4.1: Production of Goods and Services Notes:

Meaning of Production

• Production = managing resources to produce goods/services that satisfy customer needs.

• It adds value: Value added = Selling price − Cost of inputs

Inputs (Factors of Production)

• Land – natural resources

• Labor – human effort

• Capital – machinery, equipment

• Enterprise – risk-taking + decision-making

• Businesses combine these in different proportions → labor‑intensive vs capital‑intensive.

1. 1. 1. 1. 1. 1. 1. 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

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: producing before orders 

2. Waiting: when goods are not moving or being processed in any way 

3. Transportation: unnecessary movement 

4. Unnecessary inventory: too much stock 

5. Motion: excess movement of workers/machines 

6. Over-processing: using overly complex methods 

7. Defects: faults requiring rework 

Benefits of Lean Production:

• Lower costs

• Faster production

• Less space needed

• Better quality

• Higher efficiency

Kaizen (Continuous Improvement)

• Small, regular improvements from workers

• Eliminates waste

• Factory reorganized into cells with tight machine layout

Before Kaizen:

After Kaizen:

Advantages of Kaizen:

• Increased productivity 

• Reduced amount of space needed for the production process 

• Work-in-progress is reduced 

• Improved layout of the factory floor may allow some jobs to be combined, thereby freeing up employees to carry out some other job in the factory 

Just-in-Time (JIT)

• No inventory held

• Materials delivered just in time

• Requires reliable suppliers

• Reduces storage costs

• Improves cash flow

Cell Production

• Production line divided into self-contained units

• Workers feel ownership → higher motivation

• Better teamwork

Methods of Production

1. Job Production

• One-off, customised

• High quality, high price

• Skilled labour → expensive

• Slow

2. Batch Production

• Groups of identical products

• Flexible

• Some variety

• Requires storage

• Machines must be reset → delays

3. Flow Production

• Continuous, large-scale

• Standardized products

• Low unit costs

• High capital cost

• Boring for workers

• If one machine fails → whole line stops

Choosing a Production Method

Depends on:

• Nature of product: customized or complex items require job production, while simple, standardized items suit flow production. 

• Size of market: large markets justify mass production, whereas small markets are better served with job or batch production. 

• Demand pattern: steady, predictable demand supports continuous flow production, while irregular demand requires flexible batch or job production. 

• Size of business: steady, predictable demand supports continuous flow production, while irregular demand requires flexible batch or job production. 

Technology in Production

Automation vs Mechanization

• Automation: computers control machinery.

• Mechanization: machines operated by people.

  • CAD: design

  • CAM: manufacturing

  • CIM: CAD + CAM integrated

  • EPOS & EFTPOS: 

    1. Scanners update inventory automatically

    2. Faster payments

    3. Better data for managers

Advantages of New Technology

• Higher productivity

• Better quality

• Lower costs

• More accurate information

• New product possibilities

Disadvantages

• High cost

• Workers may resist

• Unemployment

• Technology becomes outdated quickly

NOTES DONE BY FARIDA SABET

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