Business 4.1 Production of goods and services

Define production

The act of adding value to the factors of production to create goods and services

Define productivity

A measure of efficiency that calculates the amount of outputs produced per worker in a given time period

Formula for labour productivity

Output per period (units) / number of workers

Define inventory

The stock if raw materials, work-in progress, and finished goods held by a business

Define raw materials and component

Inputs needed for the production process

Define work-in-progress

Partially completed goods between stages of production

Define finished goods

Goods ready to be sold/delivered

4 reasons for holding inventory

• To prevent stock out & lost of sales

• To take advantage of bulk purchasing discounts

• Ensure continuous production even when delivery of materials is uncertain

• To buffer against supply chain delays

Disadvantage to holding too much inventory

Storage costs, risk of damage, opportunity cost

4 factors affecting how much inventory a business holds

1. Types of product: Perishable goods → Kept in smaller amounts to prevent spoilage. Durable goods → Stored for longer

2. Nature of demand: Fast-selling products → More inventory to avoid running out Low-selling products → Less stock to prevent wastage

3. Warehouse space available

4. Cost of warehouse space

5. Liquidity of the business (How easily a business can pay its short-term debts)

Define lean production

The minimisation of the resources used in production

5 reasons for waste

Large inventories

Idle resources

Transporting goods

Overproduction

Production defects

Define just-in-time inventory control

No inventories held at business but delivered by suppliers the moment they’re required for production

Adv of just-in-time inventory control

Reduces inventory, prevents over production

Dis of just-in-time inventory control

Difficult to cope with sudden changes in demand, level of output may not be enough, relies on raw materials being delivered on time

Define kaizen

taking continuous steps to improve productivity through the elimination of all types of waste in the production process

Adv of kaizen

Improve employee’s motivation, increase quality, reduce mistakes

Dis of kaizen

Employees may require training, some employees may be resistant to change

Define job production

The production of one-off items specific to customer requirements

Adv of job production

unique, high quality products

higher prices can be charged

build strong customer loyalty

Dis of job production

Cannot benefit from economies of scale

Slower production

Expensive

Define batch production

Groups of identical products are made, each group passes through one stage of production before moving on to the next stage

Adv of batch production

high level of output

defects can be spotted and corrected within a batch

dis of batch production

reduce motiation, create extra inventory, setting up equiment takes time and may cause delays

define flow production

the continuous production of large quantities of identical goods

adv of flow production

more capital-intensive

economies of scale

high level of output produced

dis of flow production

high capital investment

any breakdown can stop the entire line

relies in constant supply of raw materials or components

choosing method of production

type of product (high customised → job, standardised → flow)

level of output (high → batch/flow, low → job)

availability of capital and equipment (high → flow, low → job/batch)

define computer-aided manufacturing

the use of computers to control and assist with production activities

4 uses of CAM

operating machines

planning production schedules

monitoring transport

controlling storage

4 use of 3D printing

reduce cost (no special tools needed)

increase productivity

increase quality

tailored to specific customer needs

how can tech help service-based businesses

work more efficiently

serve customers faster

reduce operating cost

adv of new tech for bus

improve productivity

reduce labour cost

easier recruitment

better employee monitoring

dis of new tech for bus

expensive to buy

high training cost

change often for competitive adv

adv of new tech for employees

receive training

faster and easier ways to complete tasks

dis of new tech for employees

redundancy

need for constant upskilling

5 sustainable production techniques

renewable energy

environmentally friendly packaging

environmentally friendly products

recycling and reusing

reduce resources use

adv of sustainable production

improve brand image

less energy + fewer materials → reduce cost

competitive advantage

dis of sustainable production

expensive

need training

competitors may imitate methods used