Production Processes
Production is the process of converting resources such as labour, raw materials, machinery and technology into goods and services.
The main aim of production is to produce the required output at the right quality, quantity and cost.
Labour Productivity
Labour productivity measures the amount of output produced by each worker in a given period of time.
Formula:
Labour productivity = Total output ÷ Number of workers
Example
A factory produces 6,000 units using 30 workers.
→ Labour productivity = 6,000 ÷ 30
→ Labour productivity = 200 units per worker
If the factory increases output to 7,500 units with the same 30 workers:
→ Labour productivity = 7,500 ÷ 30
→ Labour productivity = 250 units per worker
Therefore, labour productivity has increased.
Why Efficiency Is Important
Efficiency means producing the required output using as few resources as possible.
A business can become more efficient by:
→ Reducing waste
→ Reducing production time
→ Increasing output from the same resources
→ Reducing production costs
→ Improving labour productivity
Benefits of Increased Efficiency
→ Lower costs → increases potential profit
→ Higher productivity → more output can be produced
→ Less waste → saves raw materials and money
→ Faster production → orders can be completed more quickly
→ More competitive prices → business may be able to reduce prices
→ Better use of resources → labour, machinery and materials are used more effectively
Example:
If a factory produces 1,000 units using the same amount of labour and materials that previously produced 800 units:
→ Output increases
→ Cost per unit may fall
→ Profit per unit may increase
→ The business becomes more competitive
Increasing Efficiency
Increasing Automation and Technology
Automation involves using machinery or technology to perform tasks with limited human involvement.
Examples:
→ Robots assembling cars
→ Automated packaging machines
→ Computer-controlled manufacturing
→ Automated warehouse systems
Advantages
→ Faster production
→ More consistent quality
→ Higher output
→ Can operate for long periods
→ May reduce labour costs in the long term
Disadvantages
→ High initial investment
→ Maintenance costs
→ Workers may need retraining
→ Some employees may become redundant
→ Technology can become outdated
Improving Labour Skills
Businesses can improve efficiency by providing employees with training.
Examples:
→ Technical training
→ Machine-operation training
→ Quality-control training
→ Management training
Better-trained workers may:
→ Make fewer mistakes
→ Work more quickly
→ Use machinery more effectively
→ Produce better-quality products
→ Reduce waste
Example:
If employees learn how to operate new machinery correctly:
→ Fewer production errors
→ Less material wasted
→ Higher output
→ Lower cost per unit
Lean Production
Lean production is a method of producing goods and services that aims to reduce waste and improve efficiency.
Waste can include:
→ Unused materials
→ Excess inventory
→ Waiting time
→ Unnecessary movement
→ Defective products
→ Overproduction
The objective is to produce what customers need while using as few resources as possible.
Two important methods of achieving lean production are:
→ Just-in-Time (JIT)
→ Kaizen
Just-in-Time (JIT) Inventory Control
Just-in-Time (JIT) means keeping very low levels of inventory and receiving materials shortly before they are needed for production.
Instead of storing large quantities of materials:
Supplier → Materials arrive when needed → Production → Finished product → Customer
Example
A car manufacturer may receive seats, tyres and electronic components shortly before they are required on the production line rather than storing large quantities in a warehouse.
Advantages of JIT
→ Lower storage costs
→ Less money tied up in inventory
→ Less risk of inventory becoming damaged or obsolete
→ Less warehouse space required
→ Reduces waste
→ Encourages efficient production
Disadvantages of JIT
→ Production may stop if suppliers are late
→ Requires reliable suppliers
→ Transport problems can disrupt production
→ Unexpected increases in demand may cause shortages
→ Businesses have little safety stock
Example:
If a supplier fails to deliver an essential component:
→ Component unavailable
→ Production may stop
→ Workers may be unable to work
→ Orders may be delayed
→ Customers may become dissatisfied
Kaizen
Kaizen is a Japanese approach meaning continuous improvement.
Employees at all levels are encouraged to identify small improvements that can make production more efficient.
Examples:
→ Rearranging equipment to reduce movement
→ Improving the order of production tasks
→ Reducing unnecessary paperwork
→ Identifying causes of defects
→ Finding ways to reduce material waste
Advantages of Kaizen
→ Continuous improvements over time
→ Reduces waste
→ Can improve quality
→ Employees become involved in improving the business
→ Often requires relatively little investment
→ Can increase productivity
Disadvantages of Kaizen
→ Improvements may be small and take time to produce major results
→ Requires employee involvement
→ Employees may resist changes
→ Frequent changes may disrupt production
→ Management must continually monitor processes
Advantages and Disadvantages of Lean Production
| Advantages | Disadvantages |
|---|---|
| Reduces waste | JIT can cause shortages |
| Reduces inventory costs | Requires reliable suppliers |
| Can reduce cost per unit | Production can be disrupted |
| Improves efficiency | Employees may need training |
| Can improve quality | Continuous improvement takes time |
| Reduces storage requirements | Initial changes may be costly |
| Can increase competitiveness | Less inventory means less protection against unexpected demand |
Why Businesses Hold Inventory
Inventory is the stock of materials, components, work-in-progress and finished goods held by a business.
Businesses may hold inventory to:
→ Ensure production can continue
→ Meet unexpected increases in demand
→ Avoid running out of products
→ Protect against delays from suppliers
→ Take advantage of bulk-buying discounts
→ Maintain a safety stock
Example
A supermarket holds extra bottled water because demand may suddenly increase during a heatwave.
Factors Affecting Inventory Levels
Reliability of Suppliers
→ Reliable suppliers → less inventory may be needed
→ Unreliable suppliers → more safety stock may be needed
Demand for the Product
→ Predictable demand → lower inventory may be sufficient
→ Uncertain or seasonal demand → higher inventory may be needed
Cost of Holding Inventory
If storage is expensive:
→ Business may reduce inventory levels.
If storage is relatively cheap:
→ Business may hold more inventory.
Type of Product
Perishable products such as fresh food:
→ Cannot be stored for long
→ Lower inventory levels are usually preferred
Non-perishable products can usually be stored for longer.
Production Method
Businesses using JIT:
→ Hold very little inventory.
Businesses requiring continuous production may need enough materials to avoid production stoppages.
Availability of Storage
Limited warehouse space:
→ Reduces the amount of inventory the business can hold.
Large storage facilities:
→ Allow higher inventory levels.
Main Methods of Production
The three main production methods are:
→ Job production
→ Batch production
→ Flow production
The most suitable method depends on:
→ Quantity required
→ Variety of products
→ Product design
→ Customer requirements
→ Cost
→ Speed of production
Job Production
Job production involves producing one product at a time, usually according to the specific requirements of an individual customer.
Examples:
→ Bespoke wedding dresses
→ Custom-built furniture
→ Specialist machinery
→ Luxury yachts
→ Custom houses
Advantages
→ Products can be customised
→ High level of customer satisfaction
→ Can charge a high price for specialist products
→ Workers may have varied and interesting work
→ Suitable for unique products
Disadvantages
→ High cost per unit
→ Production is usually slow
→ Requires skilled workers
→ Difficult to achieve economies of scale
→ Labour costs can be high
Batch Production
Batch production involves producing a quantity of identical products together before switching to another batch.
Examples:
→ Bakery producing 500 chocolate cakes
→ Clothing factory producing 1,000 blue shirts before producing red shirts
→ Food manufacturer producing different flavours in separate batches
Advantages
→ More products can be produced than with job production
→ Some economies of scale can be achieved
→ Machinery can be used for different products
→ Products can still have some variety
→ Suitable for medium-sized production runs
Disadvantages
→ Time is required to change machinery between batches
→ Machinery may be idle during changeovers
→ Storage of finished batches may be necessary
→ More complex to manage than flow production
→ Errors can affect an entire batch
Flow Production
Flow production involves producing large quantities of standardised products continuously through a sequence of production stages.
Examples:
→ Cars
→ Bottled drinks
→ Canned food
→ Consumer electronics
A typical production line may be:
Raw materials → Stage 1 → Stage 2 → Stage 3 → Quality check → Finished product
Advantages
→ Very high output
→ Low cost per unit
→ Large economies of scale
→ Production can be highly automated
→ Consistent quality
→ Less time spent moving between different production methods
Disadvantages
→ Very high initial investment
→ Workers may find repetitive tasks boring
→ A breakdown can stop the entire production line
→ Difficult to customise products
→ Large quantities must usually be sold to justify the investment
Comparing Production Methods
| Feature | Job | Batch | Flow |
|---|---|---|---|
| Quantity | Low | Medium | Very high |
| Variety | High | Medium | Low |
| Customisation | High | Some | Very limited |
| Cost per unit | High | Medium | Low |
| Skilled labour | Usually high | Medium | Lower in highly automated systems |
| Flexibility | High | Medium | Low |
| Examples | Custom furniture | Bakery products | Cars |
Choosing an Appropriate Production Method
The choice should depend on the type of product, quantity required, customer requirements and available finance.
Situation 1: Bespoke Furniture
A furniture business makes unique tables designed according to each customer’s requirements.
Job production is appropriate because:
→ Each product is different
→ Customers require customisation
→ Production quantities are low
→ Skilled workers can create individual products
→ Customers may be willing to pay a higher price
Situation 2: Bakery
A bakery produces 500 chocolate cakes, followed by 500 vanilla cakes and then 500 strawberry cakes.
Batch production is appropriate because:
→ Products are produced in groups
→ Different varieties are required
→ Production quantities are too large for job production
→ The business can use the same equipment for different batches
Situation 3: Car Manufacturer
A car manufacturer produces thousands of identical or standardised vehicles.
Flow production is appropriate because:
→ Demand is high
→ Products are standardised
→ Large quantities are required
→ Automation can increase productivity
→ High output can reduce cost per unit
How to Justify a Production Method
A strong recommendation should link the features of the business to the advantages of the production method.
Example structure:
→ Recommend: Batch production
→ Because: the business needs to produce several varieties in medium-sized quantities
→ This means: it can achieve some economies of scale while still offering variety
→ Therefore: batch production is more suitable than job production or flow production for this business.