Production of Goods and Services PDF

Production of goods and services  Learning objectives By the end of this lecture students will be able to: ▪ Difference between production and productivity. ▪ Describe the concept of lean production and how to achieve it, e.g. just-in-time inventory control and Kaizen; benefits...

Production of goods and services  Learning objectives By the end of this lecture students will be able to: ▪ Difference between production and productivity. ▪ Describe the concept of lean production and how to achieve it, e.g. just-in-time inventory control and Kaizen; benefits of lean production. ▪ Identify the main methods of production. ▪ Explain how technology has changed production methods using computers in design and manufacturing Production Production is the transformation of resources (e.g. raw materials, components and labour) into finished goods or services Goods are physical products, such as bicycles and T-shirts Services are non-physical items such as hairdressing, tourism and manicures  The Difference Between Production & Productivity Production is the act of adding value to the factors of production to create goods/services It is the process of converting the factors of production into goods/services It is a measure of output Productivity is a measure of efficiency that calculates the amount of outputs produced per unit of input It calculates how efficiently resources are being used in the creation of goods/services and aids comparison of performance Labour productivity is calculated using the formula Improving productivity Productivity can often be improved so as to reduce costs. This can be achieved by Increasing output using the same level of inputs Maintain the level of output but using fewer inputs  ▪ Lean production involves the minimisation of the Lean resources used in production ▪ Less time is required as the production process is Production organised in the most efficient way ▪ Fewer materials are used as there is a focus on waste reduction ▪ Less labour is used as lean production is typically capital intensive ▪ The space required for production is reduced as a result of just in time stock management ▪ A small number of trusted suppliers work closely with the business Lean production ▪ The use of lean production is likely to lead to a competitive advantage ▪ Lower unit costs are achieved due to minimal wastage so prices may be lower than those offered by competitors ▪ Better quality of output is likely as a result of supplier reliability and carefully managed production processes ▪ Lean production uses strategies such as Just in Time stock control and Kaizen Just in Time Stock Control ▪ Just in Time (JIT) stock management is a process in which raw materials are not stored onsite but ordered as required and delivered by suppliers 'just in time' for production ▪ Careful coordination is required to ensure that raw materials and components are delivered by suppliers at the moment that they are to be used ▪ Close relationships with suppliers need to be developed ▪ Suppliers may need to be in close proximity Just in Time Stock Management Advantages Disadvantages ▪ Stockholding costs including storage costs are ▪ Bulk buying economies of scale are not generally minimised possible ▪ Close working relationships are developed with ▪ The ability to respond to unexpected increases in a small number of trusted suppliers demand is reduced ▪ Cash flow is improved as money is not tied up in ▪ Administrative costs related to frequent ordering stocks are increased ▪ Unused storage space is available for productive ▪ Unreliable suppliers (e.g. late or poor quality use deliveries) can quickly halt production ▪ Teamwork is encouraged so employee motivation ▪ Significant changes to organisational structure and is likely to be improved production controls are required  Continuous Improvement (Kaizen) Kaizen involves taking continuous steps to improve productivity through the elimination of all types of waste in the production process Changes are small and ongoing rather than significant one-off’s They are constantly reviewed to ensure that they achieve the desired positive impact on productivity Kaizen requires a long-term management commitment to change Continuous Improvement (Kaizen) Elements of Kaizen commonly include Zero defects in manufacturing High levels of automation High levels of cooperation between workers and management Right first time approach Aims for zero defects in output Identifies and solves problems as they arise Prevent rather than corrects errors Flexibility Multiskilled staff and team working Flexible management styles Waste Minimisation The Benefits of Removes processes that do not contribute to added value Consumes as little as is necessary Lean Production Effective supply chain management Develop excellent relationships with suppliers Minimal number of suppliers Continuous improvement Ongoing, small steps All staff involved in improvement  Different Types of Production Processes Businesses can organise their production processes in a variety of ways The method of production used by a business will depend upon a number of factorsThe level of output required to be produced ✓The nature of the product ✓Whether the product is standardised or customised ✓The level of automation used in production  Advantages Job production - High quality product Manufacturers produce one product at a time as ordered by the customer. - Motivated and highly skilled workers - Customised products can be produced Disadvantages - Production is slow - Labour costs are high  Advantages Flow Production Low unit costs due to economies of scale Continuous manufacturing of Rapid production standardised products, usually on a Usually highly automated (capital intensive) production line. Disadvantages Customisation is difficult Capital equipment can be expensive to purchase  Advantages Workers can specialise Batch Production Production can take place as the previous 'batch' Groups of the same product starts running out are produced as a batch. Disadvantages Requires careful coordination to avoid shortages Money is tied up in stock Completed products need to be stored Appropriate Production Method Small scale businesses often use job or batch production as they lack the resources for flow production Large scale businesses are more likely to use flow production to meet high demand for their products Several factors may influence a businesses decision as to which type of production methods is used Factors affecting production method High demand may justify investment in flow production The level of demand Price-sensitive markets may require high volume, standardised products The nature of the target market High quality customised products require job production It may only be possible to produce certain products using one The nature of the method product Large firms minimise labour costs by investing in automation The comparative Cheap labour allows for labour-intensive production methods which costs of labour and capital generates the use of job or batch production  The nature of the firm itself Small firms lack funds to invest in flow production New technologies As technologies become cheaper smaller firms can afford equipment previously inaccessible to them and increase their level of flow production Factors affecting The goals of the business production Firms seeking to maximise market growth and method profitability may invest in flow production Small firms may use job production methods to create unique selling points Government policies The government may stimulate economic growth by offering subsidies and tax breaks for investment in technology Technology & Production Increased use of 3D Printers ▪ New technology ▪ Digital designs are uploaded and the is revolutionising flexibility in production printer produces the product with ▪ Two examples of this are minimal labour costs ▪ The use of computer aided ▪ Digital printers have been used to print design (CAD) car engines, houses, food and more ▪ The use of 3D Printers The Impact of 3D Printing on Production Cost Productivity Traditional manufacturing With traditional manufacturing, processes require expensive there are often long lead tooling and machinery times for tooling and set-up This is a significant upfront cost This can delay production for small businesses 3D printing allows quick 3D printing reduces the cost of production with minimal lead manufacturing as there is no times need for expensive tooling New products are brought to market faster Changing customer tastes can be catered for The Impact of 3D Printing on Production Quality Traditional manufacturing may find it difficult to produce complex or intricate designs 3D printing allows for precise and accurate production of complex shapes and designs, resulting in higher quality products Flexibility Traditional manufacturing makes customisation to meet specific needs of customers difficult 3D printing allows for small production runs which reduces the costs of a specific job production