Fundamentals of

Business Operations
Production Methods & Transformation Process

LESSON 6
Content

• What is Production?
• Objectives of Production
• Types of Production
• Mass Production
• Cell Production
• Production Planning
• Objectives of Production Planning
• Types of Production Planning
• Importance of Production Planning
• Production Capacity
• 4 Factors Of Production And Their Role In Economy
• Transformation Model
What is Production?
• Production is the method of turning raw materials or inputs into finished goods or products
in a manufacturing process. In other words, it means creating something from basic
inputs.

• Production is an activity of creating or adding value to goods. Thus, the production

process is a series of stages that must pass in producing goods or services.

• Example, making furniture from wood is production of furniture.

Objectives of Production
There are several objectives of production, which are:

• Meeting human needs

• Maintain the survival of a company
• Provide added value to a product
• Meet market demand, both from domestic and international markets
• Gaining profit so that a company achieves the desired level of profit
• Produces export goods to increase the country’s foreign exchange sources
• Stimulates the growth of other production businesses so that they can curb unemployment
• As a substitute for products that are damaged, expired, or goods that have depleted
Types of Production
• There are 4 different types of productions which are most used.

• The type of production to be used depends on the type of product being manufactured, the
demand of the product as well as the supply of raw materials.

• Below are the 4 types of production:

• Job Production
• Batch Production
• Mass Production
• Process Production
Types of Production
Job Production
• A type of production where only one unit is manufactured at a time.

• Job Production is also called as Unit Production.

• This type of production is often used for very large projects or for individual customers who
wants custom made products.

• As the customer’s preferences play such a decisive role in the final output, it’s essential for
the operations manager to maintain open and frequent communication with them.
Types of Production
• Examples of Job Production would be:
• A tailor made suit
• A dish in a restaurant with specific requirements
• A customized Laptop
• A customized Harley Davidson Bike
• A Tesla Car
Types of Production
Job Production
Features of Job Production:

• Depends a lot on skill

• Dependency is more on manual work than mechanical work
• Customer Service and Customer Management plays and important role
Case Study 1
6 Brands Driving Consumer Engagement Through Customization

In today’s digital era, the abundance of data has made it easier for retailers to personalize marketing
content, but this is now going one step further to individual design and styling. Consumers want
products tailored to their own specific needs and style, and by offering customization, retailers can
Insert text
increase their value and differentiate from the competition.

From a business perspective, offering customization can be financially rewarding too, as 1 in 5

consumers will pay a 20% premium for personalized products or services. Customization can also be a
sustainable method of production, as products are created to meet the exact demand, thus minimizing
the risk of excess stock.

Meanwhile, as manufacturing processes become more sophisticated and streamlined through features
like 3D printing and automation, customization is something we will see more of in the future. As we
continue to watch this trend develop, here are 6 brands driving engagement through customization.
Case Study 1

Louis Vuitton
The sneaker industry is expected to be worth $95.14billion by 2025, and Louis Vuitton is another luxury
brand hoping to tap into that booming market by offering consumers customized sneakers. Consumers
will have the option to customize the Run Away sneaker by changing its colour, material and stripes and
for an extra personal touch, get their initials printed ortext
Insert hot stamped on the shoe.

Louis Vuitton custom Run Away Sneaker

Case Study 1

Fame & Partners

Fame & Partners is a contemporary womenswear brand based in LA trying to combat overproduction in
the fashion industry by offering made-to-order garments. Through their Custom Clothing studio,
consumers can customize any item by choosing the silhouette, sleeve length or neckline. The brand’s
strategy eliminates the need for excess stock, helping to reduce waste that would otherwise be sent to
Insert text
landfill.

A snippet from Fame & Partners’ website

Case Study 1

Function of Beauty
This DTC beauty brand has taken over social media with its Instagrammable hair care line that target
Gen Z consumers who are seeking products unique to their needs. Consumers can go online and take
a quiz to determine their hair profiles, selecting up to five hair goals, ranging from color protection to curl
definition. They can also choose both the scent Insert
and color
text of their products, creating a customized
product from design to function. Each bottle is then formulated using clean ingredients, which are
cruelty-free and 100% vegan.

Function of Beauty custom hair care

Case Study 1

Rapha
Cult British brand Rapha is disrupting the cycling market by partnering with Unmade to create a
customizable team collection. Customers are given the opportunity to create their own unique jersey
designs, including team logos, which are then manufactured into a bespoke product. Poor user
experience and long lead times are usually a setInsert when it comes to customization, but Unmade’s
backtext
print solution allows for quick bespoke manufacturing on a smaller scale.

Rapha Custom Collection

Case Study 1

Puma
To enhance customer experience in store, Puma has created an exclusive customization studio at its
new flagship store in New York. Customers can customize a range of footwear and apparel using
paints, patchwork, embroidery, 3D knitting, laser printing and material upcycling. The studio also
collaborates with new artists on a bi-weekly basis, with
Insert textSue Tsai, BWOOD and Maria Jahnkoy being the
most recent.

Puma Customized Shoe

Case Study 1

Levi’s
Levi’s brand strategy has revolved around making products your own since the original blue jean was
patented in 1873. These days, many Levi’s shops have a dedicated tailor shop that can customize and
repair products, such as adding patches, studs, embroidery, stencilling and distressing, so consumers
can have a one-of-a-kind product. To align with its sustainability
Insert text initiatives, the brand also offers a full
repair service which does anything from fixing rips and holes to color fading, helping well-worn jeans
gain a new lease of life.

Levi’s Customized Patches

Types of Production
Batch Production
• Batch production is a method used to produce similar items in groups, stage by stage.
• In batch production, the product goes through each stage of the process together before
moving on to the next stage.
• The degree to which workers are involved in this type of production depends on the type of
product.
• It is common for machinery to be used for the actual production and workers participate only
at the beginning and end of the process.

• Examples of batch production include the following:

• Bakeries
• Textiles
• Furniture
Types of Production
Mass Production
• Mass Production is used by companies that need to create standardized products in large
quantities as economically as possible.

• Products are mass produced in order to generate the inventory needed to meet high market
demand.

• This type of production usually requires heavy investment in machinery and equipment;
workers are generally needed to assemble component parts to make the finished good.

• Examples of goods that are massed produced:

• Toilet Paper
• Cell Phones
• Automobiles
Types of Production
Process Production
• Process Production is also known as Flow Production or Continuous Production.

• Process production occurs when a process runs twenty-four hours a day. Companies whose
products are homogeneous use this production approach to reduce cost and increase
efficiency.

• These systems are highly automated, and workers act as monitors rather than as active
participants.

• Examples of Process Production:

• Oil & Gas
• Steel
• Chemicals
Types of Production
Process Production
• In most cases, a combination of a few or all the types of production is required to produce a
product.

• Example, let’s consider a house. When it was built, the contractor used a job process, and
highly skilled workers were brought in to install the plumbing, heating, and electrical
systems.

• The carpet that was installed, however, was produced according to a batch process. The
carpet manufacturer ran up a batch of carpeting in the color and style that now covers the
floors. The kitchen and bathroom light fixtures were probably mass produced before the
contractor purchased them from a home improvement store. The wall paint on was likely the
product of a continuous or flow process.

• With all these production types combined, the final product delivered to customer was a
complete house.
Mass Production
• Mass production is defined as a production method of standardized products in large
quantities.

• Automated technology or assembly lines are often used in the manufacturing process.

• Mass Production generally uses high amount of capital due to usage of heavy machinery
and modernized equipment.

• Mass Production aids in minimizing the time that a workforce must spend on an individual
unit. This results in a lower cost per unit and ultimately, lower product price.

• It enables continuity and high rhythm in production and ensures there is a consistent
implementation of all the production process operation.
Mass Production
The production lines in mass production must ensure:

• Rational usage of production-related areas

• An easy and quick approach to maintenance and repair
• Easy and rapid removal of waste
• Adequate space for storing materials and finished parts
• Sufficient facilities to bring in raw materials to production site
Mass Production
Example of brands with high mass production:

• Coca-Cola
• Adidas
• Unilever
• Toyota
• Samsung
• Apple
• Zara
• Sony
Mass Production
Some characteristics of mass production are:

• Mechanization to achieve high volume of production

• The work cycle is repetitive but smart
• Machines are laid as per the sequence of production
• Lesser Work-in-Progress
• Material handling in various stages of manufacturing is reduced to a minimum
• Quality Supervision & Control
• Organization of material and workflow is systematic
• Facilities and layout are designed to suit the requirements of production
Cell Production
• Cell production is a form of mass production that divides work into teams known as cells.
Each cell is managed to achieve goals such as quality, efficiency and waste reduction.

• Each cell is responsible for a significant part of the finished product, rather than each
person carry out a specific task.

• Cells organize work rosters within among the team members, including covering absences
and sick leave.

• Cells take responsibility for quality and ensure worker commitment as each cell is
responsible for a complete unit of work.

• Workers are multi-skilled and more adaptable. Communication is also improved and greater
motivation arising from variety of tasks.
Cell Production
Example, in a car assembly line, although individual tasks are small and relatively simple, the
production line is made up of a series of consecutive work 'cells', which have:

• A team of workers
• A supervisory responsibility
• A quality responsibility
• A process/product quality improvement responsibility

The team, or cell, decides who does what within the team. It decides how jobs will be rotated
to relieve boredom, or to ensure the relevant specialist is available for certain tasks. The cell
works as a team, not a number of individuals.
 1. How many finished goods are produced in a Job Production?
a) 1
b) 100
c) 10000
Activity 1
2. In a factory producing 200,000 packets of candies a day,
_________ are used to move products from one stage to another
stage.
a) people with hairnets
b) conveyor belts
c) paper bags

3. As a production manager for a pharmaceutical (medicine)

company, the employees you manage will be:
a) producing one batch at a time
b) monitoring the overall production of medicine through machinery
c) required to work 24x7 to continue the operation
Production Planning
• Production Planning is defined as the planning of production models in an organization or
an industry.

• To serve customers, it uses the allocation of manpower, production capacity, and materials.

• Many functional areas of an organization such as marketing and financing revolve around
production planning.

• Many policies are introduced to initiate planning. The aim is to achieve maximum output
with minimum input in the given time.
Objectives of Production Planning
A few objectives of Production Planning are as follows:

Effective Utilization of Resources

• Production Planning is required to achieve proper and predefined results. When production
is planned, it results in effective utilization of available resources and inputs.

• Avoiding wastage of available resources and optimum use of required resources is also one
of the objectives of Production Planning.

Constant Production Flow

• Proper Production Planning is used to ensure so a continuous and steady production flow of
takes place in a factory environment.

• All machines are used to maximum extent, and a regular production will ensure consistent
supply to customers.
Objectives of Production Planning
Resource Estimation
• Production Planning helps estimate the required resources of manpower & materials which
are necessary for the production process.

• This estimate will be used in sales forecasting as well, so that there is proper sync between
production and sales. This step can also be used to assist in inventory management.

Inventory Management
• A planned production will ensure optimum inventory and always avoid under or
overstocking. Required stocks are still maintained, and because the production supply is
steady, the production demands are met.

• Required inventory is always available for customers because of continuous production in a

planned way.
Objectives of Production Planning
Coordination of Different Departments
• Production Planning makes many different departments come together to coordinate.
Example, the marketing department coordinates with the production department and sales
department.

• The Marketing Department will ask for a projection from the sales department, which will go
to production department, and the production can be planned accordingly. Senior
Management is also involved in planning since their knowledge of the market, and a deep
understanding will add up and make necessary changes in the sales forecast.

Wastage Minimization
• Proper planning ensures minimum wastage of raw materials. This not only minimizes the
wastage of raw materials but also ensures that the right quality products are produced.
Objectives of Production Planning
Improved Work Environment
• When work is planned well, there is no excessive pressure on the workers. There are no
untimely notices, and workers are not overworked. This results in improved working
conditions for workers.

Improvement in Quality
• Quality of production will improve with proper quality. Quality consciousness is promoted
among the employees, and the production is planned accordingly.

Customer Satisfaction
• When production is good, overall service will also not be jeopardized. Consistent service will
result in improved customer satisfaction.
Objectives of Production Planning
Productivity Improvisation
• Productivity Improvisation is directly associated with improving labor productivity. Maximum
utilization of the workforce is done, and workers are trained from time to time.

• Since the production does not stop, there is continuous earnings, and workers can get
better pay. Workers are then motivated to perform better and improve the production
process further, which results in labor efficiency and an increase in productivity.

Capturing the Market

• Good production planning helps delivery of products to customers on time.
•
• The company can face the competition effectively because the output does not stop, and it
can beat the competition and get a competitive edge based on market availability.
Types of Production Planning
Below are the types of Production Planning:
Advanced Schedule and Plan
• Advanced planning and scheduling is the process where production capacity and raw
materials that is needed is allocated in advance to meet the demand. This method is suited
where the planning methods are simple and less complicated.

Capacity Plan
• Capacity Plan Production is determined by the organization. This production capacity is
such that it meets the changing demands of its products. The production capacity is
designed in such a way that production can be done for a maximum amount of work.
• The calculation of capacity is done as follows:

Capacity = Number of machines or Workers * no of shifts * utilization * efficiency

Types of Production Planning
Master Schedule
• The master production schedule is a plan for individual commodities that are produced in a
specific time, such as inventory, staffing, and production.

• The master production schedule is linked to indicate how much of each product is to be
produced following the sales forecasting.

• A very high level of accuracy is expected from the schedule, and there is the involvement of
different variables which affects the master production schedule. The Master production
schedule takes into consideration of customer’s demands from sales orders and builds a
schedule with the help of planned orders in an actual scheduling environment.

• The production schedule avoids a shortage of supply and last-minute scheduling or

insufficient allocation of resources so that the production is continuous and uninterrupted.
Types of Production Planning

MRP II
• The Manufacturing Resources Planning or MRP II is a method of planning for a company. It
is Operational Planning in units and as well as financial planning, which has the capability of
simulation and capacity to answer ‘what if’ questions.

• It is a concept that can be used for planning, allocating company’s resources efficiently and
their utilizing more productively.

• MRP II is commonly done using software such as Prodsmart. Prodsmart is an app that
gives real life tracking of operations such as orders, workers, materials, machines,
maintenance, waste, time, and costs in real time.
Types of Production Planning

Scheduling
• The process of controlling, arranging, and optimizing work as well as workloads in the
process of production is called scheduling.

• It is used to allocate machinery and manufacturing plant resources and also plan manpower
and production processes. It is an essential tool for engineering and manufacturing, which
has a significant impact on the process of productivity.

• The aim of scheduling is to minimize production costs and time by instructing the
production facility what to use, when to use, how much to use, and who should use it.
Types of Production Planning

Workflow in Production Planning

• A continuous process combined with planned organization of resources that is involved in
transforming input into an output is called workflow.

• A series of operations are used to depict the workflow and the work of a group or a person.

• A step-by-step process is from importing of raw materials, producing and packing is

prepared to form a workflow.

• Workflow is a fundamental building block which combines different parts of the

organization’s structure such as technology, information, teams, project, and hierarchies.
Importance of Production Planning

Production Planning is important for a business for the following reasons:

• Ensuring all available resources are utilized to their optimum

• Easy to estimate available production resources.
• Easy to study on production pattern if its regular and consistent
• Improve coordination between different departments
• Minimize wastage of available resources
• Avoid stockouts or overstocking
• Improve labor efficiency
• Stay ahead of competition
• Better time management for staff
• Reduce Cost in many aspects
Production Capacity
• Production Capacity is defined as maximum production or output which can be produced in
business with the available resources.

• The capacity is calculated over days, weeks or months. The measurement is done in a way
that production capacity can be adjusted according to demand from the market.

• There is no maximum production since the ‘maximum’ that company produce could be
infinite – with the right tools, that is if all other variables involved in production are
considered maximum and constant.

• However, for the sake of discussion, the term maximum is the best that can be produced at
a given time.

• Production capacity depends on how a company manages available employees, time, and
resources in the most efficient way possible to fulfil demand.
Production Capacity

• However, such decisions take time and are dependent on multiple factors such as:

Availability of Raw Materials

• Raw materials should be ready whenever required so that they can be used whenever
needed, especially during seasonal demands.

• Example, demand for candies go up during Halloween, or decorative items sale would
increase during Christmas. In such cases, the company must have necessary stock to
fulfil market demand.

Availability of Manpower
• Manpower should be available as and when necessary. If there are staff working shifts
on the same machine, then the production capacity increases.
Production Capacity

Equipment
• Equipment must function optimally to reduce time and cost.

• As the utilization of the equipment increases, its life reduces. The machine initially
operates at full capacity, but as the times go and the work on it increases, the ability
goes down. To keep equipment capacity at its maximum, the machines need to be
serviced periodically and replaced if necessary.

Warehousing
• Adequate warehousing and storage facilities should be present, considering the
demand and shelf life of product produced.
Calculation of Machine hour Capacity

• The first step is to understand and calculate the capacity of the machine hour in the
factory.

• Example, the factory has 100 machines, and the workers in the factory utilize the
machine from 8 am to 8 pm for 12 hours a day, then the capacity would be 12 multiplied
by hundred, which comes to 1200 machine hours.
Production Capacity for Single Product
• Production Capacity is straightforward for a single product. The time to produce a single
product is determined, and it is divided by the plant capacity in hours.

• Example, if one worker takes 30 minutes (0.5hrs) on a machine to make one product
and the capacity of the machine has 1200 hours, then the production capacity would be:

1200 / 0.5, which would be 2400 units per day.

Production Capacity Calculation
• When there is a mix of products present to calculate the production capacity, then it can
get more complicated.

• Example, apart from producing a unit of product which takes 30 minutes a day, the
manufacturing facility also makes a product B, which takes 15 minutes or 0.25 hours on
one machine for one unit. In this case, the number of units multiplied by 0.5, plus the
number of units of Product B increased by 0.25.

• Therefore at 1200 machine-hours, one combination of production would be either 2400

units per day or 4800 of Product B per day.
Capacity Utilization Rate
• If the production capacity is known, capacity percentage can be measured.

• The measurement of what percentage of capacity the business is running at is called a

capacity utilization rate.

• The capacity utilization rate is calculated by dividing actual output with potential output.

• Example, if the business is producing 2400 units of a product continuing the above
example, but now it only produces 2000 units per day, then the capacity is 83.3%.

• The higher the percentage, the better is the capability of the business to perform at full
capacity.
4 Factors Of Production And Their Role In Economy
• Production is the utilization of available economic resources to create things that satisfy
human wants.

• It is not only limited to creating things, but also involves doing everything possible to ensure
that the goods produced can satisfy human wants.

• Economic systems rely on certain inputs known as factors of production to operate

efficiently.

• These inputs are the resources that businesses in a country use to create income and
wealth.
4 Factors Of Production And Their Role In Economy
• There are 4 factors of production:

• Land
• Labour
• Capital
• Entrepreneurship
4 Factors Of Production And Their Role In Economy
Land
• Land gives all the natural resources which may be used in creating goods and to yield an
income. Land includes farming land, building land, forests, rivers, lakes and mineral
deposits.

• The total supply of land in the world is limited although the supply of land for more particular
use is not fixed. Example, more maize can be planted at the expense of wheat.

• Alternatively, more land can be allocated to buildings at the expense of farming land.

• Drainage, irrigation, and fertilizers can increase the area of cultivated land. As an input of
this production, the reward of land is rent and produce.
4 Factors Of Production And Their Role In Economy
• Therefore, land is an essential part of production.

• It is however limited as previously mentioned, together with the resources on it.

• Governmental regulations also prevent people from claiming anything for themselves
because if this were to happen, then there wouldn’t be enough resources for everyone.

• This means that economies must carefully use land resource by creating a mix of natural
and industrial uses.

• This way, they can improve production processes for turning natural resources into
consumer goods.
4 Factors Of Production And Their Role In Economy
Labour
• Labour is another one that possesses greater significance in an economy.

• It refers to human efforts both mental and physical directed towards the production of goods
and services.

• It should be noted that labour is distinct in that it is the services of labour that are bought
and sold and not the labour itself.

• The supply of labour in an economy is a measure of the number of hours of work which is
offered at given wage rates over specified period.

• The reward for labour is wages and salaries.

4 Factors Of Production And Their Role In Economy
• The reward for labour is wages and salaries.

• In economic systems, growth is determined by the size and quality of labour force available.

• If there is a limited amount of labour or if a country contains a larger percentage of unskilled

labour, than the potential for economic growth is reduced and vice versa.
4 Factors Of Production And Their Role In Economy
Capital
• Capital refers to human-made productive assets used to further production.

• These productive assets are not wanted for their sake (the satisfaction they yield), but
because they help to produce other commodities.

• To better appreciate this input of production, we classify it into two forms: Capital Good and
Capital Fund.

• Capital Good consists of such things as tools, equipment, buildings, fixtures, means of
transport, as well as raw materials in the process of manufacture, and inventory for sale.

• Capital Fund refers to money or cash that is available for investment in business
enterprises. It could be in the forms of stocks, shares, loans, and debentures.
4 Factors Of Production And Their Role In Economy
Entrepreneurship
• Entrepreneurship refers to the combination in a company doing production to profit.

• The entrepreneur in an economy fulfils two vital functions:

• Hiring and combining of other factors of production, including making decisions relating
to what to produce, how to produce and where to produce.

• Risk taking a function which arises because most production is undertaken in

anticipation of demand where the future is uncertain.

• Entrepreneurs make payments initially without any certainty that the revenue they generate
will be able to cover costs and make profit.
Transformation Model
• The transformation model is made up of three components:

• Inputs
• Transformation Processes
• Outputs
Figure 1

Input Transformation Output

Process

Feedback

• A proper production plan will have a systematic direction and control of the processes that
transform resources (inputs) into finished goods or services for customers(outputs).

• This basic transformation model applies equally in manufacturing and service businesses.
Transformation Model - Input
• Some inputs are used up in the process of creating goods or services, whereas others play
a part in the creation process but are not used up.

• To distinguish these 2 types, input resources are usually classified as:

• Transformed Resources
Resources that are transformed to produce goods and become outputs

• Transforming Resources
Resources that are further used to perform the transformation process
Transformation Model - Transformation Processes
• A transformation process is any activity or group of activities that takes one or more
inputs, transforms and adds value to them, and provides outputs for customers or clients.

• When inputs are raw materials, it is relatively easy to identify the transformation involved,
such as milk being transformed into cheese and butter.

• When inputs are information or people, the nature of the transformation may be less
obvious.

• Example, a hospital transforms ill patients (the input) into healthy patients (the output).
Transformation Model - Transformation Processes
Transformation processes include:

• Changes in physical characteristics of materials

• Changes in the location of materials, information
• Changes in the ownership of materials or information
• Storage of materials and information
• Changes in purpose or form of information
• Changes in physiological or psychological state
Transformation Model - Transformation Processes
Transformation processes include:

• Physical Transformation
• Informational Transformation
• Possession Transformation
• Location Transformation
• Storage Transformation
• Physiological or Psychological Transformation
Transformation Model - Output
• Many transformation processes produce both goods and services.

• Example, a restaurant provides service, but also produces goods such as food and drinks.

• Transformation processes may result in some undesirable outputs (such as nuclear waste
in a nuclear reprocessing plant) together with the goods and services they are designed to
produce.

• An important aspect of production in many companies is minimising the environmental

impact of waste over the entire life cycle of their products, up to the point of final disposal.
Transformation Model - Output
• Protecting the health and safety of employees and of the local community is also the
responsibility of the company.

• In addition, their operations functions may be responsible for ethical behaviour in relation to
the social impact of transformation processes, both locally and globally.

• Example, in the United States, manufacturers of a sports footwear have come under fire for
employing child labour and paying low wages to workers employed in their overseas
factories.
Transformation Model - Feedback
• A further component of the transformation model in Figure 1 is the feedback loop.

• Feedback information is used to improve production by adjusting inputs and

transformation processes that are used to achieve desired outputs.

• Example, a chef relies on a flow of information from the customer, through the waiter,
about the quality of the food. A negative feedback might lead the chef to change the
inputs (e.g. by buying better quality potatoes) or the transformation process (e.g. by
changing the recipe or the cooking method).
Transformation Model - Feedback
• Feedback is essential for business improvement.

• It can come from both internal and external sources.

• Internal sources include testing, evaluation and continuously improving goods and services,
and external sources include those who supply products or services to end-customers as
well as feedback from customers themselves.
Q&A Session