized) product. Unit costs of production are relatively low when using mass production methods.

Job production

involves the manufacturing of a unique product or one-off job. The job can be completed by one person (such asa tailor) or by a team of people (such as architects and engineers).

Labour intensive

"means that production relies heavily on labour inputs, so the cost of labour accounts for the largest proportion of a firm's overall production costs. It is most apparent in the provision of personalized services.

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Standardization

means producing an identical or homogeneous product in large quantities, such as printing a particular magazine, book or newspaper.

Benchmarking

is the process of identifying best practice in an industry, in relation to products, processes and operations. It sets the standards for firms to emulate.

Cradle to cradle (C2C)

refers to a sustainable model of production based on natural processes, thus benefiting the environment. The underlying principle of C2C is that there is no waste in nature, making it sustainable.

Efficiency means

using resources more productively, in order to generate more output in a cost-effective way.

ISO 9000

is the world's most widely recognised standard for quality management. It is endorsed by the ISO to firms that use quality management systems to meet the needs of customers.

Just-in-time (JIT)

is an inventory management system based on stocks being delivered as and when they are needed in the production process.

Kaizen

is the Japanese term for 'continuous improvement, a lean production philosophy that requires workers and managers to continually try to find ways to improve work processes and efficiency.

Lean production

is the process of streamlining operations and processes to reduce all forms of waste and to achieve greater operational efficiency.

Quality

means that a product fulfils its purpose and meets the expectations of the consumer.

Quality assurance (QA)

is the management process of guaranteeing (assuring) that products meet certain quality standards, such as the ISO 9000 by making sure everything is done right first time and there are no defects.

Quality circles

are small groups of employees who meet regularly to examine issues relating to the quality of output and make recommendations for improvement.

Quality control (QC)

is the traditional approach to quality management that involves inspecting, testing and sampling the quality of work.

Quality management

is the function concerned with controlling business activities to ensure that products are fit for their purpose.

Quality standards

refer to national and/or international benchmarks that enable certification of quality assurance. They are used to show that certain quality standards have been met.

Substandard

means that products do not meet the needs or expectations of customers, producers or governments due to their poor quality

Total quality management (TQM)

is a philosophy and process that requires the dedication of everyone in an organization to commit to achieving quality standards.

Waste

"refers to anything that prevents an organization from being efficient or lean, e.g., product defects, stockpiling and overproduction.

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Assisted areas (or enterprise zones)

are regions identified by governments to experience relatively high unemployment and low incomes, so are in need of regeneration through financial assistance.

Bulk-increasing or weight-gaining industries

are involved with products that increase in weight during the production process, so need to be located near their customers in order to reduce costs.

Bulk-reducing or weight-losing industries

are those that need to locate near the source of raw materials because they are heavier and hence more costly, to transport than the final product.

Clustering

means that a business locates near other organizations that operate in similar or complementary markets.

A footloose organization

is a business that does not gain any cost-reducing advantages from locating in a particular location. Hence, the firm can locate in almost any location.

Government incentives

are financial enticements offered by the state to businesses to locate in a particular area or region, perhaps due to high unemployment.

Industrial inertia

describes the reluctance to relocate due to the inconvenience of moving even when the competitive advantages for the location no longer existed.

Infrastructure

is the term used to describe the transportation,communication and support networks in a certain area.

Insourcing

is the use of an organization's own people and resources to accomplish a certain function or task which would otherwise have been outsourced.

Location

refers to the geographical position of a business, i.e., where it is sited.

Offshoring

is an extension of outsourcing, which involves relocating business functions and processes overseas.

Outsourcing (or subcontracting)

is the practice of transferring internal business activities to an external organization in order to reduce costs and increase productivity.

Reshoring

is the reverse of offshoring. It is the transfer of business operations back to their country of origin.

Subcontractors

are outsourced firms that undertake non-core activities for an organisation. They are used for their expertise and the cost advantage they bring.

Break-even analysis

is a decision-making tool used to calculate the level of sales needed to cover all costs of production. Any sales beyond the break-even point generate a positive safety margin and hence profit for the business.

Break-even chart

is a diagrammatic representation of a firm's costs, revenues and profits (or loss) 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. This is shown at the point where TC = TR.

Break-even quantity

refers to the level of output that generates neither profit nor loss. It is shown along the x-axis on a break- even chart.

Contribution

refers to the sum of money that remains after all direct or variable costs have been deducted from the sales revenue of a product.

Contribution per unit (or unit contribution)

is the difference between the selling price of a product and its variable costs of production, i.e., P - AVC.

A loss

exists when the firm's total costs exceed its total revenues (TC > TR). This occurs at all levels of output or sales below the break-even quantity. Losses can cause businesses to go bankrupt

The margin of safety

is the difference between a firm's actual sales quantity and its break-even quantity. A positive safety margin means the firm can reduce output (or sales volume) by that amount without making a loss.

Profit

is the positive difference between a firm's total revenue and its total costs. Profit is shown in a break-even chart at all levels of output beyond the break-even quantity.

Target price

is the price set by a firm in order to reach break-even or a certain target profit.

Target profit

is the amount of surplus a firm intends to achieve, based on price and cost data. It is calculated by deducting total costs from expected sales revenues.

Target profit output

is the sales volume or level of output required to achieve the target profit that business managers expect to achieve by the end of a given time period.

Total contribution

is the unit contribution (P - AVC) multiplied by the quantity of sales (Q). Hence, total contribution = (P - AVC) x Q.

Buffer stock

refers to the minimum stock level held by a business in case there are unexpected events, e.g., late deliveries of components or a sudden increase in demand.

Capacity utilization

measures a firm's existing level of output as a proportion of its potential output.

Capital productivity

measures how well a firm uses its physical capital in order to produce goods and services.

The cost to buy (CTB)

refers to the expenses or expenditure to purchase a product from a third-party or outsourced supplier.

The cost to make (CTM)

refers to the expenses or expenditure required to manufacture a good or service in-house.

The defect rate

measures the proportion of output, per time period, that is substandard.

The economic order quantity

is the optimum stock level that ensures there are sufficient stocks for uninterrupted production whilst minimizing the costs of holding inventory.

Global supply chains

refer to the networks that span multiple countries and regions for the purpose of sourcing and supplying goods and services.

Just-in-case (JIC)

is the traditional stock control system that maintains large amounts of stock in case there are supply or demand fluctuations.

Just-in-time (JIT)

is a stock control system based on stocks being delivered as and when they are needed in the production process.

Labour productivity

is a measure of the efficiency of a firm's workers by calculating the output per worker.

Lead time

measures the duration between placing an order and receiving it. The longer the lead time, the higher buffer stocks tend to be.

Make-or-buy decisions

refer to situations where a firm has to decide between manufacturing a product and purchasing it from a supplier, based on comparing the cost to make (CTM) with the cost to buy (CTB).

Maximum stock level

refers to the upper limit of inventories that a firm wishes to hold at any point in time.

Minimum stock level

refers to the lowest amount of inventories that a business wishes to hold as a precautionary measure.

Operating leverage

measures a firm's fixed costs as a percentage of variable costs. A firm with relatively high fixed costs is said to have high operating leverage.

Production planning

refers to the management process of ensuring sufficient resources (inputs) are available for use to create finished products (outputs) in a timely manner to meet the needs of customers.

Productive capacity

refers to a firm's maximum (potential) output if all its resources are used fully and efficiently.

Productivity

refers to how well resources, such as labour or capital, are used in the production process.

The productivity rate

measures the degree of efficiency in the use of resources in the production process. It uses an average measure, e.g., output per worker or output per machine hour.

Reorder level

refers to the level of stock when a new order is placed. Lead times mean that the reorder level helps to prevent production problems arising from a lack of stock.

Reorder quantity

refers to the amount of new stock ordered. This can be seen from a stock control chart by calculating the difference between the maximum and minimum stock levels.

Stock control charts

are visual tools used to graphically illustrate a simplistic system of stock control in a business.

A stock-out

occurs if a business does not hold enough stocks to meet orders for production.

Stockpiling

occurs when a business over-produces so holds too much stock, so is detrimental to the firm's cash flow position.

Stocks (or inventories)

are the materials, components and products used in the production process, i.e., raw materials, semi-finished goods and finished goods.

The supply chain

refers to the different stages of activities from the production of a good or service to it being distributed to the end customer.

Supply chain management (SCM)

is the art of managing and controlling these activities, which must be efficient and cost effective for a business to be profitable.

The usage rate

refers to the speed at which stocks are depleted. The higher the usage rate, the more frequent reordering of stocks needs to be.

Communication

is one of the factors that affect the effectiveness of crisis management, by informing internal and external stakeholders to help them to know and understand the issue.

Contingency planning

is about being proactive to changes in the business environment. It involves developing a plan before an unwanted, unpredictable or unlikely event occurs, by using 'what if?' questions to identify probable threats.

Control

is one of the factors that affect the effectiveness of crisis management, by using a crisis management (or critical incident) team to handle a crisis and to ensure there is leadership and governance.

A crisis

is a situation of disequilibrium or instability that results in major problems for a business, e.g., natural disasters, major accidents and computer equipment failure.

Crisis management

refers to the response of an organization to a crisis situation. It is about being reactive to events that can cause serious problems to a business, i.e., taking appropriate action as and when a crisis occurs.

Quantifiable risks (or insurable risks)

are probable and financially measurable threats to a business, such as fire damage.

Speed

is one of the factors that affect the effectiveness of crisis management, by making prompt decisions and actions in order to return to normal operations as soon as possible.

Transparency

is one of the factors that affect the effectiveness of crisis management, by being open and honest with all stakeholders during a crisis, i.e., disclosing the truth, such as the scale or severity of the crisis.

Unquantifiable risks (or uninsurable risks)

are threats to a business that are impossible or prohibitively expensive to examine and measure.

Copyrights

provide legal protection for artists and authors by preventing others from using or replicating their published works without permissions.

Disruptive innovation

refers to any major innovation that introduces a new good or service designed to replace an existing one by radically altering the market.

Development

is the use of research findings to create products that might be commercialized. It can also mean improving existing processes or products.