The production process is concerned with transforming a range of inputs into those

outputs that are required by the market.

This involves two main sets of resources - the transforming resources, and the
transformed resources.
The transforming resources include the buildings, machinery, computers, and people
that carry out the transforming processes. The transformed resources are the raw
materials and components that are transformed into end products.

Any production process involves a series of links in a production chain. At each stage
value is added in the course of production. Adding value involves making a product
more desirable to a consumer so that they will pay more for it. Adding value therefore is
not just about manufacturing, but includes the marketing process including advertising,
promotion and distribution that make the final product more desirable.
It is very important for businesses to identify the processes that add value, so that they
can enhance these processes to the ongoing benefit of the business.

There are three main types of process:job, batch and flow production.

Job production
Job or 'make complete' production is the creation of single items by either one operative
or a team of operative's e.g. the Humber Bridge or a frigate for the navy.
It is possible for a number of identical units to be produced in parallel under job
production, e.g. several frigates of a similar type. Smaller projects can also be seen as a
form of job production, e.g. hand knitting a sweater, writing a book, rewiring a house,
etc.
Job production is unique in the fact that the project is considered to be a single
operation, which requires the complete attention of the operative before he or she
passes on to the next job. A good example of job production is the work carried out by
Portakabin in creating modular buildings such as offices, which it designs, assembles
and maintains for clients. Examples from the service industries include cutting hair, and
processing a customers' order in a store like Argos.
  The benefits of job production are:
1. The job is a unique product, which exactly matches the requirements of the customer,
often from as early as the design stage. It will therefore tend to be specific to a
customer's order and not in anticipation of a sale. For example, someone doing a
customised spray paint job on a motorcycle will first discuss with a customer the sort of
design he would like. A detailed sketch would then be produced on a piece of paper.
Once the sketch has been approved the back of the sketch will be chalked over and
traced on to the relevant piece of the motorbike. The background work is then sprayed
on with an airbrush before the fine detail is painted on. The finished work is then
inspected by the customer who will pay for a unique product.
2. As the work is concentrated on a specific unit, supervision and inspection of work are
relatively simple.
3. Specifications for the job can change during the course of production depending upon
the customer's inspection to meet his or her changing needs. For example, when a
printing firm like Polestar is asked to produce a catalogue for a grocery chain it is
relatively simple to change the prices of some of the goods listed in the catalogue.
4. Working on a single unit job, coping with a variety of tasks and being part of a small
team working towards the same aim would provide employees with a greater level of
satisfaction. For example, aircrews working for United Airways would treat each flight as
a specific job, with passengers requiring individual attention to their specific needs - e.g.
for vegetarian dishes, wheelchair access to the flight, etc.
Batch production
The term batch refers to a specific group of components, which go through a production
process together. As one batch finishes, the next one starts.
For example on Monday, Machine A produces a type 1 engine part, on Tuesday it
produces a type 2 engine part, on Wednesday a type 3 and so on. All engine parts will
then go forward to the final assembly of different categories of engine parts.
Batches are continually processed through each machine before moving on to the next
operation. This method is sometimes referred to as 'intermittent' production as different
job types are held as work-in-progress between the various stages of production.
The benefits of batch production are:
1. It is particularly suitable for a wide range of almost similar goods, which can use the
same machinery on different settings. For example batches of letters can be sent out to
customers of an insurance company.
2. It economises upon the range of machinery needed and reduces the need for a
flexible workforce.
3. Units can respond quickly to customer orders by moving buffer stocks of work-in-
progress or partly completed products through the final production stages.
4. It makes possible economies of scale in techniques of production, bulk purchasing
and areas of organisation.
5. It makes costing easy and provides a better information service for management.
Flow production
Batch production is described as 'intermittent' production and is characterised by irregularity. If
the rest period in batch production disappeared it would then become flow production. Flow
production is therefore a continuous process of parts and sub-assemblies passing on from one
stage to another until completion.
Units are worked upon in each operation and then passed straight on to the next work
stage without waiting for the batch to be completed. To make sure that the production
line can work smoothly each operation must be of standard lengths and there should be
no movements or leakages from the line, i.e. hold-ups to work-in-progress.
For flow production to be successful there needs to be a continuity of demand. If
demand varied, this could lead to a constant overstocking of finished goods.
Although with modern robotics it is possible to create variations in products being
produced through continuous flow techniques, typically such products will be relatively
standardised.
Achieving a smooth flow of production requires considerable pre-production planning to
make sure that raw materials are purchased and delivered just-in-time, that sufficient
labour is employed and that there is continuous attention to quality throughout the
production process.
The benefits of flow production are:
 ease of using just-in-time techniques to eliminate waste and minimise
costs
 labour and other production costs will be reduced through detailed
planning and the use of robotics and automation
 deviations in the line can be quickly spotted through ongoing quality control
techniques
 as there is no rest between operations, work-in-progress levels can be
kept low
 the need for storage space is minimal
 the physical handling of items is minimal
 investment in raw materials and parts are quickly converted into sales
 control is easy.

6 Types of Production Process

        posted by John Spacey, September 23, 2017

A production process is a series of steps that creates a product or

service. The following are common types of production process.
Job Production
The process of creating a single item. Typically applies to unique
items or things that have low demand. For example, a machine shop
that produces an industrial part ordered by a customer.
Batch Production
Producing a number of items together as a batch. For example, 1200
pastries that move through 6 steps together with each step bringing
them closer to being a finished product.
Mass Production
Mass production is the continuous production of items. This involves
a series of workstations that can all be in use at the same time. For
example, a guitar factory that has 12 workstations that continuously
has one guitar at each station at a different stage of production. When
one guitar is beginning production, another is finishing. This type of
production allows for great scale. For example, a production line that
completes a new guitar every 20 seconds outputs 9600 guitars in an 8
hour shift.
Mass Customization
A mass production line that produces unique items to customer
specifications. This requires advanced technology that orchestrates a
unique process for each item. For example, a production line that
produces shirts that are each different based on customer
measurements and preferences.
Craft Production
Craft production is production that doesn't use automation. For
example, a bespoke suit tailored by a tailor.
Service Production
Delivery of a service is often referred to as production. For example,
the operational processes that are required for a bank to offer 24/7
bank machines such as customer service, technical support and
security monitoring.

A good way to think of a business is to imagine inputs entering an imaginary black box.

What come out of the box are outputs. The black box is the business – what is does
how it does it and so on.

A business needs resources in order to trade. The activities of a new business should
be designed to turn those resources into products and services that customers are
willing to pay for. This process is known as the "transformation process".

If the value of what customers pay for the outputs is more than the cost of the inputs,
then the business can be said to have "added value".

So, in summary, the transformation process is about adding value.

That sounds pretty theoretical. So, let's take a look at some practical examples of what
is involved in the transformation process.

Inputs to the transformation process

In order to make products and deliver services, a business needs resources – i.e.
inputs. The textbooks often refer to these as "factors of production", which is a slightly
boring way of describing real resources such as:
Labour – the time and effort of people involved in the business: employees, suppliers
etc

Land – think of this as the natural resources that are used by the business – e.g. actual
land, energy, and other natural resources

Capital – capital includes physical assets such as machinery, computers, transport

which are used during production. Capital can also include finance – the investment that
is required in order for the business activities to take place.

Enterprise – enterprise is the entrepreneurial "fairy-dust" that brings together or

organises the other inputs. The entrepreneur takes the decisions about how much
capital, what kind of labour etc and how & when they are needed in the business. You
will probably agree that enterprise is the most important input for a successful business.
Inputs by themselves are rarely enough for a start-up to succeed. They need to be the
right kind of inputs, in the right mix. So, for example, a successful entrepreneur will be
keen to ensure:

High quality people are employed (the best the business can afford at each stage of
development) and that these people are retained and invested in (training)

Capital investment is focused on efficiency and quality – use of modern machinery

or IT systems of the right kind can have a significant effect whether a small business is
able to compete

Outputs from the transformation process

The outputs of business activities are reflected in the products and services sold to
customers. It is quite useful to think of ways in which similar business activities can be
grouped based on those outputs.

Economists and business examiners alike have traditionally categorised the outputs
from the transformation process into these three groups:

Primary Sector

Extraction of natural resources (e.g. oil, gas) and farming activities

Secondary Sector

Production of finished goods and components (e.g. flat-screen TVs, computer memory
chips, games consoles, industrial equipment, motor vehicles. The secondary sector is
also often referred to as the "manufacturing sector".

Tertiary Sector
Providing a service of some kind. E.g. health, travel, legal, finance, building, security.
The list of potential services is endless. Think of this as any business activity that
involves people doing things for you! Retail businesses are in the tertiary sector.

In recent years, some textbooks have also suggested that there is a fourth sector –
the Quaternary sector. The quaternary sector consists of those industries providing
information services, such as computing and ICT (information and communication
technologies), consultancy (offering advice to businesses) and R&D (research,
particular in scientific fields).

In most textbooks you will see the outputs of the Quaternary sector included in the
tertiary sector. Don't worry; the distinction isn't important. What is important is that you
remember that the Tertiary sector in the UK has grown strongly over recent decades
and now accounts for about 75% (three quarters) of all business activity. 

A final word about the categorisation of business activities (outputs) into sectors.
Remember that is perfectly possible for a single business to be operating in more than
one sector. 

For example, many farms in Britain (farming = primary sector) also offer holiday
accommodation (tertiary sector) and produce processed foods such as cheese and ice-
cream from farm supplies (secondary sector).

Here is another example. Morrison's supermarkets (i.e. tertiary sector - one of the four
largest supermarkets in the UK) also own and operate its own factories that make many
of the food products sold in store (secondary sector).

Production management, also called operations management, planning and control

of industrial processes to ensure that they move smoothly at the required level.
Techniques of production management are employed in service as well as in
manufacturing industries. It is a responsibility similar in level and scope to other
specialties such as marketing or human resource and financial management. In
manufacturing operations, production management includes responsibility for product
and process design, planning and control issues involving capacity and quality, and
organization and supervision of the workforce.
The “Five M’s”
Production management’s responsibilities are summarized by the “five M’s”: men,
machines, methods, materials, and money. “Men” refers to the human element in
operating systems. Since the vast majority of manufacturing personnel work in the
physical production of goods, “people management” is one of the production
manager’s most important responsibilities.
The production manager must also choose the machines and methods of the company,
first selecting the equipment and technology to be used in the manufacture of the
product or service and then planning and controlling the methods and procedures for
their use. The flexibility of the production process and the ability of workers to adapt
to equipment and schedules are important issues in this phase of production
management.

The production manager’s responsibility for materials includes the management of

flow processes—both physical (raw materials) and information (paperwork). The
smoothness of resource movement and data flow is determined largely by the
fundamental choices made in the design of the product and in the process to be used.

The manager’s concern for money is explained by the importance of financing and
asset utilization to most manufacturing organizations. A manager who allows
excessive inventories to build up or who achieves level production and steady
operation by sacrificing good customer service and timely delivery runs the risk that
overinvestment or high current costs will wipe out any temporary competitive
advantage that might have been obtained.
Planning And Control
Although the five M’s capture the essence of the major tasks of production
management, control summarizes its single most important issue. The production
manager must plan and control the process of production so that it moves smoothly at
the required level of output while meeting cost and quality objectives. Process control
has two purposes: first, to ensure that operations are performed according to plan, and
second, to continuously monitor and evaluate the production plan to see if
modifications can be devised to better meet cost, quality, delivery, flexibility, or other
objectives. For example, when demand for a product is high enough to justify
continuous production, the production level might need to be adjusted from time to
time to address fluctuating demand or changes in a company’s market share. This is
called the “production-smoothing” problem. When more than one product is involved,
complex industrial engineering or operations research procedures are required to
analyze the many factors that impinge on the problem.
Inventory control is another important phase of production
management. Inventories include raw materials, component parts, work in process,
finished goods, packing and packaging materials, and general supplies. Although the
effective use of financial resources is generally regarded as beyond the responsibility
of production management, many manufacturing firms with large inventories (some
accounting for more than 50 percent of total assets) usually hold production managers
responsible for inventories. Successful inventory management, which involves the
solution of the problem of which items to carry in inventory in various locations, is
critical to a company’s competitive success. Not carrying an item can result in delays
in getting needed parts or supplies, but carrying every item at every location can tie up
huge amounts of capital and result in an accumulation of obsolete, unusable stock.
Managers generally rely on mathematical models and computer systems developed by
industrial engineers and operations researchers to handle the problems of inventory
control.
To control labour costs, managers must first measure the amount and type of work
required to produce a product and then specify well-designed, efficient methods for
accomplishing the necessary manufacturing tasks. The concepts of work measurement
and time study introduced by Taylor and the Gilbreths, as well as incentive systems to
motivate and reward high levels of worker output, are important tools in this area of
management. In new operations particularly, it is important to anticipate human
resource requirements and to translate them into recruiting and training programs so
that a nucleus of appropriately skilled operators is available as production machinery
and equipment are installed. Specialized groups responsible for support activities
(such as equipment maintenance, plant services and production scheduling, and
control activities) also need to be hired, trained, and properly equipped. This type of
careful personnel planning reduces the chance that expensive capital equipment will
stand idle and that effort, time, and materials will be wasted during start-up and
regular operations.
The effective use and control of materials often involves investigations of the causes
of scrap and waste; this, in turn, can lead to alternative materials and handling
methods to improve the production process. The effective control of machinery and
equipment depends on each machine’s suitability to its specific task, the degree of its
utilization, the extent to which it is kept in optimum running condition, and the degree
to which it can be mechanically or electronically controlled.
The Importance Of Models And Methods
Because of the enormous complexity of typical production operations and the
almost infinite number of changes that can be made and the alternatives that can be
pursued, a productive body of quantitative methods has been developed to solve
production management problems. Most of these techniques have emerged from the
fields of industrial engineering, operations research, and systems engineering.
Specialists in these fields are increasingly using computers and information
processing to solve production problems involving the masses of data associated
with large numbers of workers, massive inventories, and huge quantities of work in
process that characterize most of today’s production operations. Indeed, many mass
production operations could not run without the support of these industrial engineers
and technical specialists. The important aspects of production control are summarized
in the Table.
 Production-control summary
processes inventory inspection costs

measuring rate of
output; recording inspecting materials collecting cost
recording stock levels
idle time or and parts data
observation downtime

analyzing demand for

computing costs
comparing progress stocks in different estimating process
in relation to
with the plan uses and at different capabilities
estimates
analysis times

issuing production initiating full

adjusting selling
corrective expediting and procurement inspection; adjusting
price of product
action orders processes

estimating drawing up reassessing evaluating

production capacity replenishment specifications; production
and maintenance policies and inventory improving processes economics;
evaluation schedules systems and procedures improving data
William K. Holstein

What is Production Management? Meaning

Production management means planning, organising, directing and controlling of production activities.

Production management deals with converting raw materials into finished goods or products. It brings
together the 6M's i.e. men, money, machines, materials, methods and markets to satisfy the wants of
the people.
Image Credits © jovijovijovi.

Production management also deals with decision-making regarding the quality, quantity, cost, etc., of
production. It applies management principles to production.

Production management is a part of business management. It is also called "Production Function."

Production management is slowly being replaced by operations management.

The main objective of production management is to produce goods and services of the right quality,
right quantity, at the right time and at minimum cost. It also tries to improve the efficiency. An efficient
organisation can face competition effectively. Production management ensures full or optimum
utilisation of available production capacity.

Definition of Production Management

According to Elwood Spencer Buffa,

"Production management deals with decision-making related to production processes so that the
resulting goods or service is produced according to specification, in the amount and by the schedule
demanded and at minimum cost."

Importance of Production Management

The importance of production management to the business firm:

Accomplishment of firm's objectives : Production management helps the business firm to achieve all its
objectives. It produces products, which satisfy the customers' needs and wants. So, the firm will increase
its sales. This will help it to achieve its objectives.

Reputation, Goodwill and Image : Production management helps the firm to satisfy its customers. This
increases the firms reputation, goodwill and image. A good image helps the firm to expand and grow.

Helps to introduce new products : Production management helps to introduce new products in the
market. It conducts Research and development (R&D). This helps the firm to develop newer and better
quality products. These products are successful in the market because they give full satisfaction to the
customers.

Supports other functional areas : Production management supports other functional areas in an
organisation, such as marketing, finance, and personnel. The marketing department will find it easier to
sell good-quality products, and the finance department will get more funds due to increase in sales. It
will also get more loans and share capital for expansion and modernisation. The personnel department
will be able to manage the human resources effectively due to the better performance of the production
department.

Helps to face competition : Production management helps the firm to face competition in the market.
This is because production management produces products of right quantity, right quality, right price
and at the right time. These products are delivered to the customers as per their requirements.

Optimum utilisation of resources : Production management facilitates optimum utilisation of resources

such as manpower, machines, etc. So, the firm can meet its capacity utilisation objective. This will bring
higher returns to the organisation.

Minimises cost of production : Production management helps to minimise the cost of production. It tries
to maximise the output and minimise the inputs. This helps the firm to achieve its cost reduction and
efficiency objective.

Expansion of the firm : The Production management helps the firm to expand and grow. This is because
it tries to improve quality and reduce costs. This helps the firm to earn higher profits. These profits help
the firm to expand and grow.

The importance of production management to customers and society:

Higher standard of living : Production management conducts continuous research and development
(R&D). So they produce new and better varieties of products. People use these products and enjoy a
higher standard of living.
Generates employment : Production activities create many different job opportunities in the country,
either directly or indirectly. Direct employment is generated in the production area, and indirect
employment is generated in the supporting areas such as marketing, finance, customer support, etc.

Improves quality and reduces cost : Production management improves the quality of the products
because of research and development. Because of large-scale production, there are economies of large
scale. This brings down the cost of production. So, consumer prices also reduce.

Spread effect : Because of production, other sectors also expand. Companies making spare parts will
expand. The service sector such as banking, transport, communication, insurance, BPO, etc. also expand.
This spread effect offers more job opportunities and boosts economy.

Creates utility : Production creates Form Utility. Consumers can get form utility in the shape, size and
designs of the product. Production also creates time utility, because goods are available whenever
consumers need it.

Boosts economy : Production management ensures optimum utilisation of resources and effective
production of goods and services. This leads to speedy economic growth and well-being of the nation.

The Theory of production explains the principles by which a business firm decides how much
of each commodity that it sells (its “outputs” or “products”) it will produce. And how much of
each kind of labor, raw material, fixed capital good, etc., that it employs (its “inputs” or
“factors of production”) it will use. Economics, models, and theories are not dynamic; they
are fixed to a period. So, economists base their models on the short run, medium run or long
run. The difference in these time frames is the ability to change the factors of production.
For example, in the short run, its impossible set up a new factory, but its more plausible to
hire a new worker. It shows that in a period, current output can change only so much. While
in the long run, you can make many more changes. In this post, we will analyze the Theory of
Production in the Short-Run.
 Theory of Production: Short-Run Analysis
The Short-Run is the period in which at least one factor of production is considered fixed.
Usually capital is considered constant in the short-run.

In the Long-Run, all factors of production are variable, while in the very long-run all factors
of production are variable and research and development is possible.

Law of Diminishing Marginal Returns

If more and more of a variable Factor of Production is used in a combination with a fixed
factor of production, marginal product, then average product will eventually decline. The law
of diminishing marginal returns determines the behavior of output in the short-run. Think of
a pizzeria, with tables, chairs, and ovens (fixed factor of production). With no workers, the
output is zero, with one worker the output is ‘x’ units. The worker takes orders, makes
pizzas, cleans tables and serves the bill. If there are two workers, the second worker can do
the same work as the first, and the output will be 2x units. They can specialize and further
increase output.
Total Product
 Marginal Product

 The output will increase at an increasing rate till L1. Therefore the marginal product is
rising till L1.
 Adding extra workers increases total output, but at a decreasing rate, more workers
contribute less each, and the marginal product begins to fall (L1 to L2). Hiring more
workers results in each new worker adding less to the output.
 After L2, there is too much labor for the available capital, workers get in each other’s
way, and each contribution of everyone new worker is negative.
 No firms hire beyond L2; too much labor to capital, and less than L1; too much capital
to labor.

Average Product (AP)

Total Product / Variable Factor of Production. Average Product is maximum at the point that
Total Product is the steepest.
Marginal Product (MP)
Marginal Product is the change in the total product as a result of changing the variable factor
of production by 1 unit. Ex: When one more chef is added, and production increases to x
units when the second worker has hired the output increases by more than 2x units.

If Marginal Product > Average Product, then Average Product will rise

If Marginal Product < Average Product, then Average Product will drop

If Marginal Product = Average Product, then Average Product will be at maximum

For example: If you think of scores, in Jack’s sixth test (marginal), he gets a score higher than
his average, then his average will increase. If in the next test (marginal) he gets a score lower
than his average, then his average will drop. If he gets a score that’s the same as his average,
then his average won’t change.

+ SUBSCRIBE

 SHARE
 

What is 'Production Cost'

Production cost refers to the cost incurred by a business when manufacturing a
good or providing a service. Production costs include a variety of expenses
including, but not limited to, labor, raw materials, consumable manufacturing
supplies and general overhead. Additionally, any taxes levied by the government
or royalties owed by natural resource extracting companies are also considered
production costs.

BREAKING DOWN 'Production Cost'

Also referred to as the cost of production, production costs include expenditures
relating to the manufacturing or creation of goods or services. For a cost to
qualify as a production cost it must be directly tied to the generation of revenue
for the company. Manufacturers experience product costs relating to both the
materials required to create an item as well as the labor need to create it. Service
industries experience production costs in regards to the labor required to provide
the service as well as any materials costs involved in providing the
aforementioned service.

In production, there are direct costs and indirect costs. For example, direct costs
for manufacturing an automobile are materials such as the plastic and metal
materials used as well as the labor required to produce the finished product.
Indirect costs include overhead such as rent, administrative salaries or utility
expenses.

Deriving Unit Costs for Product Pricing

To figure out the cost of production per unit, the cost of production is divided by
the number of units produced. Once the cost per unit is determined, the
information can be used to help develop an appropriate sales price for the
completed item. In order to break even, the sales price must cover the cost per
unit. Amounts above the cost per unit are often seen as profit while amounts
below the cost per unit result in losses.

If the cost of producing a product outweighs the price that is paid for it, this may
lead producers to consider temporarily ceasing operations. For example, in
January 2015, the selling price of a barrel of oil fell to $40 a barrel. With product
costs varying from $20 to $50 a barrel, a cash negative situation occurs for those
with production costs on the higher end. Those producers may choose to cease
production efforts until sale prices return to profitable levels which lowers the
amount of supply available within the market and may encourage oil prices to
rise based on the shifting supply and demand models.

Production Costs and Asset Recording

Once a product is complete, it can be recorded as a company asset until the
product is sold. This allows the value of the product to be accounted for within
financial statements and other accounting documents, and provides a way to
keep shareholders informed and reporting requirements to be met.