PRODUCTION AS AN ECONOMIC ACTIVITY

Objective 2.03

Importance of ProductionThe economy begins with production.Consumers need Products/Services to satisfy

their needs and wants.Businesses also need Products/Services

To use in/with their own Products/Services.To resell to consumers.

The three categories of products used by business and consumers are:Natural Resources – raw materials supplied

by natureAgricultural Products – crops and animals

grown my farmersProcessed Goods – products that have been

changed in form to increase their value and usefulness

The following types of businesses make products:Producers – develop products to sell to other

businesses or consumersExtractors – obtain natural resources, such as

water, oil, coal, and timber, from the earth for processing and use

Farmers – tend land and other natural resources to grow crops and livestock that are later sold and processed

Manufacturers – obtain materials from other producers and convert them into products for sale to consumers and other businesses

Types of ProductionExtraction and

CultivationObtaining

products from nature or using natural resources to grow

Examples:ChickenTomatoesBroccoli

ProcessingChanging and

improving the form of another product

Examples: HoneyMangoSoil

ManufacturingCombining raw

materials and processed goods into finished products

Examples:CosmeticsChinaShoes

Types of Manufacturing ProceduresMass

Production The process of

using assembly activities to produce large quantities of identical products

Examples: Krispy Kreme

Donuts Maybelline

Lipstick Nike sneakers

Custom Manufacturing The process of

producing a specific and exclusive product for a customer

Examples: Ceramics Prosthetic

Limb Signs

Material Processing

The process of changing raw materials to another form in order to be consumed or used to make other products

Examples: Paper Soap Glass Plastic Steel Cement

Production and Manufacturing PlanningProduction and manufacturing involve the following activities in order to produce products:

Product DevelopmentProduction PlanningInventory Management

Production DevelopmentImproving an existing product or developing new kinds of products

Why Do Business Create New Products?New product development is an

important way for businesses to stay ahead of the competition and continue to appeal to the changing needs of existing customers. In addition, new product development can open up new marketing channels and help to increase market share.

Product ResearchPerformed by engineers and other scientists to develop new products or to discover improvements for existing products.

Applied ResearchMarketing research that studies existing products to develop design improvements or new products.Example: Engineers working for an automobile manufacturer will study the current designs to improve the efficiency of engines or increase passenger safety.

Pure ResearchDiscovers new solutions to problems – done without a specific product in mind.Example: Scientists working for drug manufacturers study diseases and immune systems of the body. Their goal is to uncover treatments and cures.

Product DesignTurning the idea into a product that can be

made and sold with a profit.Creating models and testing them to come up

with the best possible design.Determining all the materials and parts

needed for the final product.Determining the cost of making the product.Determining the selling price.

Production Process consists of activities, equipment, and resources needed to manufacture products.

Production Resources consists of machines, tools, and other equipment needed for production.

Personnel consists of employees and skills needed for production

Production Planning

Inventory ManagementA detailed account of a company’s materials, supplies, and finished products.

Inventory ManagementMaintains the supply of all resources needed for production

and the products produced.A vital manufacturing activity.Keeping records of the supply and the cost of all resources

used in production.Ensure that suppliers deliver orders on time and in the correct

quantities and price.Maintaining adequate storage space to make sure the parts

and materials can be easily located and moved to productions lines as needed.

Ensuring that materials are safe and secure and can be moved quickly and easily.

Moves finished products for storage or for immediate distribution to customers.

Keeping accurate product inventory in order to make sure orders can be filled.

Marketing Procedures

Continuous Process Improvement (CPI)

The purpose of CPI is to make sure manufacturing processes are completed as effectively and efficiently as possible.

Continuous Process Improvement (CPI)Six Steps:1. Involve everyone.2. Identify process activities.3. Establish quality performance

standards.4. Select measurement tools.5. Monitory performance continuously6. Improve process quality.

Common Business Operations:Facilities ManagementLogisticsSchedulingSafety and Security

Facilities ManagementBuildings are one of the largest investments

of a business.House the work and workersProvide space for all of the business operationsProvide space for storage of materials,

supplies, and productsFacilities management protects the

company’s investment.

Making Economic Decisions About the BuildingsBuy existing buildingsBuilding new buildingsRent buildingsStudying long-term plans of the companyAre current building adequate, is more space

needed, are some facilities no longer needed or out-of-date?

Purchase land

Building Maintenance and RepairScheduled cleaningsPaintingCarpetsUpdate EquipmentExterior Maintenance

LandscapingRepairs to facilities and equipment

Energy and Environmental ManagementEnergy costs - rapidly growing expenseNeed a ready supply of electricity, gasoline,

heating oil, and waterKeep utility costs under controlWays to conserve energy resourcesMonitor quality of air, building temperature,

and other environmental factors to maintain a healthy and productive workforce

LogisticsManaging the acquisition, movement, and storage of

supplies, materials, and finished products in a business.

Supply Chain Management – newer term for logisticsAll of the businesses involved from the time raw

materials are obtained until finished products are sold.Major Activities

Locating sources of suppliesPurchasingTransportationSales

Logistics (Continued)Responsible for effective communication and

information among everyone in the supply chain

Just-in-TimeGoods arrive when needed for production, use,

or sale rather than sitting in storageRequires careful planning and coordination

among supply chain members.Requires effective information system

SchedulingDetermining the activities that need to be completed,

the people who will complete the work, and the resources needed for the task.

Scheduling EmployeesRight number of Full-Time, Part-Time, Temporary

EmployeesThe right number of employees to complete the

scheduled workRight number of employees with the right skillsHire more/Reduce number of employeesTrainingDetermining daily/weekly work scheduleSchedule carefully so as not to exceed the budget but

still get the work finished

Safety and SecurityProtecting people and propertySecurity

Study the resources and activities of a business to identify potential security problems

Prepare security plans and procedures to prevent problems whenever possible

SafetyPrevent accidents and injuriesMaintain safe work areas and work proceduresProvide safety training and enforce rules and regulations

designed to reduce accidentsPlace safety posters around the workplaceRecognize work units that have a record of no accidents or

injiries for a period of time

Business Operation ToolsManagement ToolsTechnology Tools

Management ToolsOperational Plan – identifies how work will

be done, who will do it, and what resources will be needed.

Operating Budget – is a detailed financial plan for a specific area of the business.

Schedule – is a time plan for completing activities.

Procedures – are lists of steps to be followed for performing a particular work activity.

Standards – are specific measurements against which an activity or result is judged.

Technology ToolsSupply Chain Management Software – allows cooperating

companies to share order, production, and shipping information, track products, and exchange customer data.

Collaboration Software – also called groupware, provides real-time communications capabilities by voice, text, and video; allows team members working at their own computers from anywhere in the world to view the same documents on their computer screens and work on them as a team.

Computer Security – provides access and restrictions, usage data, privacy, and virus protection for computers and networks.

Inventory – helps the managements of sales, purchases, and payments; tracks production, usage, and sales levels; and even prints bar codes.

Technology Tools (Continued)Project Management – Keeps track of project calendars,

tasks, to-do lists, work assignments, and project resources.Budgeting – Automates budget planning, compares budgets

from one time period to another, and coordinates budgets among departments.

Document Management – controls the production, storage, and managements, and distribution of electronic documents

Manufacturing Automation – monitors and often controls manufacturing machines, checks for errors and defects, and reports on production levels.

Scheduling – manages employee, facility, resource, and production scheduling. Allows easy review of schedules by all participants as well as quick updating.