Production Methods IB Syllabus 5.1

Unit 5: IB Specification Understand Job, batch, and mass production (including line and flow) Analyze the implications for marketing, human resource management and finance that arise from changing the production system. Economic concept of Sunk Costs Understand Cell production and teamwork and productivity implications Analyze the most appropriate method of production for a given situation. Understand the need for organizations to use more than one method of production. Explain concept of efficiency and be able to analyze impact of each method of production

What is Production? The creation of goods and services How ‘productive’ are we? Production and productivity are analyzed through cost structures and measurement of efficiency

Methods Job production companies use all their factors of production to complete one job at a time. This will usually happen where products are all unique or they are being produced on a very small scale. Batch production one operation is completed on a number of units of the product, before they are then passed on to the next stage of the process. Mass production The manufacture of exactly the same item, in large quantities, using standardized designs and an assembly-line. Also known as ‘flow production’ production takes place as a continuous process. The product flows from one process onto the next.  happens where the product is standardized utilizes a production line method. Cell Production Adaption of mass or line production Airbus uses this model to make airplanes

Efficiency Productivity a measurement of output per unit of the factor used (labour, capital or land) Total Output Productivity = Units of Factor Technical Efficiency output produced using the fewest possible inputs Productive Efficiency output produced at the lowest possible cost

Economies of Scale Increase in efficiency of production as the number of goods being produced increases. a company that achieves economies of scale lowers the average cost per unit through increased production fixed costs are shared over an increased number of goods. Size does have its limits After a point, an increase in size (output) actually causes an increase in production costs. This is called "diseconomies of scale".

Economies of Scale: Internal vs External External economies scale the cost per unit depends on the size of the industry, not the firm. economies made outside the firm as a result of its location and occur when: A local skilled labor force is available. Local firms (specialists) can supply parts or services. An area has a good transport network. An area has an excellent reputation for producing a particular good.  For example, Sheffield in England is associated with steel. Internal economies of scale the cost per unit depends on size of the individual firm

Survival of the Small Firm Small firms are able to compete with large firms because: Some products cannot be mass produced Hand painted clogs Some products have only a limited demand horse shoes or vinyl recordings. Some products require little capital window cleaning or house cleaning or lawn mowing grants and subsidies from the government Specifically for small business  Target women-owned or minority-owned

A Firm’s Long-Run Average Cost Curve

Diminishing Returns When variable inputs are increased beyond a certain point the marginal (incremental) quantity produced starts to decrease Diminishing returns Starting from a very low level of production firms usually will benefit from increasing efficiency at first gains dissipate and production becomes less efficient when the size capacity of the firm is over-utilized If there are too many cooks in Con’s Kitchen they will start to bump into each Their productivity (efficiency) decreases

137 Efficiency: Total Output

137 Efficiency: Marginal Output

Efficiency Production decisions involve deciding methods for new production runs and analysis of existing methods. Decisions may include: Substitute machinery for labour? Use of new technology? Organisation of the production layout? Change of production method?

Production Methods Copyright: Photolibrary Group While all output can be classed as production, different production methods may be more appropriate for different products or services. Agriculture tends to be very land intensive efficiency could be measured in terms of output per acre

Production Methods Copyright: iStock.com As technology and analysis of production methodology has improved, methods have changed dramatically – what used to be labour intensive production methods are now capital intensive

Production Methods Bottle production line Copyright: Photolibrary Group The choice of production method and the factor inputs depends on such things as: the nature of the product factor costs the scale of production

Production Decisions Which method? Type of Product One-Off Order? Mass Market product? Batch? Market size and Segment Factor Costs – Land, Labour and Capital Complexity of design

Production Methods Job Production One-off production - each item might have particular specifications Flow Production suitable for mass market products that are identical Batch Production each stage of the production process has an operation completed on it before moving on to the next stage – allows modifications to be made to products that otherwise are the same

Production Methods Which is more efficient? Operation Finished Product

Production Methods Operation 1 1a1b1c1d 2a2b2c 3a3b3c3d 4 Finished product Or this?

Production Methods Or this? Cell 1Cell 2Cell 3 Finished Product

Production Methods Answer – it could be any of them! The design of the production space can influence: Output levels Factor use Efficiency Cost levels Quality assurance procedures