Production of goods and services

• Production


  The transformation of resources (e.g. raw materials, components and labour) into finished goods or services
• Goods


  Physical products, such as bicycles and T-shirts
• Services


  Non-physical items such as hairdressing, tourism and manicures
• Raw materials are converted into finished goods/services. This process requires production and the productivity of workers or machines
• This process of transforming inputs into outputs (goods and services) adds value to the raw materials
• Competitive businesses combine these inputs of resources efficiently, making the most of the resources so as to minimise costs and generate a profit
• Operations management

  Focuses on designing, controlling and improving the processes used in the production of goods and services. It involves overseeing the entire production process, from acquiring raw materials to delivering the final product/service to customers. Its goal is to ensure that the production process is efficient, cost-effective and meets quality standards.
• Production

  The act of adding value to the factors of production to create goods/services
• Productivity

  A measure of efficiency that calculates the amount of outputs produced per unit of input
• Ways to Increase Productivity

  • Improve worker training
  • Improve motivation
  • Improve quality management
  • Improve stock management
  • Improve technology
  • Automate production
  • Improve quality
• When costs decrease, a business can either pass on savings to consumers in the form of lower prices or maintain the selling prices and enjoy higher profit margins
• Businesses that increase their level of productivity are likely to be more competitive and are more likely to be successful in the long term
• Efficiency


  The ability of a business to use its production resources as cost-effectively as possible
• Businesses that are competitive usually generate more profit. This provides the financial resources to continue investing in improvements to their productivity
• Inventories


  Raw materials, work-in-progress and finished goods held as stock
• Inventories enable production to take place to meet customer demand
• Inventory levels must be carefully controlled to ensure that there is always enough inventory to satisfy demand
• Lean production


  Involves the minimisation of the resources used in production. Less time, fewer materials, and less labour are used. The space required for production is reduced. A small number of trusted suppliers work closely with the business.
• The use of lean production is likely to lead to a competitive advantage
• Lower unit costs are achieved due to minimal wastage so prices may be lower than those offered by competitors
• Better quality of output is likely as a result of supplier reliability and carefully managed production processes
• Just in Time (JIT) stock management

  A process in which raw materials are not stored onsite but ordered as required and delivered by suppliers just in time for production
• Advantages of Just in Time Stock Management

  • Stockholding costs including storage costs are minimised
  • Close working relationships are developed with a small number of trusted suppliers
  • Cash flow is improved as money is not tied up in stocks
  • Unused storage space is available for productive use
  • Teamwork is encouraged so employee motivation is likely to be improved
• Disadvantages of Just in Time Stock Management

  • Bulk buying economies of scale are not generally possible
  • The ability to respond to unexpected increases in demand is reduced
  • Administrative costs related to frequent ordering are increased
  • Unreliable suppliers (eg. late or poor quality deliveries) can quickly halt production
  • Significant changes to organisational structure and production controls are required
• Kaizen


  Involves taking continuous steps to improve productivity through the elimination of all types of waste in the production process. Changes are small and ongoing rather than significant one-off's. They are constantly reviewed to ensure that they achieve the desired positive impact on productivity.
• Unused storage space is available for productive use
• Teamwork is encouraged so employee motivation is likely to be improved
• Kaizen (Continuous Improvement)


  1. Taking continuous steps to improve productivity through the elimination of all types of waste in the production process

  2. Changes are small and ongoing rather than significant one-off's

  3. Constantly reviewed to ensure desired positive impact on productivity

  4. Requires long-term management commitment to change
• Elements of Kaizen


  • Zero defects in manufacturing
  • High levels of automation
  • High levels of cooperation between workers and management
• Staff training and computer inventory management systems may also reduce wastage as fewer errors are likely to be made
• Benefits of Lean Production

  • Right first time approach
  • Aims for zero defects in output
  • Identifies and solves problems as they arise
  • Prevent rather than corrects errors
  • Flexibility
  • Multiskilled staff and team working
  • Flexible management styles
  • Waste Minimisation
  • Removes processes that do not contribute to added value
  • Consumes as little as is necessary
  • Effective supply chain management
  • Develop excellent relationships with suppliers
  • Minimal number of suppliers
  • Continuous improvement
  • Ongoing, small steps
  • All staff involved in improvement
• Seven key types of waste minimised in lean production

  • Transportation: Unnecessary movement of materials or products
  • Inventory: Excess raw materials, work-in-progress or finished goods
  • Motion: Unnecessary movement of people or equipment
  • Waiting: Delays or idle time in the production process
  • Overproduction: Producing more than what is required by the customer
  • Overprocessing: Using more resources than necessary to produce a product
  • Defects: Products or services that do not meet customer requirements
• Methods of Production


  • Job Production
  • Batch Production
  • Flow Production
• Job Production


  • Manufacturers produce one product at a time as ordered by the customer
  • High quality product
  • Motivated and highly skilled workers
  • Customised products can be produced
• Flow Production


  • Continuous manufacturing of standardised products, usually on a production line
  • Low unit costs due to economies of scale
  • Rapid production
  • Usually highly automated (capital intensive)
• Batch Production


  • Groups of the same product are produced as a batch
  • Workers can specialise
  • Production can take place as the previous batch starts running out
  • Customisation is difficult
  • Capital equipment can be expensive to purchase
  • Requires careful coordination to avoid shortages
  • Money is tied up in stock
  • Completed products need to be stored
• A business may change production methods as it grows over time
• Computer Aided Design (CAD)


  Digital designs are uploaded and the printer produces the product with minimal labour costs
• 3D Printing


  • Reduces the cost of manufacturing as there is no need for expensive tooling
  • Allows quick production with new products brought to market faster
  • Allows for precise and accurate production of complex shapes and designs resulting in higher quality products
  • Allows for small productions which reduces the costs of special production
• Traditional manufacturing processes require expensive tooling and machinery