4.1: Production of Goods and Services:

Production Basics

Definitions:

• Production: Creating goods or services to satisfy consumer needs.

• Adds value: Final product price > cost of inputs (like raw materials).

• Combines economic resources (land, labor, capital, enterprise) into outputs.

Types of production:

1. Labor-intensive: More workers, less machinery (common in developing countries).

2. Capital-intensive: More machinery, fewer workers (common in developed countries).

Operations Department

• Responsible for turning inputs into final outputs.

• Factory Manager: Oversees production quality and maintenance.

• Purchasing Manager: Sources materials and equipment.

• R&D Manager: Designs and tests new products/processes.

• Retail/service businesses use similar roles adjusted to their context.

Productivity & Efficiency

Productivity = Output ÷ Input Labour productivity = Output ÷ Number of employees

Ways to increase productivity:

• Train staff 

• Use automation 

• Improve inventory control 

• Motivate employees 

• Introduce new tech 

Benefits:

• Lower costs per unit

• Less waste

• Higher profit margins

• Fewer workers needed (or higher pay for efficient ones)

Inventory Management

Inventory (stock): Raw materials, parts, or finished goods held by a business.

Why businesses hold inventory:

• Avoid running out of stock

• Ensure smooth production

• Be prepared for sudden demand or delays

• Buffer inventory: Safety stock held to manage uncertainty.

Lean Production

Lean Production: Techniques that reduce waste and improve efficiency.

7 Wastes:

1. Overproduction

2. Waiting

3. Transportation

4. Unnecessary inventory

5. Motion

6. Over-processing

7. Defects

Benefits:

1. Faster production

2. Lower storage costs

3. Fewer defects

4. Efficient inventory

5. Better health/safety

Lean Methods

Kaizen ("continuous improvement"):

• Regular worker discussions for small fixes

• Eliminates wasteful movement & inventory

Just-in-Time (JIT):

• Orders inventory only when needed

• Cuts storage costs

• Requires reliable suppliers

Cell Production:

• Teams (cells) handle specific product stages

• Boosts morale and efficiency