1. IB Business Management
Unit 5.1 pg. 614
Production Methods

2. Production Referred to as operations management
Concerned with producing the right goods/services in the right quantities in a timely & cost-effective manner

3. Production
Productivity is the rate at which inputs are transformed to outputs (how efficient is the business?)
The form of production that a manager chooses will help determine a firm’s productivity

4. Production Sectors
Primary sector: extracting raw materials, harvesting crops, rearing animals (mining, agriculture, fishing)

5. Production Sectors
Secondary sector: turning natural resources into finished goods (steel production, car manufacturing)

6. Production Sectors
Tertiary sector: providing services (finance, insurance, health care, education)

7. 4 Factors of Production Land, labor, capital, enterprise
Known to production managers as Five M’s: materials, manpower, machines, money, mgmt
These factors are combined in cost-effective way to ensure value-added is performed during ‘production’
The value of outputs (products) is greater than the inputs (PROFIT)

8. Production What is the best production method for businesses?
What is best for one business may not be best for another
The same kind of product can be produced using different methods
3 types of production:
job, batch, mass

9. Methods of Production
Job production: business creates individual product from start to finish to meet customer’s standards
Items are “tailor-made”
Usually used by small firms
No economies of scale
Examples: Custom computers, haircut, custom home, office building, Disneyland

10. Advantages of Job Production
Quality: highly-skilled labor is used
Motivation: workers feel proud of finished product
Uniqueness: adds value to the production process
Flexibility: each product can be altered to the customer’s request

11. Disadvantages of Job Production
Expensive: labor-intensive.
Higher cost for consumer
Time consuming
Few economies of scale
b/c each product is unique

12. (show Ace of Cakes clips) http://www. foodnetwork

13. Methods of Production
Batch production: producing a limited number of identical products
One batch completed before production switches to next batch
Good for businesses that make a range of products
Example: Nike produces batches of different sizes/colors, Krispy Kreme makes batches of different doughnut types

14. Advantages of Batch Production
Economies of scale: machines can produce larger quantities
Specialization in production process
Variety
EX: b-day cakes made in batch but can be customized

15. Disadvantages of Batch Production
Inflexible: once a batch is started, it’s difficult to stop
Storage costs of larger quantities
Worker boredom

16. Methods of Production
Flow production: form of mass production where different operations are progressively carried out in sequence
When one task is complete, the next stage must start immediately
Ex: bottled water

17. Methods of Production
Line production: form of mass production where the product is assembled along a conveyer belt
Also known as an assembly line
Ex: vehicle manufacturers

18. Methods of Production
Mass production: producing mass amounts of standardized products
Identical products are produced in large quantities
Ex: New York Times prints one million newspapers

19. Advantages of mass production
High volume produced at low cost (economies of scale)
Reduces average fixed costs (bc so many products are produced)
Machines can work 24 hours a day
Product quality is standardized; low defect rate
Low labor costs for unskilled workers

20. Disadvantages of mass production
Work is boring & monotonous
Machine breakdowns cause major problems
Little flexibility in production methods
Once a process has begun, cannot make changes
Cannot tailor make to customer’s wishes
Huge set-up costs. (Must buy machines, maintenance, replacement)
Effective storage system needed

21. Labor and Capital Intensity
Some methods of production are labor intensive while others are capital intensive
Labor intensive:
Job production, services
Used in highly skilled professions, ie lawyers
More personalization
Capital intensive:
Batch, mass production
Disadvantage: product are highly homogenous, high fixed costs

22. Review Assignment
Choose the most appropriate method of production (job, batch or mass) for each of the following and justify your answer:
iPods
Navy battleships
Coca-Cola
42” plasma TVs
Cookies
Custom suits
iPod – mass/line
Coca-cola – batch
Cookies – batch
Navy ships – job
TV – mass/line
Custom suits - job