Section 4 Operations Management: Key terms revision
1 mark for key term, 2 marks per definition/explanation
Term Description/Definition
1. Capital intensive The production that relies more on the use of plant and machinery (capital).
production
2. Labour intensive The production that uses relatively more labour than capital (machinery).
production
3.Productivity A measure of efficiency. Units of output are compared to units of input. The
measure that is most often used is labour productivity.
4. Labour productivity It measures how much production an individual member of staff has
completed or the number of units produced by a worker in a given time
period.
5. Automation The use of technology by which a production is performed with minimum
human assistance or reduced human intervention.
6. Just-in-time production A production technique that requires the suppliers to deliver resources only
when needed in order to reduce stock-holding, and goods are produced
only when order is received.
7. Kaizen Continuous improvement achieved by small changes on a continual basis
rather than large one-off changes to production.
8. Lean production A philosophy that a business uses to try to reduce the time, resources and
labour involved in production to make it more efficient.
9. Job production When one-off or handmade items are produced, normally to meet the
needs of the customer’s specification (custom-made production).
10. Batch production A production method where similar items are produced together – a whole
batch moves through the different stages of production together.
11. Flow production When an item is mass produced using a production line – large quantities
of an item can be made.
12. Computer-aided Using computers to help produce better designs for products.
design (CAD)
13. Computer-aided Using computers to aid the manufacturing process – this allows for
manufacture (CAM) consistent quality in the production of goods.
14.Variable costs Costs that are directly linked to production – these increase as the
business’s level of production (output) increases.
15. Fixed costs A cost that is not directly linked to the level of production – it will therefore
stay the same regardless of how productive a business is.
16. Total costs The total cost of producing a certain number of goods: variable costs +
fixed costs.
17. Average costs The average cost of producing one item – the total cost of production
divided by the number of items produced.
18. Economies of scale The advantages a firm gains as it grows in size that reduce costs per unit –
such as discounts for buying in large quantities.
19. Technical economies Businesses that produce more can invest in better technology that
of scale increases productivity and reduces waste and therefore reduces average
cost.
20. Purchasing Larger businesses can place bigger orders for raw materials. Bulk
economies of scale purchases usually can enjoy cheaper rate per item.
21. Managerial Bigger businesses can afford to hire specialist managers who can make
economies of scale better decisions that help the company run more efficiently and therefore
reduce average cost.
22. Financial economies Larger businesses can borrow more money than smaller businesses and
of scale negotiate a cheaper rate of interest (finance cost) as banks know that large
firms can pay them back.
23. Diseconomies of The disadvantages of a business growing too large that result in an
scale increase in its costs per unit.
24. Break-even point The point at which a business sells enough products to cover all of its
costs: sales revenue = total costs.
25. Margin of safety The amount of output above the break-even point where the business
makes a profit.
26. Quality control A method of systematically checking (spot checking) the quality of a
number of products (samples) at different stages during the production
process.
27. Quality assurance A method of improving quality by trying to prevent mistakes happening
(zero defects) in the production process.
28. infrastructure The network of roads and access to basic amenities that a business needs
in order to succeed in a particular location.
29. Minimum wage Many countries specify a legal minimum wage, which is the lowest amount
that a business can pay a member of staff (usually expressed per hour or
per day).
30. Trade barriers The methods used by government to restrict trading with foreign countries.
Examples are quotas, tariffs and subsidies.
31. Subsidies Financial support given to local firms to help them compete with overseas
firms.
32. Grants Financial support to attract business to locate in a particular area to boost
the local economy and provide jobs.
