What Is Production?

Production?
Productioniscloselylinkedtomarketing
Itcanbedefinedas:
Theprocessofusingresourcestoaddvaluetoaproduct
orservice,soastomeettheneedsofthecustomer
Thisinvolvesthefollowing:
Inputof
Resources
Land
Labour
Capital
Enterprise

AddValueTo
RawMaterials
Usinga
Production
Method

Outputs
Goods
Services

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Co-ordinating Production
Production
Productionisoftenmorecomplicatedthanitlooks.
EgAlloftherawmaterialsneedtobeattherightplacewhen
theyareneeded

Considerwhatneedstobedoneinordertogetabottle
ofwaterontoasupermarketshelf

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Producing A Bottle of Water

Water
Inordertogetsomethingassimpleasabottleofwateron
asupermarketshelfthefollowingthingsmustbedone:
Bottleneedsfillingwithwater

Plasticbottle
needstobe
produced

Watermustbe
sourced,treated
andpurified

Plasticcapmust
beproduced,
placedonbottles
andsealed
Labelmustbe
designed,printed
andstuckonbottle
Thenproductcanbe
transportedtoretailer

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What Is Value-Added?
Added?
Thisisanimportantbusinessterm
Itcanbedefinedas:
Theincreaseinthebenefitsofagoodorservicewhich
arecreatedateachstageofproduction
Thismeansthatvaluecanbeaddedsimplybymaking
aproductmoreappealingtocustomers
ValueaddediscloselylinkedtotheCHAINOF
PRODUCTION

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Calculating Value Added

Added
TheValueaddedateachstageofproductionis
calculatedusingtheformula:
Value Added = Value of Output Value of Input
Forexample:
Farmer sells Milk for 1000, that cost him 300

700

Milk Packaging Firm sells the same milk in cartons

to a supermarket for 2000

1000

Supermarket sells the same milk to customers for

a total of 3500

1500
3200

The Value that has been added at each stage is shown in red
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Methods of Production
Production
Thereare3mainmethodsofproduction:
JobProduction
Eachitem(orjob)iscompletedbeforethenextoneisstarted
EgTailormadeclothing,Constructionjobs(ieWembley)

BatchProduction
Involvesdividingworkintodifferenttasks
Eachtaskiscompletedonanumberofproductsbeforetheymove
ontothenexttask
EgBread,Paint

Flow
Itemsarecontinuouslymovedfromonetasktoanother
SometimescalledMASSproduction
Egcarmanufacturing,Tinnedproducts

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Quality
Quality
Qualityisavitalpartoftheproductionprocess
Itisdefinedas:
Consistentlyprovidingwhatcustomerswant
Examplesofpoorqualitycontrolinclude:
Productfailse.g.abreakdown
Productdoesnotperformaspromised
Productisdeliveredlate
Poorinstructions/directionsforuse
Customerserviceishardtofind(e.g.telephonenotanswered)
Businessemployeesappearrudeoruninterestedinthe
customer
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The Costs of Poor Quality

Quality
Theseexamplesshowthatqualityisimportantforboth
goodsandservices
Ifabusinessdoesnotprovidegoodqualitythenthere
areanumberofthingsthatmayhappen:
Lostcustomers(expensivetoreplaceandtheymaytellother
peopleabouttheirbadexperience)
Costofreworkingorremakingproduct
Costsofreplacementsorrefunds
Wastedmaterials

Thereare3waysinwhichthiscanbeavoided:
QualityControl
QualityAssurance
TotalQualityManagement(TQM)

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Quality Control
Control
Thisisthetraditionalwayofmanagingquality
Itinvolves:
Inspectionproductsduringproduction
Testingproducts
Samplingproductsastheyareproduced

Qualitycontrolismoreaboutdetectionthan
prevention
Itisaveryexpensiveprocess
Sobusinesseshavefocusedmoreonquality
assurance

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Quality Assurance
Assurance
Thisinvolvesminimisingthechancesthatthe
product/servicewillbesubstandard
Thefocusofqualityassuranceisonproductdesign
Thisisbecause:
Qualitycanbe"builtin
Thereislessneedtoinspect(qualitycontrol)

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Total Quality Management

Management
TQMisessentiallyanattitudethatisadoptedbythe
wholebusiness
Everyoneintheworkforceisconcernedwithqualityat
everystageofproductionprocess
Qualityischeckedbyworkersandnotinspectors

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The Japanese Approach to Production

Production
Japanesecompanies,suchasToyotahaveoftenled
thewayinproductiontechniques
TheydevelopedtheideaofKaizen,whichtranslates
asGoodChange
Theideaisthatworkersareencouragedtoshareideas
withmanagersabouthowqualitycanbeimproved

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Lean Production
Production
InanattempttoreducecostsToyotaalsodeveloped
LeanProduction
Theideabehindthisisthatproductsareproducedas
cheaplyaspossible
MostcompanieshaveadoptedaJustInTime
approachtoproductionasaresultofthis

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Just-In-Time Production
Production
Theideabehindthisissimple:
Rawmaterialsareonlydeliveredastheyareneeded
Thismeansthat:
Moneyisnotbeingusedtobuysuppliesthatjustsiton
shelves
Workersneedtobeabletocommunicatewitheachother
otherwisesupplieswillnotbereadywhentheyareneeded
Lessspaceisrequiredtostorestock

However:
Ifanythinggoeswrongthewholeproductionlinewillstop
Thebusinessreliesuponsupplierstomeetdeadlines

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Productivity
Productivity
Thisisameasureofhowefficientafirmis
Itisdefinedas:
Theamountthatcanbeproducedwiththeresources
thatareavailable
Thisisusuallymeasuredbycomparingoutputtothe
numberofworkers,usingthefollowingformula:

Numberof GoodsProduced
Productivity=
Numberof Workers

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The Importance of Productivity

Productivity
Ifabusinesscanproducemoreunitswiththesame
numberofworkersthen:
Theaveragecostofeachunitislower
Profitswillbehigher

Thereare2mainwaystoincreaseproductivity:
Tocontrolstockcarefullysoastominimisewastage
EguseJITProduction

Tousenewtechnology
EgRobotics

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Stock Control
Control
Thewordstockrefersto:
Rawmaterialsandothercomponentsthingsthatgointo
theproductionprocess
Workinprogressproductsthatarenotyetfinished,but
wheretheproductionprocesshasstarted
Finishedgoodsproductsthathavebeencompletedtothe
rightqualityandarewaitingtobedeliveredtocustomers

Businesseswillwanttoholdaslittlestockaspossible
because:
Holdingstockcostsmoney,e.g.storageandriskoftheft
Stockmaybecomeoutofdate

However,iftheydontholdenoughstocktheymaylose
sales
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Using A Stock Control Chart

Chart
MaximumStockLevel
Thisisthemoststockthatafirmisableorwillingtohold

ReOrderLevel
Thestocklevelatwhichaneworderwillbesenttothe
supplier

MinimumStockLevel
Ifstockfallsbelowthislevelthenthefirmisindangerof
runningoutofsupplies

ReOrderQuantity
Thisisthenumberofitemsthatareordered.Thisisshownby
thestraightlineonthestockcontrolchart

LeadTime
Thetimebetweenanorderbeingplaced,andthegoodsbeing
received
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Stock Control Charts

Charts

Stock Levels

Somebusinessesusethesetohelpcontrolstocks
Theyshow:
300

Maximum
Stock Level
(eg 300 units)

200

Re-Order Level
(eg 200 units)

Minimum
Stock Level
(eg 100 units)

100

Jan

Feb

Time

Mar

Apr
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New Technology & Manufacturing

Manufacturing
Investinginnewtechnologyisanotherwayof
improvingefficiency
Manufacturingbusinessescanuse:
ComputerAidedDesign(CAD)
Usedtodesignnewproducts

ComputerAidedManufacture(CAM)
Controllingproductionmachinesusingcomputers

ComputerIntegratedManufacture(CIM)
Wherethewholefactoryiscomputercontrolledusuallyinvolves
robots

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New Technology & Services

Services
Servicesindustries(egretailers)canuse:
ElectronicPointofSale(EPOS)
Databaseofstock,whichiskeptuptodateusingbarcodes

ElectronicDataInterchange(EDI)
Salesandstockinformationisautomaticallysenttoheadoffice

ElectronicFundsTransferatPointofSale(EFTPOS)
Thissystemallowscustomerstopayelectronically
usingadebitoracreditcard

Email
Hasimprovedthespeedwithwhichbusinesses
communicate
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Research & Development

Development
Ofcoursenewproductsdontjustappearovernight
ForexampleittookJamesDyson15yearsandover
5000prototypesbeforethefirstDysonwassold
Afirmmustansweranumberofquestionswhen
developingaproduct:
Whatdocustomerswant?
Howlongwilltheywantitfor?
Arethematerialsavailable?
Howmuchwillitcosttoproduce?
Istheproductsafe?
Whatareourcompetitorsdoing?
Whichmethodofproductionshouldbeused

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Protecting New Products

Products
Developingnewproductsistimeconsumingand
expensive
Businesseswillwanttoprotecttheirnewproducts
Thereare3waystodothis:
Patents
Thishastobeappliedfor
Givestheinventorthesolerightsovertheirideafor20years

Copyright
Thecopyrightownerhasthelegalrighttopreventunauthorised
copyingoftheirwork

License
Similartoafranchise,butappliestoasingle
product.
E.gCocaColaisbottledunderlicenseintheUK

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