MODULE 1: TOPIC 1: NATURE OF PRODUCTION

PRODUCTION PROCESS

The use of inputs/factors of production (land, labour, capital, entrepreneurship) to produce output
(finished goods, services, intermediate goods/components for other firms)

PRODUCTION METHODS

 Job production
 Batch production
 Flow production
 Cell production

Whether a business uses job, batch or flow production depends on:

1. Size of market
2. Amount of capital available
3. Availability of other resources e.g. labour, land
4. Flexibility with mass production (to achieve low cost and differentiated products)
 JOB PRODUCTION
 single, one off products that are unique
 each individual product has to be completed
before the next product is started
 specialised products
 workers are motivated
 expensive, time consuming
 labour intensive, highly skilled workers
BATCH PRODUCTION
 production in separate batches where products
in the batch go through the whole production
process together
 every unit in batch pass through an individual
production stage before the whole batch
moves to another stage
 division of labour, economies of scale
 high levels of work in progress stocks at each
stage
 boring& demotivating for worker

PRODUCTION
METHODS

FLOW PRODUCTION
 individual products move from stage to
stage of production when they are ready,
without having to wait on others
CELL PRODUCTION
(independent)  form of flow production
 system separated into a number of self-
 large output in short time, demand must
contained mini production units (cells)
be high and consistent
 each has a team leader & multi-skilled staff,
 no disruptions in system needed
performance is measured against targets
 low labour costs, high mechanisation
 each responsible for quality, leads to
which may be expensive (high set up
costs) commitment and motivation
 quality is consistent and high
 use of JIT stock control to plan inputs
 inflexible
LOCATION

Revenue:
Fixed Costs: Variable Costs: affected by
rent, purchase wage rate proximity to
of land transport costs target market

Quantitative Factors Qualitative Factors

Site Costs
Regional incentives
 short term grants
 rent free accommodation
Transport costs
 manufacturing businesses need to
consider transport of raw materials,
components and finished goods
 service needs to be close to market
Labour costs
 quality & productivity of labour
needs to be considered
Revenue generation
 location increases sales due to
prestige of area/market proximity
Infrastructure
 transport
 communication links
Environmental and planning issues
 poor public relations
 pressure groups
Management preferences
 to set up in an area with good
“quality of life”
e.g. schools, shopping areas
Clustering
 same businesses locating in one
area
 benefit of proximity to existing and
potential customers & suppliers,
supply of labour

Consider the effect of E-COMMERCE on location