PRODUCTION AND PRODUCTIVITY.

Production is the provision of a product or service to satisfy consumer wants and needs. The process
involves firms adding value to a product. Value added is the difference between the cost of inputs and the
final selling price of the product or service.
The production process applies to manufacturing as well as service industries. In adding value,
businesses combine the inputs of a business (land, labour, capital and enterprise) to produce more
valuable ‘outputs’ (final good or service) to satisfy consumer wants and needs.
Businesses can use different production methods when making products. For example, the method used
by a jeweler is different from that used by a computer manufacturer. There may also be differences in the
same industry. For example, some furniture is mass produced in large factories while smaller producers
make furniture by hand.
METHODS OF PRODUCTION
A. Job Production
This is where a business produces one product from start to finish before moving to the next. Products
are made specifically to order, for example, a customer would order a particular cake. Each order is
different, and may or may not be repeated.
Job production is used when orders are small. Examples include the construction of an office block, the
making of a wedding dress and individual computer programs that perform a specific task.
Advantages of job production
1. It is most suitable for personal services or ‘one-off’ products
2. The products meet the exact requirements of the customer
3. It is flexible and often used for high-quality goods and services meaning that a higher price can be
charged.

Disadvantages of job production

1. High labour costs as a result of skilled workers
2. Production often takes a long time
3. Materials may have to be specially purchased leading to higher costs.

B. Batch Production
This is where a business makes a number of products to the same design or specification and then
changes productions to another product with different specifications.
When products are made in batches, production is usually divided into a number of operations or
processes.
The clothing industry, food processing, bakeries are examples of businesses that use batch production.
Products can be produced in large or small batches depending on the level of demand.
Advantages of batch production
1. It is a flexible way working and production can easily be changed from one product to another.
2. It still gives some variety to workers’ jobs.
3. Unit costs are lower because output is higher.

1
Disadvantages of batch production
1. Warehouse space will be needed for stocks of raw materials and components. This is costly.
2. More complex machinery may be needed
3. Careful planning and co-ordination is needed
4. Machines have to be reset between production batches, which means there is a delay in
production and output is lost.

C. Flow Production
Flow production is where large quantities of a product are produced in a continuous process. It is called
flow production because products move from one operation to the next, often on a conveyer belt. It is
sometimes referred to as mass production because of the large quantity of standardized products that
are produced. Examples include: cars, cameras, televisions, packaged food and drinks.
Features of flow production
1. Large quantities are produced
2. A standardized product is produced
3. A semi-skilled workforce, specializing in one operation is employed.
4. Large amounts of machinery and equipment are used.
Advantages of flow production
1. Very low unit costs because of economies of scale and therefore prices are also lower. This makes the
product competitive in the market.
2. It is easy for capital-intensive production methods to be used, reducing labour costs and increasing
efficiency.
3. There is no need to move goods from one part of factory to another as with batch production, so time
is saved.
Disadvantages of flow production
1. It is very boring system for the workers, so there is little job satisfaction, leading to a lack of
motivation for employees.
2. The capital costs of setting up the production line can be very high.
3. If one machine breaks down the whole production line will have to be stopped.
================================================================
Labour-intensive production
This is a method of production that uses more labour (manpower) relative to machinery. In a developing
country, where wages are low, it may be more efficient to use ‘labor-intensive
’ production method.
capital-intensive production
This is a production method that makes more use of machinery relative to labour. In developed countries
where labour costs are high, production is often ‘capital-intensive’.
===========================================================
PRODUCTIVITY
This is the amount of output that can be produced with a given quantity of resources. It is the output
measured against the inputs used to create it.
2
Firms can increase productivity by making better use of their resources. As a result, they become more
efficient, their costs fall and profit rises. Output can be increased if productivity is raised.

Measuring Labour Productivity:

Labour productivity is output per worker. It can be calculated by:
Labour productivity = Total output
Number of workers

An example of calculation of labour is shown below.

Increasing Labour Productivity

Businesses can lower productivity costs and increase profits through the following ways.
1. Education and training
Firms can improve productivity of their workers by providing training. Training can be provided to
new employees and also when there are changes in the way people are expected to work.
2. Motivation of workers
Workers can be motivated at work to improve productivity, e.g. by use of financial incentives or non-
financial incentives.
3. Improving working practices
Working practices are the methods and systems that are used in the workplace. The way labour is
organized and managed can affect productivity. For example, it may be possible to change the factory
layout by repositioning work stations or reorganizing the flow of production. Such changes can
improve labour productivity because workers may not have to move around as much.
4. Increasing labour flexibility
Labour can be more flexible if workers are trained to do different jobs and can switch at short notice.
For example, some supermarkets train most of their workers to operate checkouts. Then, during a
busy period, workers can be switched from jobs to the checkout to prevent long queues.

Measuring Capital Productivity

Formula

3
Capital productivity = Total output
Capital employed

Capital productivity can mean using fewer inputs to produce the same output or using the same inputs to
produce greater output. Business strive to increase productivity in order to become more competitive.
Increasing capital productivity
Capital productivity can increase with new technology as it is more efficient. New technology must
however be accompanied with training of labour that would use the technology.
Other methods of improving productivity
1. Downsizing
Some firms have tried to improve efficiency by downsizing. This involves laying off workers and closing
unprofitable divisions.
Advantages of downsizing
a. Cost saving and increased profit
b. A leaner, more competitive operation.
c. Closing down sectors of the businesses that are unprofitable.

2. Work study
Work study involves critical analysis of a particular job and working out the most efficient way it can be
done. A specialist identifies all the tasks in a job, analyses them and finds the best way to do the job. Once
the best way has been established workers will adopt the new approach and work towards improvement.
3. Relocation
Businesses often relocate their operations to improve efficiency. By relocating, firms can take advantages
of cheaper resources such as lower wages or lower transport costs. For example, a number of
multinationals have located call centres in India to take advantage of cheap skilled labour. Also, a number
of firms have located factories in China for similar reasons.
4. Outsourcing
Outsourcing is the contracting out of work to other businesses that might otherwise have been
performed within the organization. Specific business activities can be outsourced to improve efficiency.
This means that work currently done by a business is given to specialist that can do the same work at a
lower cost. For example, distribution operation can be done by a transport company more efficiently and
at a cheaper rate. In the car industry the making of most components is now outsourced. The big car
makers are often giant assemblers.
5. Lean production
This is an approach that is aimed at using fewer resources in production. Lean production is discussed in
detail in the next section.
Impact of Productivity on improvement of Businesses.
1. Financial impact
If a business is able to improve productivity, there should be positive financial impact on the business.
For example, if more output is produced with the same resources, costs will be lower.
2. Competitiveness
4
 If a business can improve productivity, it will be more efficient. This will help the business secure a
competitive edge. As a result, it might increase its market share and enjoy a higher profile in the
market.
3. Workforce
If a business introduces measures to improve labour productivity, clearly the workers are likely to be
effective. For example, financial incentives may improve motivation. Some measures may have
negative impact on workers. For example, new machinery may make people to lose their jobs.
4. Customers
Customers could benefit since lower costs could result to lower prices. Also, measures introduced to
improve productivity might result to better quality products.
Benefits of increasing productivity
a) Increased output relative to the inputs required
b) Lower costs per unit
c) Fewer workers may be needed, possibly leading to lower wage costs.
d) Higher wages for workers increases motivation.

LEAN PRODUCTION
This is a production method that aims at using fewer resources in production like factory space,
materials, stocks, suppliers, labour, capital and time. In other words, reducing waste. Through lean
production,
i. productivity can be raised,
ii. costs can be reduced,
iii. Lead time can be reduced,
iv. Defects can be reduced
v. Production speed can be increased

Lean Production Methods

1. Kaizen
Kaizen is a Japanese word which means continuous improvement through the elimination of wastes.
Japanese believe that everything can be improved. This means that the workers are always coming up
with new ideas to improve quality, reduce waste or increase efficiency.
The elimination of waste in business is an important part of Kaizen. Examples of waste may be:
a) Time wasted while staff wait around before starting tasks, such as waiting for materials to arrive.
b) Time wasted when workers move unnecessarily in the workplace, such walking to a central point in
the factory to get tools.
c) The irregular use of a machine, such as one that is only used once a month.
Advantages of Kaizen
i. Increased productivity
ii. Reduced amount of space needed for the production process
iii. Work-in-progress is reduced
iv.

5
2. Just-In-Time Production
If a business holds stocks, money is tied up and therefore wasted. To overcome this problem many
businesses have adopted for just-in-time (JIT) production.
Features of just-in-time
i. A business does not hold any stocks at all. Suppliers have to deliver resources straight to the
production line at regular intervals.
ii. The making of any parts are just in time to be used in the next stage of production.
iii. Warehouse space is not needed, reducing costs.
iv. Finished goods are sold quickly and improving cash flows.

Principles of Kaizen
Once Kaizen production is adopted, it is likely to be supported by a wide range of techniques, principles
and practices. Some of these include;
i) Standardization
This means producing goods that are exactly the same using the same pattern and method. Firms can use
flow production method and produce large quantities of goods.
ii) Team working
This involves dividing the workforce into small groups. Each team will focus on a particular area of
production and team members will have the same common aims.
Advantages of teamwork
1. Workers develop a ‘team spirit’. This may improve motivation and productivity.
2. Flexibility; teams might plan their own work schedules, share out tasks and solve their own
problems.
3. Communication and industrial relations can improve.

iii) Empowerment
This is giving employees more control over their own work, make decisions, solve problems and work
creatively. As a result, business benefits from workers realizing their full potential (Maslow’s self-
actualization)

iv) Suggestion schemes

6
Suggestion schemes encourage workers to suggest ideas for improving production or reducing costs. It
involves workers writing their ideas down and putting them into a suggestion box. If a worker’s idea is
adopted, he/she will be rewarded with a cash prize.
v) Quality circles
These are small group of workers in the same area of production who meet on regular basis to solve
production problems. Quality circles give employees an opportunity to make improvements in their jobs
and therefore support kaizen.
vi) Multi-tasking
Multi-tasking is when workers are trained in more than one skill which enables them to do a range of
jobs. Multi-tasking provides for more flexibility and greater motivation.

Importance of using resources effectively

1. Financial benefits
If fewer resources are used, business costs will be lower leading to more profits.
2. Improved competitiveness
Lean production enables firms to have competitive advantage over their competitors.
3. Positive environmental effects
If business makes more effective use of resources, it will be making positive contribution to the
protection of environment e.g. use of energy.
4. Improved customer service
Customers are likely to benefit if a business makes more effective use of resources e.g. quick delivery
and better quality products.

TECHNOLOGY IN PRODUCTION
Technological advances have allowed the mechanization and automation of production methods. For
example, the car industry is almost entirely automated. New technology helps to improve productivity,
provide new products and create new market opportunities. It also helps to make work a lot easier for
many people.

The Impact of New Technology in the Primary Sector

In the agricultural sector, the use of tractors, mechanical harvesters, grain-drying machines and
automatic feeding systems have helped to raise productivity. This has reduced the need to employ large
number of workers.
Chemicals and pesticides have also helped increase crop quantities and biological research has helped
develop plants that are less likely to suffer from diseases. Genetically Modified crops are developed to
increase the nutritional value of foods and consumers are most likely to benefit from that.
In the construction industry, use of technology has made work easier and faster and with the use of less
construction materials.

7
Impact of New Technology in the Secondary Sector
Production has become more capital-intensive in many industries. This is because new technology is
flexible, sophisticated and highly efficient.
Examples of new technologies in the secondary sector
1. Computer Aided Design (CAD)
CAD is computer software that draws items being designed more quickly and allows them to be rotated
to see the item from all the sides. It is used to design new products or re-style existing products. CAD has
a wide range of applications but is common in the design of vehicles, plastic containers, furniture and
clothing.
Advantages of using CAD
i. Allows a business to produce accurate drawings, which can be viewed in 3D and altered cheaply and
quickly.
ii. Removes the need to build models and prototypes because they can be replicated by 3D computer
generated images.
iii. Can identify the best or ‘optimal’ design solutions because it can analyze a range of alternatives.

2. Computer Numerically Controlled Machines (CNCs)

CNC machines can be programed by computer to carry tasks such as cutting, milling, drilling, welding,
sewing and printing.
Advantages of CNCs
i. They can produce both uniform and irregular shapes and cut quickly and accurately.
ii. CNCs can carry out repetitive tasks without human error. This reduces waste and need for rework.
iii. They can measure a number of variables such as dimensions, weight and temperature.

3. Robots
Robots have a mechanical arm which moves according to instructions given by a computer. Robots are
used in welding, assembly and in the movement of components on a production line.
Types of Robots
Robots in manufacturing can be divided into three categories.
a) Material handling robots
They are usually employed in the transport of goods, parts or cargo within the same factory or plant e.g.
in automated warehouses.
b) Processing operations robots
They generally perform a specific task such as spot welding or spray painting. These robots are fitted a
specialized tool to perform the programmed task.
c) Assembly line robots
Usually perform a single task on assembly lines such as fitting a cap on a bottle. Inspection robots are
used to check a finished part or product for defects. They may use a range of tools, such as lenses and
scanners.

8
Advantages of robots
i. They are used to carry out repetitive work which is boring and de-motivating for humans.
ii. They are accurate, consistent and can operate 24/7.
iii. Perform dangerous work involving heavy machinery, industrial pollutants and other hazardous
materials.
Disadvantages of robots
i. Leads to increased unemployment rates
ii. Robots can be expensive to introduce and maintain
iii. Standardizes products reducing consumer variety.

4. Computer Aided Manufacturing (CAM)

This where both design and whole production process is automated. CAM may also REFER to the use of a
computer to assist in all production operations including planning, management, transportation and
storage. CAM speeds up production and minimizes waste.
5. Computer Integrated Manufacturing (CIM)
CIM is the total integration of CAD and CAM. This involves using computers for the entire production
process. The computers that design the products are linked directly to the computers that aid in the
manufacturing process.

NEW TECHNOLOGY IN THE TERTIARY SECTOR

New technologies are being rapidly adapted for use in the tertiary sector. Some examples are outlined
below.
i) In financial services
In financial services such as banking, many transactions can be carried out online.
(a) Automatic teller machines (ATMs) can be used to withdraw cash 24/7 and money can be
transferred from one account to another electronically.
(b) EFTOPS (electronic funds transfer at point of sale). The development of EFTPOS means that debit
cards and other electronic methods reduce the need for carrying cash.
ii) In Retailing
EPOS (electronic point of sale) refers to technologies which record the sale of goods or services to the
customer at the point where they are purchased.
Advantages of EPOS
a) EPOS saves time and reduces queues at the checkout.
b) It also improves stock control and automatically orders new stock.
c) The data gathered from customers about their purchase might be used for marketing purposes.
iii) In marketing
In the use of information technology (IT) has made market research easier.
The gathering, processing and presentation of marketing research data is cheaper using IT. More data can
also be gathered online rather than primary research.

9
iv) In leisure industry
In the leisure industry technology allows people to travel without a ticket. For example, flights can be
booked using the internet and credit card. A boarding pass can be picked up at the airport using a
passport. Bookings for hotels, holidays or theatre can also be made online, which reduces administration
costs.
v) Administration and communication
The use of IT has helped to reduce administration and communication costs in businesses. For example,
many routine tasks, such as invoicing or billing, can be carried out quickly by computer. Huge amounts of
data can be gathered, processed, manipulated, stored and retrieved using computer databases. A wide
range of information can send electronically anywhere in the world instantly.
vi) In advertising
Television adverts use the latest film technology and special effects to make adverts more exciting and
entertaining. Internet is used to promote products. Many businesses have websites where information
about their products is posted and updated regularly.
vii) E-commerce
Involves the use of electronic systems to buy and sell products.
The advantages of new technology
a) Productivity is greater as new production methods are used
b) Greater job satisfaction motivates workers, as routine and boring jobs are now done by machines.
c) Better and quicker decision making by managers due to availability of greater information.
d) New products are introduced as new methods of production are introduced.
Disadvantages of new technology
a) Unemployment rises as machines/computers replace people on the factory floor and in offices
b) It is expensive to invest in new technology, which also increases the risks as large quantities of
products need to be sold to cover the cost of purchasing the equipment.
c) New technology is changing all the time and will often become outdated quite quickly and need to be
replaced if the business is to remain competitive.
The Costs and Benefits of New Technology
The table below provides a summary of the main benefits and costs of new technology in business.

10
Balancing the Cost, Product, Productivity, Quality and Flexibility of Technology.
The decision of when and whether to introduce new technology in production is often difficult one for a
business. The financial cost of purchasing, installing and maintaining technology can be very high.
Introducing new technology often means making people redundant. This is expensive and can disrupt
workforce.
Decision makers also have to consider the impact that technology will have on the quality of the product.
Customers are usually willing to pay higher prices for hand made products than mass produced products.
Another issue is the flexibility of new technology. When production processes are automated, it means
that standardized products are produced. This reduces the choice for customers.
In conclusion, investing in new technology is risky and businesses have to evaluate the costs, productivity
gains, the impact on quality and the loss of flexibility before going ahead.

THE END OF PRODUCTION AND PRODUCTIVITY

11