The meaning of production
Production is the provision of a product or service to satisfy consumer’s wants and needs. The process involves adding value to a product or raw material.
Productivity measures how efficient a business has produced in relation to its resources.
The formula is: Productivity = Output / Input.
Productivity could mean using fewer inputs to produce the same amount of output. Or using the same amount of input to produce a greater amount of output.
Businesses seeks to measure to the productivity of one of the factors of production or inputs which is usually Labour, this enable a business to compare its level of production with that of competitors who have different resources available to them. It is measured by:
Output (the amount of production) / Number of employees
Ways to improve productivity
- Effective management: A good manager motivates his workers and ensures that resources are used effectively.
- Improving Skills: With proper and improved skills, wastage will be reduced.
- Improving Employee motivation: A motivated worker will definitely improve output produced which will increase business productivity.
- Using Automation: getting technology to automate process improves efficiency as newer technology makes the process faster.
Benefits of increasing efficiency/productivity
- Lower cost per unit
- Less employees needed (reduce labour cost)
- Reduces overall costs.
Why do businesses hold stock?
Businesses keep stocks for a variety of reasons, for example, factories keep raw material inventory to make sure there are enough materials for production while a shop might hold stock to ensure that products are available to customers.
Too much stock
- Money wasted on storage cost
- Risk of wastage
- Shelf life (items may reach best before date before being sold)
- Opportunity cost
Not enough stock
- Lost Sales
- Idle production process
- Special orders could be expensive
Depletion of stocks as a result of usage or sales is represented by the sloping lines. The rate of depletion can be identified from the gradient of the lines. The steeper the gradient, the faster the depletion. When stocks fall to the reorder level, a new batch is ordered. But there is a gap between the order being made and the delivery of supplies, this time gap is known as the lead time. The gap between the minimum stock level and the zero stock level is known as buffer stock.
The following decision need to be taken when managing the stock levels through a stock control chart:
- The size of the buffer stock
- The maximum level of stock to be held
- The reorder quantity
- The reorder level
Lean production is set of techniques used by business to cut down any waste in operations. It is an integrated approach to design, technology, components and materials.
Common wastes in businesses
- Overproduction: Producing too many products which then costs the business money to keep the product in storage. (and may get damaged/expires etc..)
- Waiting: Goods not being processed
- Transporting: Materials being moved around the factory inefficiently
- Over-processing: e.g. using advanced machine to do simple tasks
- Defects: production of faulty products which can’t be sold.
Benefits of lean production
- Less storage of raw materials (e..g no need for refrigeration costs, warehouse etc…)
- Less defects in production (broken products don’t get produced)
- Better use of equipment
- Speeding up production by cutting out unnecessary tasks
- Less money tied up in stock
3 Common lean production techniques
Kaizen – Kaizen means continuous improvement by eliminating waste.
- Workers meet regularly to discuss problems and possible solutions
- In this way, wastage is reduced and efficiency is improved
- Factory floors are usually rearranged so that the flow of production from one activity to the next is improved.
- Focus on reducing the need to hold stocks of raw material or parts that are needed (This reduces storage costs)
- Raw materials are delivered just in time by suppliers for production
- Reliable suppliers are needed for this to work
e.g. Milk gets delivered to milkshake factory 30 minutes before production starts, this means that the milkshake factory won’t have to spend money on expensive refrigerators to store milk before it gets produced.
- The production line is divided into separate teams of workers, each makes a part of the finished production
- Motivation is improved due to the variety of tasks and the worker belonging to a team
Main Production Methods
Job production involves producing single product at a time. Businesses which use a Job production produce each time a unique, non standard good that are made to order. Examples of Job production are ship building because each ship is made according to the customer’s specification, construction of bridges.
Characteristics of Job Production
- Product is according to customers specifications
- Multipurpose machinery is combined with skilled versatile labour.
- Workers are motivated as they carry out the variety of tasks.
- Short production runs raise unit production costs.
Advantages of Job production
- Workers have more varied job
- Higher price can be charged for product
- Product meets requirements of the customer
Disadvantages of Job production
- Costs of production are high because skilled labour is used
- Product takes a long time to produce
- Products are made to order so any errors may be expensive for the company to fix
It involves manufacture of different versions of the same basic product in batches. For example producing soap in different fragrances. Unlike Job production there is a repetition of production.
Characteristics of Batch production
- Suitable for a wide range of nearly similar goods which can use the same machinery on different settings.
- More variety for workers resulting in more job satisfaction.
- Relatively short production runs result in higher unit costs.
- Changeover between batches results in resources being ideal at times.
Advantages of Batch production
- Gives more variety of jobs to workers
- Production can be easily changed from one product to another
- Gives consumers a variety of products (e.g. many colour shirts)
Disadvantages of Batch production
- Expensive to produce goods
- Machines have to be reset when changing from one batch to another which slows down production (e.g. change colour of shirts from white to green dye)
- Warehouse space is needed to store products
It involves mass production. Once work has been completed on one operation, the job moves on to the next without stopping. It is a continuous process of parts passing on from one stage to another until completion. The production of Coca Cola on a production is an example of flow production.
Advantages of Flow production
- Goods are produced quickly and cheaply (economies of scale)
- Increased efficiency through use of machinery
- Less labour is needed (machines do the work)
- Automated production line means production can operate overnight
Disadvantages of Flow production
- Very boring for workers (same product over and over)
- Starting costs are high (expensive machines, big factory etc…)
- If a machine breaks down the whole production line may stop
- Expensive storage costs as they are lots of products
Factors affecting which method of production to use
- The nature of the product – Unique products will require job production.
- Size of the market – Products with small number of customers mean job or batch production is used. Products with large amount of consumers = flow production should be used.
- The nature of demand – Small and infrequent demand by customers means job or batch production will be used.
- The size of the business – Small businesses tend to operate using job and batch production while large business may use flow production.
How technology has changed production methods
Improvements in technology can help reduce costs and improve product quality
- Automation: Production by equipment which are controlled by computers.
- Mechanisation: Production by machine operated by workers (human)
- Computer aided design (CAD): 3D drawing software to design new products
- Electronic point of sale: Used at checkouts where stock records are automatically adjusted as an item barcode is scanned when it is sold. e.g. supermarket stock
- Electronic funds transfer at point of sale (EFTPOS): Cash registers connected to bank (Customer’s card is swiped and money is transferred right away from customer’s bank account)
Advantages of technology
- Higher productivity
- Improved motivation as boring jobs are now done by machines
- Better quality products are produced
- Faster communication
- Improved flow of information for managers
Disadvantages of technology
- Higher unemployment as machines replace human labour
- Technology is expensive
- Technology becomes outdated very quickly and may needs to be upgraded often