4.1 – Production of Goods and Services

• Productivity: the output measured against the inputs used to create it.
• Buffer inventory: inventory held to deal with uncertainty in consumer demand and deliveries of supplies.
• Lean production: those techniques used by businesses to cut down on waste and therefore increase efficiency
• Kaizen: a Japanese term meaning 'continuous improvement' through the elimination of waste.
• Just-in-time: a production method that involves reducing or virtually eliminating the need to hold inventories of raw materials or unsold inventories of the finished product.
• Job production: where a single product is made at a time.
• Batch production: where a quantity of one product is made, then a quantity of another item will be produced.
• Flow production: where large quantities of a product are produced in a continuous process.
• Labour productivity = output per time period / number of employees
• Ways to increase productivity:

  • improve factory/office organisation to save time
  • improve labour skills
  • more efficient machinery
  • improve employee motivation 
• Seven types of wastage:

  • Overproduction
  • Waiting
  • Transportation
  • Unnecessary inventory
  • Motion
  • Over-processing
  • Defects
• Benefit lean production

  • less storage of raw materials, components and finished goods => less money and time tied up in inventory
  • quicker production of goods and services
  • no need to repair faulty goods => good customer satisfaction
  • costs will lower => reduce prices, making the business more competitive and earn higher profits
• Benefits of kaizen:

  • increased productivity
  • reduced amount of space needed for production
  • improved factory layout may allow some jobs to be combined => freeing up employees to do other jobs in the factory
• Benefits of just-in-time:

  • Reduces cost of holding inventory
  • More space is available for other uses (warehouse space is not needed)
  • Finished goods are immediately sold off => cash flows in quickly
• Benefits holding inventories:

  • give consumers choice and good availability
  • keep production supplied with resources
  • provide cover for supplier hold up
• Job Production:

  • Advantages:
  • one-off products and personal services
  • flexible designs meet customer needs
  • highy skilled and varied work
  • Disadvantages:
  • Skilled labour will often be required => expensive
  • Costs are higher (usually labour-intensive)
  • Takes a long time
  • Errors may be expensive to fix
  • Specially materials purchased for different orders => expensive
• • Batch Production:
  • Advantages:
  • Flexible way of working
  • Gives some variety to workers
  • More consumer choice
  • Even if one product’s machinery breaks down, other products can still be made
  • Disadvantages:
  • Can be expensive (finished and semi-finished goods will need moving about)
  • Machines have to be reset =>which delays production
  • Lots of raw materials needed for different product batches => expensive.
• Flow Production:

  • Advantages:
  • High output of standardized  (identical) products
  • Costs are low in the long run
  • Benefit from economies of scale in purchasing
  • Automated production lines can run 24×7
  • Produced quickly and cheaply
  • Capital-intensive production => reduced labour costs, increases efficiency
  • Disadvantages:
  • Lots of raw materials, finished goods held in inventory => expensive
  • Cost of setting up is very high
  • If one machinery breaks down, entire production affected
• Factors that affect which production method to use:

  • The nature of the product
  • The size of the market
  • The nature of demand
  • The size of the business
• Technology:

  • Automation
  • CAD
  • CAM
  • CIM
  • EPOS
  • EFTPOS
• Advantages of technology in production

  • Greater productivity
  • Greater job satisfaction among workers as boring, routine jobs are done by machines
  • Better quality products
  • Quicker communication and less paperwork
  • More accurate demand levels are forecast since computer monitor inventory levels
  • New products can be introduced as new production methods are introduced
• Disadvantages of technology in production

  • Unemployment rises as machines and computers replace human labour
  • Expensive to set up
  • New technology quickly becomes outdated and frequent updating of systems will be needed => expensive and time-consuming.
  • Employees may take time to adjust to new technology or even resist it as their work practices change.