•Unit 5.1 pg. 614•Production Methods

IB Business Management

Production•Referred to as operations management

•Concerned with producing the right goods/services in the right quantities in a timely & cost-effective manner

Production

•Productivity is the rate at which inputs are transformed to outputs (how efficient is the business?)

•The form of production that a manager chooses will help determine a firm’s productivity

Production Sectors

Primary sector: extracting raw materials, harvesting crops, rearing animals (mining, agriculture, fishing)

Production Sectors

Secondary sector: turning natural resources into finished goods (steel production, car manufacturing)

Production Sectors

Tertiary sector: providing services (finance, insurance, health care, education)

4 Factors of Production

• Land, labor, capital, enterprise– Known to production managers as Five

M’s: materials, manpower, machines, money, mgmt

• These factors are combined in cost-effective way to ensure value-added is performed during ‘production’– The value of outputs (products) is

greater than the inputs (PROFIT)

Production

• What is the best production method for businesses?

• What is best for one business may not be best for another

• The same kind of product can be produced using different methods

• 3 types of production:– job, batch, mass

Methods of Production

Job production: business creates individual product from start to finish to meet customer’s standards

•Items are “tailor-made”•Usually used by small firms•No economies of scale•Examples: Custom computers, haircut, custom home, office building, Disneyland

Advantages of Job Production

•Quality: highly-skilled labor is used

•Motivation: workers feel proud of finished product

•Uniqueness: adds value to the production process

•Flexibility: each product can be altered to the customer’s request

Disadvantages of Job Production• Expensive: labor-intensive.

• Higher cost for consumer• Time consuming• Few economies of scale

• b/c each product is unique

(show Ace of Cakes clips)

http://www.foodnetwork.com/ace-of-cakes2/video/index.html

Methods of Production

Batch production: producing a limited number of identical products• One batch completed

before production switches to next batch

• Good for businesses that make a range of products

• Example: Nike produces batches of different sizes/colors, Krispy Kreme makes batches of different doughnut types

Advantages of Batch Production• Economies of scale: machines can

produce larger quantities• Specialization in production process• Variety

• EX: b-day cakes made in batch but can be customized

Disadvantages of Batch Production•Inflexible: once a batch is

started, it’s difficult to stop•Storage costs of larger quantities•Worker boredom

Methods of Production

Flow production: form of mass production where different operations are progressively carried out in sequence•When one task is complete, the next stage must start immediately•Ex: bottled water

Methods of Production

Line production: form of mass production where the product is assembled along a conveyer belt•Also known as an assembly line•Ex: vehicle manufacturers

Methods of Production

Mass production: producing mass amounts of standardized products•Identical products are produced in large quantities•Ex: New York Times prints one million newspapers

Advantages of mass production

• High volume produced at low cost (economies of scale)

• Reduces average fixed costs (bc so many products are produced)• Machines can work 24 hours a day

• Product quality is standardized; low defect rate

• Low labor costs for unskilled workers

Disadvantages of mass production

• Work is boring & monotonous• Machine breakdowns cause major

problems• Little flexibility in production methods

• Once a process has begun, cannot make changes

• Cannot tailor make to customer’s wishes

• Huge set-up costs. (Must buy machines, maintenance, replacement)

• Effective storage system needed

Labor and Capital Intensity• Some methods of production are labor

intensive while others are capital intensive• Labor intensive:

– Job production, services– Used in highly skilled professions, ie lawyers– More personalization

• Capital intensive:– Batch, mass production– Disadvantage: product are highly homogenous,

high fixed costs

Review AssignmentChoose the most appropriate method of production (job, batch or mass) for each of the following and justify your answer: