Key Definition – Production

Added value is the amount by which the value of the product has risen as a result of a person’s or firm’s part in the production of that good or service. The actual value of the product is increased at each stage in its production.

Automation – the replacing of human labour by machines. The growth of computer-controlled machines has, in recent years, speeded up the move to automation.

Average stock is the average amount of stock that is held by a firm over a period of time, usually a year.

Batch production – where identical goods are made in lots or batches. One batch is finished before moving on to the next one.

British Standards Institution (BSI) – an independent body, responsible for the preparation of British Standards for all industries. BSI is funded by the sale of its standards, certification fees, subscriptions and by government grant.

Chain of distribution – the stage in the chain of production that takes goods from manufacturers to the final consumer. The chain of distribution will vary depending on the product.

Producers

Wholesalers

Own shops Retailers

Retailers

Consumers

Computer Aided Design (CAD) is when a product can be designed or its design modified using a computer program. The main advantage of CAD is that it speeds up designing. Designers no longer have to make complicated drawings by hand. A design can be looked at from all angles on screen. The effects of changes to a design can be tested. CAD is especially useful in industries where the design of products has to be changed regularly, for example with fashion goods and cars.

Computer Aided Manufacture (CAM) – CAD-produced designs can be transferred directly to program some of the machines used in manufacture. CAM may have a wider meaning to include any use of computers in production planning and control.

Computer Integrated Manufacture (CIM) is where computers are used to control large parts of the manufacturing process. A central computer may co-ordinate the flow of parts to the production line. It may also directly control robots and other automated equipment.

Confederation of British Industry (CBI) is the main employers’ organisation in Britain. It is funded entirely by its members. Most of its 250,000 member companies are quite small firs, employing fewer than 200 people.

Customers are the buyers of goods and services from suppliers. A customer may be a firm buying from another firm.

Department of Trade and Industry (DTI) – the department responsible for the government’s regional policy competition policy and overseas trade.

Direct Costs are those costs that are a direct result of producing a particular product. Direct costs include the wages of the workers used to make a product, the costs of running the machines and the coast of the raw materials used. Direct costs do not include the general costs of running the business which are classed as overheads.

Division of Labour is the splitting of a job or process into a number of smaller parts. Each part is performed by a different person who will become a specialist in that part.

Economies of Scale occur when the average costs of running a business fall as a firm increases its output and size.

Employee – someone who works for an organisation in return for a wage or salary. There is a contract of employment between the employee and the employer. Employees may be temporary or permanent, full-time or part-time.

Employer – a person or organisation that engages someone to undertake work in return for an agreed payment. An employer and its employees are parties to contract of employment

Employers’ Associations are where employers join together to promote their common interests. In many ways they are a kind of employer’s trades union.

Employment Agency – a private organisation that helps clients to recruit staff. The agencies try to match people to the kind of Job being offered by an employer.

Entrepreneur – someone who spots a business opportunity and carries it through. The entrepreneur organises, manages and takes the risks of running that business.

Expenses are the costs of running the business. They are often called overheads and include fixed and variable costs.

Factors of Production are the resources used in production. These factors fall into four groups.

  • Land – this includes not only the land itself but all the ‘gifts of nature’ such as all the minerals in the ground, fish in the sea, forests and the fertility of the soil; land earns rent.
  • Labour – all human resources including both physical and mental ability; anyone capable of doing work for which payment may be received is part of labour, labour earns wages or salaries.
  • Capital – goods and equipment of all kinds used in production, not just money; capital earns interest for its use.
  • Enterprise – the factor that organises the other factors of production to make them economically effective, enterprise takes the risks and earns profits.

Flow Production is where products are produced continuously on a production line. Thegoods being made pass from one stage straight on to the next without a break. This is also called mass production.

Health & Safety at Work Act 1974 – this sets out the duties and responsibilities of employers and employees to ensure health and safety at work..

Internal Growth – is where a company expands because of growth in its sales. It grows because of its own success. It is in contrast to growth by buying up other companies.

Job Production is where a single product is produced in response to an individual order. It is a ‘one off’ made to a customer’s specification.

Just-in-time (JIT) is a manufacturing system for keeping stock levels of raw materials and component parts to a minimum.

Kitemark – a symbol issued by the British Standards Institution. It shows that the goods carrying the Kitemark are produced according to a BSI standard, and therefore of a certain minimum quality.

Labour Intensive – when labour costs are a high proportion of the total costs of production.

Land – the factor of production that includes all the ‘gifts of nature’ (natural resources such as fertility, fish, minerals and forests).

Mass Production is when goods are produced in large quantities on a continuous production line. The speed at which people work depends on the speed at which the line moves. Each person working on the line is responsible for only a small part of a finished product before it then moves on to the next person. It is also know as flow production.

Merger – when two companies agree to join together to form one new company. The new company has one board of directors where there were two;. There will also only be one management and one department of administration. This may lead to redundancies. Mergers are a quick way for companies to expand.

Mixed Economy – one that is made up of both privately-owned and stateowned enterprises. Part of the economy is thus run by private business, the rest controlled by the state.

Monopolies and Mergers Commission (MMC) – the job of the MMC is to carry out enquiries into matters referred to it by the Department of Trade and Industry or by the Office of Fair Trading. It is not able to decide for itself what to investigate.

Payment by Results – a system of pay based on a level of output or on results. It is hoped that linking pay to results will act as an incentive to people to work harder.

Primary Industry is made up of the industries that make use of the ‘gifts of nature’. It is also called extractive industry. Primary industries include mining, fishing, forestry and farming.

Quality Assurance (QA) – the steps taken by a firm to make sure that there is a known standard of quality built into all its products.

Quality Circles are groups of workers and managers who meet to discuss quality problems in their area of work; They suggest ways of getting over the problems. It is park of quality assurance.

Quality Control is the methods used by firms to make sure that their products are of the right quality. This is usually done by inspecting the product at every stage during production.

Raw Materials are goods bought by a manufacturer to be used in the production of another product.

Service Industries are the industries that are in the tertiary sector. They do not sell a product but a service.

Shift Work involves working regular hours that are outside the normal working day.

Skilled Worker – a worker who has both knowledge of theory and practical ability in a particular job.

Subsidiary – a business that is owned by another company. That means that the parent company owns at least 51% of the shares in the subsidiary.

Takeover is said to occur when control of a firm is bought by another company. A buyer gains control by buying more than 50% of the ordinary shares in the target company.

Takeover Bid – an attempt by one company to gain a controlling interest in another company. This is achieved by offering to buy the target company’s shares.

Tertiary Industry is the part of the economy that supplies services to other industries and to the public. It is the third or ‘tertiary’ stage in production.

Total Quality Management (TQM) aims at making all employees, at every level in a firm, responsible for the quality of the firm’s products. Everyone is responsible for the quality of his or her own work.

Uniform Business Rate – a tax paid by businesses to local councils.

Variable Costs are costs that change in direct relation to the output of a firm.

Defin production