Production and
Productivity
Production involves using
resources to make goods and services to satisfy consumer needs and wants.
The production process applies to manufacturing as well as service
industries
iPhone 5 Manufacture processes - Edited by iSpace Technologies Ltd - Video Copyright of Apple Inc. (1).mp4
Production is a process that starts with using and managing resources
LAND
LABOUR
CAPITAL
ENTERPRISE
INPUTS
(economic resources)
Production process
OUTPUTS
GOODS
SERVICES
Resources are the inputs to productive activity.
Labour intensive
Use many workers and
few machines to produce
goods
Where labour cost are high,
where businesses use machines/robots and employ few workers
capital intensive
Products are the outputs of product activity
Operation DepartmentOD’s role in a business is to take
inputs and change them into outputs for customers use
(physical goods or services)
Operation manager
Factory Manager
Responsible for the quality and quantity of the
product
Purchasing manger
Responsible for providing the
materials, components and
equipment required for the production
Research & Development Manager
Responsible for the design and testing of new production
processes and products
Production adds value to the resources it uses by turning them into products consumers want and are willing to pay for.
For example, a business that produces 500,000 chocolate bars with a market value of $1 million but which cost only $700,000 to produce will have added $300,000 to the resources it has used in their production—labour, cocoa powder, milk, machinery, vehicles, foil, paper, electric power, etc.
For example, a business that produces 500,000 chocolate bars with a market value of $1 million but which cost only $700,000 to produce, will have added $300,000 to the resources.
It has used in their production—labour, cocoa powder, milk, machinery, vehicles, foil, paper, electric power, etc.
What other resources does the company needed for their production?
The total output of a business organisation is measured by the volume or value of all the goods or services it produces each week, month or year.
Productivity The level of production is the
output of the business Productivity is how a business
can measure its efficiency
Productivity = Quantity of output Quantity of outputs
The aim of any business will be to combine its resources in the most efficient way.
Productivity, measures how efficiently resources are being used in production.
Productivity in a business will have increase if more output or revenue is produced from the same amount of resources, or the same output or revenue can be produced using fewer resources.
A firm that fails to increase productivity at the pace or at a faster rate than rival firms will have higher production costs and therefore lower profits than its competitors.
Labour productivity is the most common measure of productivity in a business
Labour productivity is calculated by dividing total output over a given period of time,
Average Productivity of labour = _____total output_____ Number of employees
The average productivity of labour is a useful measure of how efficient workers are and how efficiently they use other resources.
For example, if a company employs 10 workers who produce 200 plant pots each day.
How much is the average product per employee?
the average product per employee per day is 20 pots
If the daily output will rise to 220 pots per day without employing additional workers.
How much is the average product per employee? ______________________
then productivity will have increased to 22 pots per worker per day.
Productivity in business organisations producing services can be more difficult to measure.
For example, a hair salon could measure the number of customers or hair treatments per day per employee, but not all employees in the salon will be hairdressers. Some may be office staff or cleaners, so how can we measure their productivity?
Productivity is also difficult to measure in organisations that do not produce a physical output or earn revenue
Improving productive efficiency
Training employees to improve their skills and to use new technologies
Rewarding employees who increase their productivity with performance-related pay
Improving the working environment to increase employees’ job satisfaction
Introducing automation
In addition, productivity can be increase by: Replacing old equipment and
machinery with new technologies Automating production by replacing
labour with modern computer-operated machinery
Ways to increase producti
vity
Improve employee motivation
Introduce new
technology
Improve inventory control
Train staff to be more efficient
Use machines instead of
people to do jobs
(automation)
Improved quality control/
assurance reduces waste
Benefits of increasing efficiency/productivity
Increase output relative to the inputs required
Lower costs per unit (average cost)
Benefits of increasing efficiency/productivity
Fewer works may be needed, possibly leading to lower wage cost
Higher wages for workers increases motivation
Inventory levels
Amount of inventory
reordered to return
inventory levels back to the maximum
Why business hold inventories
Maximum inventory
levelReorder
levelMinimum or buffer inventory
level
Time
Covers a variety of techniques used by business to cut down on waste and therefore increase efficiency.
introducing new
processes and
technologies to
reduce waste and
inefficiency in
production
Types of waste that can occur in production
Overproduction
Waiting
PRODUCING GOODS BEFORE THEY HAVE BEEN ORDERED
BY CUSTOMERS.
WHEN GOODS ARE NOT MOVING OR BEING PROCESSED IN ANY WAY
THEN WASTE IS OCCURING
Types of waste that can occur in production
Transportation
Unnecessary inventory
MOVING GOODS AROUND UNNECCESARILY CAUSES WASTE AND
IS NOT ADDING VALUE TO THE PRODUCT
IF THERE IS TOO MUCH INVENTORY THEN THIS TAKES UP
SPACE
Types of waste that can occur in production
Motion
Over processing
Defects
ANY ACTIONS, INCLUDING BENDING OR STRETCHING MOVEMENT OF THE
BODY OF THE EMPLOYEE WASTES TIME.
IF COMPLEX MACHINERY IS BEING USED TO PERFORM SIMPLE TASKS
THEN THIS IS WASTEFUL.
ANY FAULTS REQUIRE THE GOODS BEING FIXED AND TIME CAN BE
WASTED INSPECTING THE PRODUCTS
Benefits of Lean ProductionQuicker production of goods and services
Less storage of raw materials or components
Better use of equipment No need to repair defects or provide a replacement service for dissatisfied customer
Less money tied up in inventories
Cutting out some processes which speeds up production
Methods of Lean Production
Kaizen Just-in-time inventory control
Cell production
All workers
can participat
e in kaizen in
a business
by identifyin
g problems
and making
suggestions
to improve
production and
remove waste.
The Kaizen effect: before
The Kaizen effect: after
This involves suppliers delivering components or materials to production lines ‘just-in-time’ for them to be processed.
It also known as ‘stockless production’.
The following requirements are necessary for just-in-time production to be effective:
the quality of materials and parts must be high.
the suppliers must be dependable and deliver on time.
the suppliers should be located near the company.
Cell production has the flow production
line split into a number of self-
contained units.
Each team or ‘cell’ is responsible for a significant part of
the finished article
rather than each person only
carrying out only one very specific
task
team members are skilled at a number
of roles, so it provides a means for job rotation.
Cell Productio
n
Choosing a method of production is very important in keeping the costs low.
Production methods can vary from the production of individual custom-made products to the continuous production of identical on a mass scale.
There are 3 main methods of production
i) Job production ii) Flow
production iii)Batch Production
Job Production
This method is used to provide goods & services that are made or delivered to order.
Advantages Disadvantages
Products meet the precise requirements of their customers.
It is labour intensive.
Businesses can often include a premium in the price they charge their customers to reflect increased quality.
Wage costs can be high and it is time consuming.
Workers have varied jobs and many can make a finished product from start to finish. This can motivate the workers and create a sense of pride.
Any mistakes can be expensive as the products are produced to order.
Involve mass production of identical or
standardized products in a
continuous moving process.
products are assembled, finished and
packed as they move or ‘’flow’
along a production line.
FLOW PRODUCTION
Advantages DisadvantagesGoods can be produced quickly and cheaply.
The costs of equipment and machinery required can be high.
Lower costs of production can result in lower price.
Storage requirements and the costs of stocks of materials, components and finished product can be substantial.
Can reduce the number of workers needed and cut labour costs.Automated production can be continuous for 24 hours each day.
Machinery break downs, power cuts or supply problems with components will hold up production.
It allows workers to specialize in specific, repeated tasks.
Workers undertaking repetitive tasks may become bored.
involve producing a limited number of identical products
to meet a specific requirement or customer order
capsul
Batch Production
Advantages DisadvantagesA good way of adding variety to otherwise identical products to give consumers a wider choice.
It needs careful planning to minimize the amount of unproductive time between different batches.
Workers’ tasks are more varied than in flow production, reducing the risk of boredom.
Costs will be higher than for production on a mass scale.
Factors affecting which method of production to use
The nature of the product
The size of the market
The nature of the demand
The size of the business