5.6 Vocab

Question 1

Buffer Stock
aka minimum stock level

Answer 1

The minimum stock level that a firm wishes to hold at any point in time.

Question 2

Capacity Utilisation

Answer 2

Refers to the extent to which an organization operates at its maximum level (known as the firm’s productive capacity).

Question 3

Capacity Utilisation Rate

Answer 3

Measures a firm’s actual output as a percentage of its capacity (maximum potential output), at a particular point in time.

Question 4

Capital Productivity

Answer 4

This measures how efficiently an organization’s fixed assets are used to generate output for the business.

Question 5

CTB

Answer 5

In a ‘make or buy decision’, this method calculates the total cost of subcontracting production to a third-party supplier.

Question 6

CTM

Answer 6

In a ‘make or buy decision’, this method calculates the total cost of producing the product in-house, instead of using a third-party provider.

Question 7

JIT

Answer 7

A lean stock control system that relies on deliveries of stock being made just in time for them to be used in the production process.

Question 8

JIC

Answer 8

A stock control system that relies on the use of reserve or buffer stocks in order to meet changing levels of demand.

Question 9

Defect

Answer 9

This means that output (goods or services) is substandard, i.e., it does not meet certain quality standards.

Question 10

Defect Rate

Answer 10

This is a measure of the proportion of a firm’s output that does not meet quality standards, i.e., it is the percentage of output that is substandard.

Question 11

Global Supply Chains

Answer 11

This refers to the network between a firm and its suppliers and consumers that incorporates all transactions on an international level, from sourcing raw materials to supplying finished goods and services to customers.

Question 12

Finished Goods

Answer 12

Completed final products of a business that are ready to be sold to consumers.

Question 13

Labour Productivity

Answer 13

This measures the average output per worker, for a given period of time.

Question 14

Lead Time

Answer 14

The timeframe (or time lag) from when a business places an order for stock and the firm receiving delivery of the stock.

Question 15

Make-or-buy Decision

Answer 15

The choice of managers whether to manufacture a product in-house (make) or to purchase it (buy) from a third-party subcontractor.

Question 16

Maximum Stock Level

Answer 16

The most amount of stock that a firm wants to hold at any point in time, given its storage facilities and capacity.

Question 17

Operating Leverage

Answer 17

This is a measure of a firm’s total fixed costs as a proportion of its total variable costs. Hence, a business with relatively high fixed costs has high operating leverage.

Question 18

Production Planning

Answer 18

This is the management process of ensuring a business has the right resources at the right time to produce goods and supply services to meet the demands of its customers.

Question 19

Productive Capacity

Answer 19

The maximum level that a firm is able to operate at, given the resources it has.

Question 20

Productivity

Answer 20

Refers to the level of efficiency in the production process. The more productive resources are, the more output they generate.

Question 21

Productivity Rate

Answer 21

This measures the extent to which a firm uses its resources in the production process, such as output per worker or output per machine hour.

Question 22

Raw Materials

Answer 22

Natural resources used in the production process, e.g., wood, fish, physical land, and water.

Question 23

Reorder Level

Answer 23

The level of inventory when a firm is required to reorder its stock.

Question 24

Reorder Quantity

Answer 24

The amount of new stock that is ordered for production.

Question 25

Semi-finished Goods

Answer 25

Inventory consisting of work-in-progress, i.e., components of an incomplete product.

Question 26

Stock Control Chart

Answer 26

A visual tool used to monitor and analyse a firm’s stock levels. It shows the rate at which stocks are used, when stocks are order, how long they take to be distributed, and when they are delivered.

Question 27

Stock-out

Answer 27

This occurs when a business has no more stock for production or sale, i.e., it is out of stock.

Question 28

Stockpiling

Answer 28

This occurs if a business orders more stock than it would usually do, perhaps in anticipation of higher levels of demand during economically prosperous times, such as peak trading periods.

Question 29

Stocks

Answer 29

Also referred to as inventories, this refers to the materials, components, and products used in the production process, i.e., raw materials, semi-finished goods, and finished goods.

Question 30

Supply Chain

Answer 30

This refers to the various phases of business operations from the output of a product to it being distributed to the final customer.

Question 31

Supply Chain Management (SCM)

Answer 31

The art of managing and controlling the sequence of activities from the production of a product to it being delivered to the end customer.

Question 32

Usage Rate

Answer 32

This shows the speed (rate) at which stocks are used in the production process.