Batch production

Producing a limited number of identical products – each item in the batch passes through one stage of production before passing on to the next stage


Comparing the performance – including quality – of a business with performance standards throughout the industry

Break-even revenue

The amount of revenue needed to cover both fixed and variable costs so that the business breaks even

Break even point of production

The level of output at which total costs equal total revenue

Buffer stocks

The optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs

Business process outsourcing (BPO)

A form of outsourcing which uses a third party to take responsibility for certain business functions

Capacity shortage

When the demand for a business’s products exceeds production capacity

Capacity utilisation

The proportion of maximum output capacity currently being achieved

Cell production

Splitting flow production into self-contained groups that are responsible for whole work units

Contribution costing

Costing method that only allocates direct costs to cost/profit centres not overhead costs

Contribution per unit

Selling price of a product less variable costs per unit


Legal right to protect and be the sole beneficiary from artistic and literary works

Cost centre

A section of a business, such as a department, to which costs can be allocated or charged

Critical path

The sequence of activities that must be completed on time for the whole project to be completed by the agreed date

Critical path analysis

Planning technique that identifies all tasks in a project, puts them in the correct sequence and allows for the identification of the critical path

Direct costs

These costs can be clearly identified with each unit of production and can be allocated to a cost centre

Economic order quantity (EOQ)

The optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs

Excess capacity (spare capacity)

Exists when the current levels of demand are less than the full capacity output of a business

Fixed costs

Costs that do not vary with output in the short run

Flow production

Producing items in a continually moving process

Full capacity

When a business produces at maximum output

Indirect costs (Overheads)

Costs which cannot be identified with a unit of production or allocated accurately to a cost centre


The practical application of new inventions into marketable products

Intellectual property

Refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designs used in business

Intellectual property rights

Legal property rights over the possession and use of intellectual property

Internal customers

People within the organisation who depend upon the quality of work being done by others


The formulation or discovery of new ideas for products or processes

ISO 9000

Internationally recognised certificate that acknowledges the existence of a quality procedure that meets certain conditions

Job production

Producing a one-off item specially designed for the customer

Just in Case (JIC)

Holding high stock levels ‘just in case’ there is a production problem or an unexpected upsurge in demand

Just in Time

Stock control method that aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produced to order


Japanese term meaning continuous improvement

Lean production

Producing goods and services with the minimum of wasted resources while maintaining high quality

Lead time

The normal time taken between ordering new stocks and their delivery

Margin of safety

The amount by which the sales level exceeds the break-even level of output

Marginal costs

The extra cost of producing one more unit of output

Mass customisation

The use of flexible computer-aided production systems to produce items to meet individual customers’ requirements at mass production cost levels

Mass production

Producing large quantities of a standardised product


A business with operations or production bases in more than one country

Network diagram

The diagram used in critical path analysis that shows the logical sequence of activities and the logical dependencies between them


The relocation of a business process done in one country to the same or another company in another country

Optimal location

A business location that gives the best combination of quantitative and qualitative factors

Outsourcing (or subcontracting)

Using another business to undertake a part of the production process rather than doing it within the business using the firm’s own employees.


Legal right to be the sole producer and seller of an invention for a certain period of time

Process innovation

New methods of manufacturing or service provision that offers important benefits,

Product innovation

New and marketable products

Profit centre

A section of a business to which both costs and revenues can be allocated


A specific and temporary activity with a start and end date, clear goals, defined responsibilities and a budget

Project management

Using modern management techniques to carry out and complete a project from start to finish in order to achieve pre-set targets of quality, time and cost

Qualitative factors

Non-measurable factors that may influence business decisions

Quantitative factors

These are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability

Quality assurance

This is a system of agreeing and meeting quality standards at each stage of production to ensure consumer satisfaction

Quality control

This is based on inspection of the product or a sample of products

Quality product

A good or service that meets customers’ expectations and is therefore ‘fit for purpose’

Quality standards

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

Re-order quantity

The number of units ordered each time

Re-order stock level

The level of stocks that will trigger a new order to be sent to the supplier

Research and development

The scientific research and technical development of new products and processes


The income received from the sale of a product

Semi-variable costs

Costs that have both a fixed cost and a variable cost element

Stock (inventory)

Materials and goods required to allow for the production of and supply of products to the customer

Total contribution

Total revenue from sale of a product less total variable costs of producing it

Total quality management

An approach to quality that aims to involve all employees in the quality improvement process

Total revenue

Total income from the sale of all units of the product = quantity × price

Trade barriers

Taxes (tariffs) or other limitations on the free international movement of goods and services


A distinctive name, symbol, motto or design that identifies a business or its products

Variable costs

Costs that vary with output

Zero defects

The aim of achieving perfect products every time