4.1 - Production of Goods & Services
The concepts of production and productivity
Production involves organising resources to create goods and services that meet customer needs. It transforms inputs such as land, labour, capital, and enterprise into outputs like finished products or services.
Key differences between production and productivity
- Production - Focuses on the overall process of creating goods and services, including the quantity and quality of outputs.
- Productivity - Measures how efficiently inputs are converted into outputs, often expressed as output per unit of input.
The production process
The production process uses the four factors of production:
- Land - Natural resources like raw materials or premises.
- Labour - Human effort from workers.
- Capital - Machinery, tools, and buildings.
- Enterprise - Ideas and risk-taking by business owners to combine the other factors.
Different production methods and their characteristics
Businesses choose production methods based on the type of product and market demands. The main methods are job, batch, and flow production, each with distinct features.
Comparison of production methods
| Method | Description | Advantages | Disadvantages |
|---|---|---|---|
| Job production | Involves creating a single, customised product at a time, such as bespoke furniture or tailored clothing. | - Highly flexible to meet specific customer needs - Skilled work keeps employees motivated | - High costs due to specialised labour - Time-consuming, leading to low output |
| Batch production | Produces a group of identical items before switching to another product, like baking batches of different bread types. | - Allows some variety in products - Higher output than job production | - Machines need resetting between batches - High levels of work-in-progress inventory |
| Flow production | Continuous production of large quantities of standardised items, often called mass production, such as assembling cars on a production line. | - Low unit costs through economies of scale - High output levels | - Inflexible for changes in design - Risk of worker boredom from repetitive tasks |
Lean production and just-in-time techniques
Lean production aims to eliminate waste and boost efficiency by streamlining processes. It includes techniques like Kaizen, which promotes continuous improvement through small, ongoing changes to reduce inefficiencies.
Types of waste in lean production
Lean production focuses on minimising seven types of waste:
- Overproduction - Making more than needed.
- Waiting - Idle time in processes.
- Unnecessary transport - Moving items without adding value.
- Excess inventories - Holding too much stock.
- Defects - Faulty products requiring rework.
- Over processing - Adding unnecessary steps.
- Movement of goods - Inefficient handling within the workplace.
Features of just-in-time (JIT) production
JIT is a lean method that minimises inventory by ordering materials only when required:
- Supplies arrive exactly when needed for production.
- Goods are produced to order or sold immediately, reducing storage needs.
- Lowers costs and frees up space.
- Relies on reliable suppliers; delays can halt production.
Inventory management and ways to improve productivity
Inventory management ensures a steady supply of materials while meeting customer demands. Businesses hold buffer inventory to handle unexpected changes in demand or supply delays.
Purposes of inventory management
- Provides a range of products to give customers choice and maintain availability.
- Ensures production has the necessary resources without interruptions.
- Acts as a safeguard against supplier delays or sudden demand spikes.
Measuring and improving productivity
Productivity assesses how effectively resources are used, making a business more competitive by reducing costs.
Where:
- Output per time period = Total goods or services produced (units)
- Number of employees = Total workforce involved
Ways to boost productivity:
- Organisational improvements - Rearranging workspaces to reduce time wasted on movement.
- Skill development - Training workers to enhance their efficiency.
- Technological upgrades - Introducing automation or better machinery to speed up processes.
Worked example - Calculating labour productivity
A factory produces 25,000 units in a month with 50 employees. Calculate the labour productivity.
Step 1: Identify the values
- Output per time period = 25,000 units
- Number of employees = 50
Step 2: Apply the formula
Step 3: Perform the calculation
The role of technology, factors influencing production choices, and operations management roles
Technology enhances production by improving efficiency and quality, though it requires investment.
Types of technology in production
- Automation - Machines performing tasks without human input.
- Computer-aided design (CAD) - Software for designing products digitally.
- Computer-aided manufacturing (CAM) - Using computers to control machinery.
- Computer-integrated manufacturing (CIM) - Combining CAD and CAM for seamless production.
- Electronic point of sale (EPOS) - Systems for tracking sales and inventory at checkout.
- Electronic funds transfer at point of sale (EFTPOS) - Secure electronic payment processing.
Impacts of technology on production
- Positive effects - Increases productivity, improves product quality, and enables new product development.
- Negative effects - Can lead to job losses, requires high training costs, and involves significant initial capital outlay.
Factors influencing the choice of production method
- Nature of the product - Custom items suit job production, while standardised goods fit flow methods.
- Market size - Large markets favour flow production for high volume.
- Demand type - Unique, one-off demands require job production; standardised demands suit flow.
- Business size - Smaller firms may prefer job or batch due to lower capital needs.
Key roles in operations management
- Factory/production manager - Oversees the production process to ensure efficiency and quality.
- Purchasing manager - Sources and buys materials at the best prices and quality.
- Research and development manager - Innovates new products and improves existing processes.