Chapter 4 – Production

Types of Production System

Job Production
 This is a one-off special order custom built to the client’s specification. Examples - Wedding gown,
hand-made handbags, shoes, wedding cakes, made to measure wedding suits, road bridge, and etc.
 Materials and parts are bought in especially for the one order.
 Highly skilled workers are required to interpret and construct the specialist design.
 General-purpose machinery and tools are required as each order is different.
 There are few opportunities for economies of scale as there is little chance of any repeat orders.
 This is usually making a high-priced product
 Nearly all the production costs fall to the product; fixing correct price is important

Batch Production
 Production of a number of similar and standardized items made for the general market especially
textile industry (garments of different sizes and colours are made in batches).
 More division of labour as there is some opportunity to use specialist machinery as well as general
purpose machinery
 No need for highly skilled workers to do the job
 Orders may be repeated Examples : clothings, baking (bread) , T-shirts to commemorate an event,
making a batch air craft engine for a specific aeroplane
 These specialist goods are made to fit customer’s requirements, but the costs can be spread over a
number of units; so the firm can invest in new machinery
 There is opportunity for economies of scale

Mass Production
 Continuous output of uniform, standardized products for a mass market
 It is done using a production line in a continuous flow
 There is a regular and continuous demand
 The goods are relatively low-priced and make use of machines and semi-skilled and unskilled labour
 Mass market is needed to absorb the goods

 A sub-type of mass production is flow production. Flow production makes use of machines and
labour in a sequence called the production line. Cars for the mass market are produced by
materials and parts moving along an assembly line until eventually a finished car rolls off at the end.
Examples of flow production are the manufacture of relatively high-priced products like cars,
washing machines and TV sets. Mass market is needed to absorb the goods

Process Production
 This is the process to extract products such as oil and gas or a continuous process to make
chemicals and food
 Use a continuous flow of production, using expensive machinery, highly automated methods and a
mass marketing technique.
 Mass market is needed to absorb the goods

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Cell production has the flow production line split into a number of self-contained units.
Each team or ‘cell’ is responsible for a significant part of the finished product. Cell production
is a form of team working and helps to ensure worker commitment, as each cell is responsible
for a complete unit of work and the employee will has a sense of ownership.

Benefits of cell production

Closeness of cell members should improve communication, avoiding confusion arising

from misunderstood or non-received messages
Workers become multi-skilled and more adaptable to the future needs of a business
Greater worker motivation, arising from variety of work, team working and more responsibility
Quality improvements as each cell has ‘ownership’ for quality on its area

Lean Production is a series of management techniques intended to make efficient use of a firm's resources
thus reducing waste. The overall aim is to make more with less. It includes method such as Kaizen,
benchmarking and just-in-time. Firms using lean production need multi-skilled workers in order to carry out
a variety of activities to meet customer needs in the shortest possible time. In this way, firms using lean
production only produce to order in contrast to the old mass production production technique that
produced for stock. This reduces the need to keep large stock of raw materials, work-in progress and
finished goods thus minimising the level of working capital required.

CAD/CAM - CAD stands for computer-aided design and CAM stands for computer aided manufacturing. It
is a term used to describe the use of computer technology to aid in the designs, analysis and manufacture
of products. CAD allows designers and draughtsmen to store, retrieve and modify their work using multi-
dimensional images. CAD/CAM develops flexible manufacturing systems which include design, inspection
and quality control of the goods produced. CAD and CAM can be extended to include final packaging and
sending out of goods to customers . Using CAD and CAM technologies improves productivity and quality.

Fixed costs are cost that do not vary with output in the short-term when the firm alters its level of output.
Examples are fixed costs are rent, insurance, depreciation and must be paid irrespective of the level of output.

Variable costs are those expenses that change directly with the volume of output. Examples might include raw
materials and labour. These costs will depend on the level of production and sales.
Examples are :

Chlorine costs for a pool-service company. (More pools serviced = more revenues = more chlorine bought).
The cost of nails for a building contractor. (More houses sold = more nails bought).
The cost of paper for a printing company. (More jobs printed = more paper used)

In a business context, explain the difference between

i) Inputs and outputs
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ii) Labour Intensive and Capital intensive

Inputs are the elements that go into producing a good or a service (labour, materials, components, capital), they
can also be described as the four factors of production i.e land , labour, capital and managerial ability that a firm
requires in order to produce.

Output, however, are the end products of the production system for example cars, haircut, sewing machine,
shoes etc.

Labour intensive is a work process in which labour represents a high proportion of the total costs (common in
service sector).

Capital intensive is a process where the majority of the costs involve plant and machinery. The difference is the
process where capital intensive use more plant and machinery and labour
intensive use more labour.

As the business expands, it can take advantage of economies of scale. Identify the explain the
economies of scale that might be available to an expanding business.

Economies of scale are costs reductions gained from increase in level of output. A business expanding could take
advantage of any of the following economies of scale :

Purchasing economies - for a larger output, the firms can buy in bulk and get better discounts and more favourable
credit terms

Marketing economies -In terms of promotion and advertising, the costs can now be spread over a larger output;
hence cost per unit will be lower. A larger firm will have more products to advertise; hence the cost of advertising
will be lower than a smaller firm.

Financial economies - Banks often regards larger firms as less of a risk and therefore are willing to offer loan at more
favourable rate of interest.
For Public Limited company finance can be raised by offering shares to the public.

Technical economies - a larger firm is usually more productive than a smaller firm. A larger firm can use the
expensive machinery more efficiently than a smaller firms; hence the cost per unit for the larger firm will be
lower.

Managerial economies - a larger plant can afford to hire specialist staff in the functional areas of marketing, finance,
production, purchasing and human resources. This will lead to increase in efficiency.

Risk bearing economies - Risk bearing economies result form diversification. Production spread over several
plants is less likely to suffer from disruption in strikes, accidents or disasters. A larger plant can have
diversification with a range of products. During recession, one area will not adversely affect the whole
organisation. In diversification you need not rely on one plant or one product .

BACK OFFICE FUNCTION

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Back offices may be somewhere other than the headquarters of a company. Many are in areas and countries
with cheaper rent and lower labour costs. Front office would contain the sales and other customer-facing
staff. Although the operations of a back office are seldom prominent, they are a major contributor to a
business.

Examples of back-office tasks include IT departments that keep the phones and computers running , accounting,
and human resources. These tasks are often supported by back-office systems: secure e-commerce software
that processes company information (e.g. databases). A back-office system will keep a record of the company’s
sales and purchase transactions, and update the inventory as needed. Invoices, receipts, and reports can also be
produced by the back-office system.

HOME-BASED WORK

Home-based work is work performed in the employee's home. Due to modern technology of telecommunications
and computers, home- based work is made possible. For women, it is an opportunity to earn money and at the
same time take care of the family's responsibilities. Some
of the examples of home based work are editors, designers and software writers.

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