BUSINESS IG:

Section: 4.1.1 The meaning of production

Section 4.1.2 The main methods of production
Section 4.1.3 How technology has changed production methods
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

Managing resources to produce goods and services:

Production: “the process of converting inputs such as land, labour and capital into saleable goods, for example - shoes and cell
phones.”
The production process:
Operations management involves managing business resources – known as inputs – throughout the production process to
produce finished goods, services and components – known as output – that can be sold to other businesses or customers.
Example: a baker, (labour) will take ingredients such as flour and water to his kitchen (land) and using mixers and ovens
(capital) will make bread (the output), which will sell in his shop to customers.
Operations managers must:
 Use resources in the most cost-effective way
 Produce the required output to meet consumer demand
 Meet the quality standard expected by consumers
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

•  
Productivity: “a measure of the efficiency of inputs used in the production process, especially labour and capital.”
Difference between production and productivity:
Production involves changing inputs into output. It can be measured by the number of units produced in each period – this is the level of production.
Productivity is a measure of how efficient the inputs are changed into output, which is the number of units of output produced for every unit of output.
The production of labour (workers) is measured as follow:
Labour productivity =
Benefits of increasing efficiency and how to increase it:
All businesses will try to increase productivity because this usually reduces average costs – the cost of producing each unit of output.
How to improve labour productivity:
 Increasing output with the same number of workers
 Keeping output at the same level but with fewer workers
Increasing worker productivity can be achieved by:
 Improving the skill level of worker
 Improving the motivation of workers
 Improving more automation and more or better technology
 Improving the quality of management decisions
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

Why businesses hold inventories:

Almost all businesses hold inventories (stock) of:
 Raw materials and components – these are needed as inputs for the production process
 Work-in-progress, that is part-finished goods that have not yet completed the production process
 Finished goods ready to be sold or sent out to customers

 The production process needs raw materials or components. If these are not available when required, then the
process must stop. Workers and machinery will stand idle and there will be a loss of output.
 If the business does not have finished goods in stock, then customers’ orders cannot be met, and the business will
lose sales. This could result in the loss of current and future sales, affecting both the short-term and long-term
profitability of the business.
 Businesses often benefit from economies of scale when they buy inventories in large quantities because they
receive a discount from the supplier. The supplier may not offer discounts for smaller quantities.
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

Lean production: “the production of goods and services with the minimum waste of resources.”
 Many businesses use lean production methods in order to improve their competitiveness.
 Lean production aims to lower the costs of production by reducing waste to a minimum while maintaining, or even
improving, the quality of the finished product. At the same time, inputs to the production process must be used
efficiently.
Benefits:
• New products can be brought to the market more quickly
• Quality is improved
• Wastage of time and other resources is reduced or eliminated
• The costs of holding inventories is eliminated
• Unit costs are reduced, which will increase the profit made on each unit sold or enable a business to reduce its prices
and be more competitive. This will increase sales, revenue and profits.
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

Just-in-time (JIT) inventory control:

Means that no inventories are held by the business. Raw materials and components arrive from suppliers just as they are
needed by the production process. As soon as finished goods leave the production process, they are delivered to the customer.
JIT inventory control reduces business costs by removing the costs of holding inventories. However, for JIT to be successful it
must also remove the costs of not holding inventories.
To achieve this, businesses need to have an excellent relationship and good communication with suppliers. The raw materials
and components must be delivered on time and be of the required quality and quantity. In addition, both the workers and the
machinery used in production must be flexible, that is they must be able to switch from one product to another at short notice.
Kaizen:
A Japanese term meaning, “continuous improvement”. The kaizen approach gives all workers the opportunity to make
suggestions about how to improve quality or productivity.
Workers are doing the task every day and so they may know better than managers how to change the production process to
make it more efficient. The changes suggested by individual workers may be very small, but all of these small improvements
can lead to big improvements in efficiency.
 SECTION: 4.1.1 THE
MEANING OF PRODUCTION:

The main methods of production:

The production of goods and services has traditionally used
one of the following methods:
 Job production, the production of items one at a time
 Batch production, the production of goods in batches.
Each batch passes through one stage of production
before moving onto the next stage.
 Flow production, the production of very large quantities
of identical goods using a continuously moving process.
The features of flow production:
• Large quantities are produced
• Standardised products
• Workers are relatively unskilled
• Higher degree of automation
• Large inventories of raw materials and work in progress
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

Choosing the method of production:

 The amounts they are likely to sell
 The product they are making
 The costs of production
 The variety of goods expected by customers
The most appropriate method of production will depend on:
 The size of the market
 The type of goods being made
 SECTION: 4.1.1 THE MEANING OF
PRODUCTION:

How technology has changed production methods:

Recently, there has been a move towards more modern production methods. These “new” methods of production combine the
advantages of the traditional methods, while at the same time avoiding many of their limitations. They have been influenced by the
developments in technology and, in particular, the development of computer-aided design (CAD), computer-aided manufacturing
(CAM) and computer-integrated manufacturing (CIM).
The use of computers in design has enabled businesses to develop products much more quickly than in the past. Products can be
designed and displayed in three dimensions (3D) on computer screens. Special computer software can be used to test different
features of the product’s design.
Any changes can be easily and quickly be made. Being able to design and test products using computer technology saves the
business money. They do not have to build and rebuild expensive prototypes until they have produced on screen what they think is
close to the finished product.
The development of 3D printers is the latest technology to aid the production process. For some time, these printers have been used
to produce prototypes, but they are now being used to produce finished products in materials such as metals, plastic and rubber.
Once a product has been designed and tested it can be produced much more quickly with the aid of computer technologies. In
computer-aided manufacturing (CAM), computers control the machinery and equipment used in the production process.
Manufacturing is more capital intensive, which reduces the need for labour and, therefore, reduces production costs.
SECTION: 4.1.1 THE MEANING OF PRODUCTION: