Production of goods and services
Production
Production = provision of goods/services to satisfy consumer needs.
Value added = selling price – cost of inputs.
Businesses combine factors of production (land, labour, capital, enterprise) to create outputs.
Efficiency depends on how inputs are combined:
Labour-intensive: more workers, fewer machines (common in developing countries).
Capital-intensive: more machines, fewer workers (common in developed countries).
Operations Department
Converts inputs into outputs (goods/services).
Key roles:
Factory Manager – quantity, quality, maintenance.
Purchasing Manager – materials, components, equipment.
R&D Manager – design, testing of new processes/products.
In services: e.g., restaurant managers instead of factory managers.
Productivity & Efficiency
Production = total output in a time period.
Productivity = output ÷ number of workers.
Increased productivity lowers average costs → greater competitiveness.
Benefits of Higher Productivity:
Lower input use, reduced costs/unit.
Possible reduction in workers → lower wages bill.
Higher wages can be paid (motivation).
Inventories (Stock)
Types: raw materials, components, partly finished goods, finished goods, spare parts.
Importance: ensures smooth production and meets customer demand.
Too little → stock-outs, missed sales.
Too much → high storage costs, tied-up money.
Reorder level ensures supplies arrive before stock runs out.
Lean Production
Aim: reduce waste, cut costs, increase efficiency.
7 types of waste:
1. Overproduction
2. Waiting
3. Transportation
4. Unnecessary inventory
5. Motion
6. Over-processing
7. Defects
Benefits:
Cost savings (less storage, faster production, fewer defects).
Increased competitiveness and profits.
Methods:
Kaizen (continuous improvement): worker ideas, small changes, improved layouts.
Just-in-Time (JIT): no stock kept, raw materials delivered only when needed.
Cell production: work organised into teams (cells), improves motivation and efficiency.
Methods of Production
Job Production – one-off, custom-made (e.g., bridges, suits, bespoke meals).
Advantages: High quality, customer satisfaction, motivated workers.
Disadvantages: Expensive, slow, skilled labour needed.
Batch Production – products made in groups (e.g., bakery, clothing).
Advantages: Flexible, more variety, some economies of scale.
Disadvantages: Storage needed, time lost resetting machines, higher costs.
Flow Production (Mass Production) – continuous, standardised production (e.g., cars, packaged food).
Advantages: Low costs/unit, high output, economies of scale, 24/7 production.
Disadvantages: High capital costs, boring work, stock build-up, breakdown stops line.
Factors affecting choice: Nature of product, Market size, Demand type (steady vs occasional), Size of business.
Technology in Production
Automation: machines controlled by computers.
Mechanisation: machines operated by people.
Robotics: programmed for repetitive/dangerous jobs.
CAD (Computer-Aided Design): faster, 3D designs.
CAM (Computer-Aided Manufacturing): computers control production.
CIM: integration of CAD & CAM.
Retail Technology:
EPOS: scans barcodes, updates inventory automatically.
EFTPOS: instant bank transfers at tills.
Contactless payment: fast, secure small payments (cards, mobiles, wearables).
Advantages of Technology:
Greater productivity, lower costs.
Higher product quality.
Improved communication & decision-making.
More job satisfaction (machines do boring tasks).
New high-tech products introduced.
