4.1.

1 The meaning of production

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Learning outcomes
■ You will learn about the meaning of production:
■ Managing resources effectively to produce goods
and services
■ Difference between production and productivity
■ Benefits of increasing efficiency and how to
increase it, e.g. increasing productivity by
automation and technology, improved labour skills
■ Why businesses hold inventories (stocks)
■ Concept of lean production; how to achieve it, e.g.
just-in-time inventory control and Kaizen; benefits
of lean production
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Operations Management

■ Operations management involves managing

business resources so that it can be produced to sell
to consumers. They must:
■ Use resources in the most cost-effective way
■ Produce the required output to meet consumer
demand
■ Meet the quality standard expected by consumers
+ Difference between production and productivity

■ Production is the process of converting inputs such as

land, labour and capital into saleable goods to satisfy
consumer needs and wants. It involves adding value.

■ Productivity is a measure of the efficiency of inputs

used in the production process, especially labour and
capital
■ Labour productivity = Total output ÷ Number of

production workers
+
+
Production

How is a pair of
jeans made or
how is a pencil
made?
+ PRODUCTIVITY

If a worker makes more products in the same amount of

time, his productivity increases.

Firms aim to be productively efficient to be able to make

more profits and compete against their competitors
The process involves businesses adding value to their products.

E.g. The production process of matches involve cutting wood

into matchsticks, putting phosphorus ends on them and
packaging them to sell.
+
Efficiency
The term efficiency means using the least amount of inputs to achieve the
highest amount of output. Efficiency requires reducing the number of
unnecessary resources used to produce a given output, including personal
time and energy.

Any production method relies on efficiency and this can be measured using
productivity.

Productivity – a measurement of output per unit of the factor of production

used in production (labor, capital or land)

Total Output

Productivity = -------------------

Units of Factor

Productive Efficiency – output produced at the lowest possible cost

+ Productivity
The outputs measured against the inputs used in
producing it.
On the next slide calculate the labour productivity in each scenario using the
formula below. upload your working on google classroom

Labour Total Output

productivity = X 100
Number of
employees
 Inputs = 4,000 Outputs = $10,000
(number of employees)
Productivity = ?

Inputs = 6,000 Outputs = $3,000

(number of employees)
Productivity = ?

Inputs = 1,000 Outputs = 3,000

(number of employees)
Productivity = ?

Which business is the most efficient?

As the employee becomes more experienced,
they will become more efficient, therefore the
amount of output will increase.

Productivity increases as the worker becomes more efficient

 Labor intensive versus Capital intensive
Labor intensive – larger proportion of labor is used in
the production process.
Benefit – offer a more personalized service to customers
eg salon

Capital intensive – larger proportion of machinery and

equipment is used in the production process. Eg car
manufacturing
Benefit – machinery can run 24 hours a day which
reduces average fixed costs
• Factors to consider in choosing between the two:

a)Which is cheaper – labor or capital?

b)What is the size of the market?

– the larger the market the more capital intensive
it is likely to be

THIS IS THE END OF TODAY’S LESSON!!!

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PRODUCTION METHODS

Job
Batch
Flow
Cell
Job, Batch, Flow, Cell
Job – where a single Flow – where large
product is made at quantities of
one time products are made at
a time in a
Batch – where a continuous flow
group of products is
made at one time The production process
and then another is split into a number of
batch is made self contained units.
Tasks are completed by
teams of workers.
 1. Job production
• The business will create an individual product from start to
finish, which meets the specific requirements of the
customer – usually one-off products such as a wedding
dress.
Advantages: 🞂 Disadvantages:
1 Product is usually high quality 1. Method tends to be labor
as highly skilled labor is used intensive and so production is
expensive
2. Can charge a higher price due 2. Time consuming method of
to the uniqueness of the product production
3. Large amounts of working
3. Workers are more motivated
capital (money for running
as they see a product through expenses) are needed as the
production time from start to
from start to finish
selling is usually long
4. No benefit of economies of
scale
 2. Batch production
• Involves producing a limited number of identical
products – one batch is fully completed before work
begins on another batch (eg bakery makes a batch of
bread; then a batch of muffins, etc.)
Advantages: 🞂 Disadvantages:
1.Benefits of economies of 1. Large stocks so
scale as raw materials are storage costs can
bought in larger bulk increase the costs of
2.Variety of products can production
be produced – more choice
for customers 2. Repetitive work may
lead to boredom and
so low motivation of
workers
 3. Flow Production
• Focuses on continuous process of
manufacturing products that are standardized
(homogeneous) in large quantities.
• Advantages: • Disadvantages:
1. Production methods are capital- 1. The work is likely to be
intensive, output is on a large monotonous and therefore boring
scale 2. There is inflexibility because once
the production process begins there
2. Cost effective method as costs is little chance of altering the
can be spread over the high design or specifications
volume of output 3. The methods are capital intensive
3. The use of dedicated machinery and involve huge set-up costs
and equipment means that 4. The systems are inflexible – it is
not possible to rework products
products are of a standardized that are sub-standard as production
quality. is continuous
4. Labor costs are low as relatively
unskilled workers are required to
operate much of the machinery
 4. Cell production
• Tasks are completed by teams of workers – it
is hoped that this will limit the disadvantages
of isolation and boredom for workers and
improve motivation.

• Each team has workers with different skills

needed to complete their task
• Advantages:
1. Teams operate with some independence in decision-
making eg choose their own leader; how and when
to rotate tasks – leads to more motivation
2. Teams are accountable for the quality of their work –
improves quality standards
3. Team spirit leads to higher productivity
Disadvantages:
4. Output is lower than mass production
5. Conflict between team members may occur
6. Conflict between teams can occur
7. Capital intensive, so has high set-up costs
 Comparison of the main production methods
Job Production Batch Production Mass Production

Set-up time There is a long set-up As set-up is usually a There is a very long
time as there is a new modification of an set-up as it takes time
set-up for every new existing process, set- to synchronize the
job up time can be whole process.
reasonably fast.
Otherwise it is as for
mass production.

Cost per unit High Medium Low

 Comparison of the main production methods
Job Batch Mass
Production Production Production
Capital This can be A mixture of This can
(machinery) flexible as it machines is involve large
depends on used, but this numbers of
specific use. method is general-
based on purpose
general- machines
purpose designed for a
machines. specific
function.

Labor High skilled Workers are Workers are

workers are semi-skilled unskilled and
needed – and and need to be need
may be craft flexible. minimum
workers. training.
 Comparison of the main production methods
Job Batch Mass
Production Production Production
Production This is likely to Once set up, Production is
time be long. production can swift.
be swift.
Stock This involves High quantities There will be
low quantities of raw high quantities
of raw materials are of raw
materials and needed. There materials and
finished stock will be finished stock
but a high medium and a low
amount of amounts of amount of
work in work in work in
progress. progress and progress.
finished stock.
What is the most appropriate method
of production for a given situation?
• The most appropriate method will vary from
B2B – there is no one correct method
 Factors affecting the decision include:

• The target market – for example, the business may

be producing a high volumes of a low-cost product
for a very large market with little disposable income
• The state of existing technology – this can limit how
flexible production can be
• The availability of resources – fixed capital, working
capital, and human capital
• Government regulations – for example, a business
may have to meet certain targets for recycling or
waste emissions
 Kaizen
Continuous improvement through
eliminating efficiencies
J.I.T
No stock is held
 Kanban
The factory still makes all the
components, (unlike JIT).
We have no
more wheels
left. I will have
to go get some
Cell Production
 Think, pair share
• Think of the definitions of various
methods of lean production
• Discuss with the person next to you
• Share with the rest of the class
(post-it note)

End

1.4 Legal structure