Unit 5.1 pg. 614 Production Methods
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Transcript of Unit 5.1 pg. 614 Production Methods
•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: