■ Systems: an orderly arrangement of parts to achieve a specific outcome.

■ Production planning: the plan that is used in the production process that will decrease cost

and time and increase output.

■ Production control: the managing of each individual task and action in the production process

to ensure the best result.

■ Routing: the process to determine the best and cheapest sequence of operations.

■ Scheduling: the process to work out the time required to perform each production task.

■ Loading: the process to assign work to workers and machines.

■ Dispatching: converts the planning into action with instructions for the movement of material,

tools, and equipment, checking of time and flow of work, and supervising the process.

■ Following-up: the process whereby the business makes sure the scheduling and production

systems are running according to plan.

■ Inspection: involves checking the quality of the process and the final product.

■ Corrective action: involves any adjustments to the planning process.

■ Safety management: includes all the safety precautions that are essential to ensure safety in

the workplace.

■ Occupational Health and Safety Act: outlines the health and safety roles and responsibilities

of all the stakeholders involved.

■ Quality control: includes the inspection of the final product to ensure that it meets the required

standards.

■ Quality management systems: a framework that businesses use to manage all key

processes, and to ensure that they meet the correct standards.

■ SABS: the South African Bureau of Standards, a body that promotes and maintains standards

in South Africa.

Introduction

In Grade 10, you were introduced to the production function as part of the other business

functions. You also learned about quality and quality indicators for the production function. In

Grade 11, we will elaborate on production and will cover production systems, production planning,

safety management, quality control, and production costs.

11.1 Understanding production systems

11.1.1 The role of the production function

The production function involves the process by which raw materials are transformed into finished

goods of high quality to meet the demands of customers. To ensure that this process is efficient

and effective, businesses need a good production management system.

A system is an orderly arrangement of parts to achieve a specific outcome, therefore businesses

must decide which production system will best suit their needs. To choose the best system they

must consider three criteria, namely:

● the product variety

● the volume of products that must be produced

● the machinery and equipment that they will use.

11.1.2 Types of Production Management System

There are two main types of production management systems – continuous/flow production, and

interrupted production.

Continuous/Flow production: Mass Production

Interrupted production: Batch production and Job production

99

11.1.2.1 Mass production

Definition

Mass production is also known as flow production or continuous production. It is the production of

large amounts of standardised products in a constant flow. Examples include things such as

pencils, car manufacturing and bottled water.

Characteristics

● Large amounts of standardised products will flow through the system.

● Products are identical and go through the same process.

● Products move on an assembly line or production line to the next station.

● Each worker is trained to do a specific job and specialises in that job.

● The equipment and machinery that are used are highly specialised and expensive.

● Mass production speeds up the production process and reduces the cost of production.

● The unit cost of the products is cheaper.

● The mass production process is inflexible and can’t accommodate new products.

● The quality of products is the same and quality control can be planned and carefully executed.

Advantages of mass production

● The production process is quicker, which will make the turnaround time faster.

● The unit cost of products is cheaper and therefore the final price of products can be reduced.

● The quality of products is standardised, and it is easier to do quality control.

● Workers will specialise in a specific job, and it is easier to train them for the job.

● Work can be done continuously if using different shifts and operators.

Disadvantages of mass production

● It is very expensive to set up a factory and buy specialised machinery.

● The mass production process is inflexible and does not allow for unique products.

● If one piece of machinery breaks the whole production process is stopped.

● Workers can get bored because the process is very repetitive.

● The equipment often requires specialised operators who will earn higher salaries.

11.1.2.2 Batch production

Definition

With batch production, products go through a process in groups and are completed from

beginning to the end before a new batch is started. Examples of batch production are printing

flyers and posters for different clients, baking cakes and other delicacies in a bakery and making

uniforms for a specific sports team.

Characteristics

● Products are not produced continuously, but rather in batches.

● There can be flexibility and a variety of different products.

100

● The machinery used is not as expensive as those used in mass production.

● Workers can specialise in a certain part of the process, which will increase their productivity.

● The quantity of the batches can be changed easily and will reduce wastage.

● New products can easily be included in the production process.

● The cost can be higher than mass production, but not too high because large batches of

similar products can be produced.

● Larger quantities of raw material and final goods need to be stored and kept to accommodate

different products and clients.

● There can be time delays in waiting for one batch to finish before the new batch is started.

Advantages of batch production

● The set-up cost is lower because machinery is not as expensive as with mass production.

● Quantities of batches can be controlled which will reduce wastage.

● There is more flexibility in this process, and it is easier to change to new products.

● Cost is lower because large batches of similar products can be produced at one time.

● Businesses can take advantage of buying raw material in bulk.

Disadvantages of batch production

● It is not always easy to control the quality of each product and do not always meet the

requirements of the customers.

● Time can be wasted while waiting for one batch to finish before the next one can get started.

● More storage space is needed to store final goods.

● Batch production often requires a lot of different machinery which can be more costly for the

business.

● Some workers get demotivated if they specialise in one task.

11.1.2.3 Job production

Definition

With job production, each order for a job is unique and needs specialised workers, creative ideas

and different techniques. Examples of job production are wedding dresses, tailor-made sailboats

and specific oil paintings.

Characteristics

● Each client will give his/her unique ideas, which must be included in the final product.

● The machines used tend to be for general purposes and can be used for different products.

● The cost of items will be higher because products are customised.

● The quality of each product is excellent because it is made to a customer’s specifications.

● Workers are skilled and the cost of the work will be higher.

● The process takes longer because each item is unique.

● Raw material cannot be bought in bulk and will cost more.

101

Advantages of job production

● Employees will not get bored because every job is different.

● The demand for unique products is often higher.

● The quality of each individual product is high and quality control will be applied through the

whole process.

● The set-up cost is not so high because standardised machinery will often be used.

● The business can charge higher prices because products are made to specific specifications.

Disadvantages of job production

● Labour costs will be high because workers must be highly skilled.

● Raw materials are costly as they cannot be bought in bulk.

● The process takes more time because each item is made to certain specifications.

● The cost per item is normally higher.

● It is not possible to automate the process.

11.2 Defining production planning

11.2.1 The meaning of production planning

After a business has decided on the production management system they will use, they then need

to plan the production process.

Production planning involves several aspects. These are:

● Setting the goals for the production department, and developing the policies and programmes

to achieve these goals.

● Organising resources to maximise workplace efficiency, to decrease cost and time, and to

increase output.

● Planning the individual roles of staff, ordering of stock, and so on. Everything – up to the final

delivery of products – must be planned.

● There will always be changes in the manufacturing process, and that is why planning must be

done accurately and carefully.

Production planning must include the following aspects:

● actual production

● inventory/stock

● factory layout

● production costs.

11.2.2 Aspects to consider during production planning

Planning

102

Production planning is planning each aspect of the whole process. The following aspects are part

of the planning process:

● This process will include the layout of the factory to suit the production system.

● It will determine the flow of materials to optimise the process.

● It must include decisions on the purchasing of the materials, machinery, and equipment.

● The process must include budgets, machines, and the calculation of how many workers will be

required to achieve the expected output.

Routing

Routing involves the planning of the sequence in which the operation will take place. Management

must determine what the best and cheapest way to sequence the production process will be.

Routing will look at the following questions:

● What quality and type of raw materials will be used?

● In what sequence will the manufacturing process take place?

● What are the specifications, for example, the size of the final product?

● What is the cost analysis of the whole process?

Scheduling

Scheduling involves the timing of the production process. It will also prioritise certain jobs and

determine which jobs need to be completed before the next one can start.

Scheduling will consider the following aspects:

● The routing and loading of both labour and machinery.

● Calculation of time required to perform each activity in the manufacturing process.

● Determination of when each activity should start, and then calculating the time required to

complete the whole process.

● Determination of the time needed for the preparation of raw material, up to the time needed to

produce the final product.

● Determination of the time for delivering raw materials, and delivering final products, and so on.

Scheduling is affected by several factors, such as the capacity and size of the business, the

availability of staff, machinery, and materials. A more detailed schedule will ensure better use of

resources and effective control over the process.

Loading

Loading involves the allocation of every person to a specific task and/or machine. It is linked to

the output required to fulfil orders, and the prevention of overloading employees and machines.

The following aspects will be considered during loading:

● It involves planning who will be responsible for each activity identified during the routing

process.

● It allocates every person to his/her task and machine.

● Loading calculates the amount of time each machine will need to operate during a day.

● It also indicates which machines are not being used to their full capacity.

103

● Loading is linked to the output required to fulfil orders and prevent the overloading of

employees and machines.

11.2.3 The advantages of production planning

● Planning allows businesses to ensure that every machine and worker is used to their full

capacity and not left with nothing to do.

● A business can ensure that it has the correct amount of supplies and stock at a given time.

● Planning reduces wastage and unnecessary storage costs.

● Planning will prevent time from being wasted and will increase the number of final products.

● The planning process involves quality checks, ensures that the correct quality is reached, and

that production time is decreased.

11.2.4 The meaning of production control

Production control will control each individual task and action during the production process. It will

also establish the starting and finishing of each task.

11.2.5 Aspects to consider during production control

Dispatching

This stage of the process involves issuing production orders to start production. It converts

planning into action.

Dispatch will provide orders for:

● the movement of materials, tools and equipment to the necessary locations

● checking the time and costs involved in the process

● checking the flow of work according to the routing

● supervising the whole process.

Therefore dispatch is the process of identifying the person who will do the work and supplying

him/her with specifications and a materials list.

Inspection

Inspection involves checking the quality of the process and the final product. It can be done at

regular intervals during the production process, and at the end.

Inspection methods include the following:

● random selection and testing of products

● viewing of products

● sampling and testing of products.

During the control process, the legal and regulatory processes are also checked to

ensure that the necessary standards are met.

Follow-up

During the follow-up process, the business makes sure the scheduling and production systems

are running according to plan.

The follow-up process will evaluate the following aspects:

104

● unplanned issues or problems

● any misunderstandings in terms of job process requirements

● indicating whether the activities are happening as planned.

Following up on the progress is essential and helps to prevent bottlenecks and

misunderstandings.

Corrective action

Corrective action must involve any adjustments to the planning process.

Corrective actions can include activities like:

● service and repairing of machines

● adjustments on routing, scheduling and loading

● training of workers and sorting out other staff issues

● transferring workers to other departments.

11.3 Explaining safety management

Every business and factory needs to have safety precautions in the workplace. Even more so if

the factory is handling/working with dangerous chemicals, dangerous machinery, and harmful

substances. Businesses are compelled by law to have the necessary safety policies and

precautions in place.

11.3.1 Reasons for businesses to manage safety in the workplace

The three main reasons for safety in the workplace are legal (to abide by laws), moral (to care for

workers), and financial (not to be sued or fined).

The following are some of the reasons why businesses need to manage safety in the workplace:

● Workplace accidents can result in injuries and deaths, and can result in possible financial

trouble for the business.

● The publicity of workplace accidents will negatively impact a business’ image.

● Regular or serious workplace accidents may even cause investors to withdraw their money

and invest it in another company.

● Employees may lose confidence in the business and leave it to join safer companies.

● Potential employees may decide not to accept a job offer at a business where many accidents

have occurred.

11.3.2 Requirements for a safe environment

For a business to be safe it needs the following:

● a safety policy

● visible warning signs

● first aid kits

● safe working environment

● precautionary measures when handling machinery.

105

Safety policy

● Businesses should draw up their safety policy and enforce necessary control measures.

Visible warning signs

● The necessary safety warnings and signs should be visible in the workplace.

● The business should inform employees of any dangers in the workplace.

First aid kits

● Businesses are required to have an up-to-date first aid kit in an easily accessible place.

● According to law, at least one employee should be trained in first aid, and he/she should be

available on site.

Safe working environment

● There should be no hazardous substances that can cause damage, disease, or injury to

employees or visitors.

● Information, instructions, and training should be provided to all employees.

● Workers should be informed of the potential safety and health hazards.

11.3.3 Workplace safety policy

11.3.3.1 Purpose of a workplace safety policy

To maintain a safety culture within a business, it is important for businesses to set up a safety

policy. The safety policy should outline how safety is managed, by whom it is managed, and how

it is measured. The safety policy should be endorsed by the leader of the business, which makes

them accountable for the ongoing success of the safety system.

This document outlines the ‘when’ and ‘how’, and should consist of the three core parts:

● A statement of intent (or what the company intends to do): A written policy statement that

shows workers and any interested parties the business’ commitment to safety.

● Company details (or who will be involved): Those who have responsibility for health and safety

matters in the business.

● Arrangements (or how to implement the policy): An explanation of how businesses will control

the main hazards identified during the risk assessment.

11.3.3.2 Aspects that must be included in the workplace safety policy

● It must acknowledge the right of each employee to work in a safe and healthy environment.

● It must be visible and displayed for all workers to see.

● It must recognise the need to comply with the minimum standards of the OHSA.

● It must recognise the priority and safety in relation to other organisational goals and policies.

● There must be a starting date and a date when the policy will be reviewed.

● The policy must include the signature of the CEO.

● It must stipulate the responsibility of management for occupational health and safety

programmes.

106

11.3.3.3 Evaluating a workplace safety policy and making recommendations for

improvement

The Health and Safety Executive (HSE) requires businesses to review their safety policy every

year. However, businesses may decide to review them every twelve months, once every six

months, or even more frequently, if workplaces are rapidly changing.

Businesses can use different indicators such as safety audits to measure activities to prevent or

reduce the severity of an incident in the present or future.

Some employers make use of the four SAFE steps for risk assessment.

S: spot the hazard

A: assess the risk

F: fix the problem

E: evaluate the results.

11.3.3.4 Precautionary measure when handling machinery

Any machinery, large or small, can cause serious injuries. Businesses should take the following

precautionary measures and see to it that it is executed by the employees:

● Every employee must be familiar with the safety procedures of the business.

● Management must strive to develop a culture of safety in the workplace.

● The business must ensure that all machinery and equipment are correctly installed and safe to

use.

● All the workers must be properly trained on how to use machinery, and must be informed

about the risks when using the machinery.

● Regular safety checks must be carried out, and machinery should be maintained and serviced

regularly.

● Workers need to wear protective clothing and gear. This includes items like overalls, safety

helmets, masks, heavy-duty safety boots, and welding goggles when working with machinery

and equipment.

● Hard hats should always be worn on construction sites by all persons on the site.

11.3.3.5 The purpose of the Occupational Health and Safety Act (OHSA) (No. 85 of 1993)

The main aims of the Occupational Health and Safety Act (OHSA) (No. 85 of 1993) are to protect

the health, safety, and welfare of employees, and to safeguard others, principally the public, who

may be exposed to risks from work activity.

Purpose of OHSA:

● Protect the health and safety and welfare of employees.

● Outlines the roles and responsibilities of employers, employees, manufacturers and suppliers

regarding health and safety in the workplace.

The following outlines the requirements of the OHSA:

● Businesses must establish and maintain a safe working environment without risking the health

of the workers.

● Businesses must frequently review the efficiency of health and safety measures.

107

● The roles and responsibilities of employers, employees, manufacturers, designers, importers,

suppliers, and sellers must be outlined for all to know.

● Businesses must clarify the roles and duties of the health and safety representative and

committee.

● All main dangers and potential incidents of the workplace must be identified and eliminated

and communicated to all workers.

● Businesses must examine the causes of accidents by any employee relating to the employee’s

health and safety at work.

● It must encourage employees to co-operate and follow the necessary instructions and to report

any unsafe situations.

● The business must make presentations concerning general health and safety issues at the

workplace

11.3.3.6 Ways in which businesses can comply with the OHSA

According to the Act “All employers or owners of companies have a legal duty of ensuring the

health and safety of all their employees in their workplace. Therefore, employers must ensure that

their workplaces are compliant with the Occupational Health and Safety Act requirements.”

Ways in which businesses can comply with OHSA:

● Provide workers with protective gear to protect themselves against potentially dangerous

situations.

● Ensure that first aid boxes are readily available at the workplace and in the factory.

● Make fire extinguishers available at the workplace or in the factory. These fire extinguishers

need to be serviced regularly.

● Machinery must be maintained at regular intervals and repaired promptly.

11.4 Defining quality control

11.4.1 The definition of quality control

Businesses must ensure that their products meet the correct standards, and that their products

are always of the same standard. To meet the required standards, businesses must conduct

quality checks before, during, and at the end of the production process.

Quality must be part of the culture of any business. Quality control is, therefore:

● the process of ensuring that goods or services are made to consistently high standards

● the inspecting of final products to ensure that it meets the required standards.

11.4.2 Total Quality Management (TQM) as part of a quality management system

Total Quality Management (TQM) is an integrated system or methodology applied throughout the

organisation. It helps to design, produce, provide quality products and services to customers.

It is a system developed by the Japanese in which the entire business is operated to focus on

customer satisfaction in all business activities. TQM enables businesses to continuously improve

on the delivery of products and services to satisfy the needs of customers.

108

The following aspects display TQM as part of a quality management system:

● TQM involves every part of the business, and quality is everyone’s – including every

department and employee – responsibility.

● The main aim of TQM is to improve the quality of products and services to satisfy the needs of

customers beyond their expectations.

● Continuous improvement is the foundation of TQM. This means that all techniques, systems,

and machinery used must be subjected to continuous improvement.

● It is the responsibility of each employee to take care of his/her quality.

● Machines and equipment are checked regularly.

● All inputs (including raw materials) are checked thoroughly and discussions are held on how to

improve quality.

● Management ensures that each employee is responsible for the quality of his/her work/actions.

11.4.3 Roles of quality bodies in setting quality standards

Various quality control bodies take part in the setting and control of standards for quality in the

different industries. In this section, we will learn about three quality bodies.

11.4.3.1 South African Bureau of Standards (SABS)

The SABS is a national standardisation authority established by the government to ensure that

South African businesses meet a range of standards. The SABS is responsible for developing,

maintaining and publishing standards for products and services. They have a database of more

than 6 500 national standards and their headquarters is in Pretoria.

The SABS carries out different tasks to ensure quality in South Africa:

● Sets and publishes national standards.

● Provides training regarding all aspects of standardisation.

● Provides information on international and national standards

● Tests and certifies products and services against the standards.

● Monitors and enforces legal regulations.

● Promotes design excellence.

Business products will earn a SABS mark after their products were tested thoroughly to ensure

that they meet the necessary standards. This SABS mark assures that the product complies with

safety requirements, and therefore products need to be tested frequently.

11.4.3.2 International Organisation for Standardisation (ISO)

The ISO certification certifies that a management system, manufacturing process, service, or

documentation procedure has all the requirements for standardisation and quality assurance. ISO

standards are in place to ensure international consistency. It sets out procedures a business

should follow to ensure that its final product meets its promises and its customers’ expectations.

Below is information on the functioning of the ISO:

109

● ISO9000 is a set of internationally recognised standards set for different industries.

● ISO standards are used in many countries all over the world.

● Industries can measure their quality management system against these international

standards.

● Accreditation with ISO acts as a signal to customers that the business takes its quality

commitments seriously and continually strives to improve its operations.

11.4.4 Quality Circles

A quality circle or quality control circle is a group of workers who do the same or similar work, and

who meet regularly to identify, analyse and solve work-related problems. It consists of a minimum

of three and a maximum of twelve members.

The roles of quality circles are defined below:

● Quality circles are groups of employees who work in different departments, for example,

production, marketing, purchasing, and financial, but who deal directly or indirectly with the

same product or service.

● They meet regularly to discuss how quality, efficiency, and productivity could be improved.

● They analyse problems with the production process and brainstorm solutions.

● Employees are often best placed to know how to improve quality.

● Typical topics discussed by quality circles include improving safety, improving product design,

and manufacturing processes.

● The ideal size of a quality circle is three to twelve members.

● Quality circles form part of TQM in the business.

11.5 Evaluating production costs

11.5.1 The meaning of production costs

The main aim of a business is to make money. To do this they have to ensure that costs decrease

and profits increase. It is, therefore, important that businesses are able to precisely calculate the

cost of production.

The total price paid for the resources such as raw materials, labour, and others, which are used to

manufacture a product or create a service is called the production cost.

The meaning of Total Costs:

● These costs include all the costs incurred by the business. It includes the raw materials, the

marketing, and the production of goods and services.

The meaning of Fixed Costs:

● These costs do not vary according to the number of units produced. Fixed costs are calculated

over a week or a month.

11.5.2 Components of production costs

There are two general categories of costs included in manufacturing processes.

110

These are the primary costs and the overhead costs.

Primary costs include the direct cost of raw material + direct labour costs

Overhead costs (expenses) can be split into fixed costs + variable costs

Total costs = Primary cost + overhead costs (expenses)

DEFINING THE DIFFERENT ELEMENTS OF COST

PRIMARY COSTS

● The direct cost of raw material - the costs of raw materials or parts that go directly into

producing products.

● Direct labour cost - includes wages for the employees that produce a product, including

workers on an assembly line.

TOTAL COST

● This cost includes all the money spent by the business to produce goods or services.

OVERHEAD COSTS

● Fixed overhead expenses - the cost payable every week or month, and does not vary

according to the number of products produced in a period.

● Variable overhead expenses - is determined by the number of units produced and will vary

according to how many goods are produced in a period.

The direct cost of raw material

● Raw materials are the physical components and during manufacturing, they might include

metals, plastics, hardware, fabric, and paint.

● The types of raw materials vary depending on the nature of the business. For example, for a

furniture manufacturer, the raw materials might be timber (wood), hardware and paint.

Direct labour cost

● Direct labour includes wages paid to workers, for example the workers working in the

production line, who directly contribute to the formation, assembling, or the creation of a

product.

Fixed overhead expenses

● Examples of fixed overhead costs that are specific to a production area and which are usually

allocated to manufactured goods are:

o factory rent

o utilities

o production/supervisory salaries, for example, for the manager, secretary, cleaner, and

so on.

o depreciation on production equipment

o insurance

o vehicle installments.

Variable overhead expenses

111

Variable costs vary with the level of production output. Examples can include:

● electricity

● telephone

● indirect raw material like glue and screws bought in bulk

● indirect labour like wages on a commission base.

11.5.3 The calculation of total, fixed and variable costs

PRODUCTION COST

PRIMARY COST (PC)

Direct cost of material

Plus: Direct labour cost

OVERHEAD EXPENSES (OE)

Fixed costs

Plus: Variable costs

TOTAL PRODUCTION COST (PC + OE)

UNIT COST

Total production cost divide by number of units produced

11.5.4 The calculation of unit cost, selling price and profit

Businesses must be able to calculate how much profit they are going to make, but first they must

know how much money they spent (cost) and how much money they received (income).

To determine the profit they need to have the following information:

● What was the total cost?

● How many units were sold?

● What was the selling price per unit?

● What was the total revenue?

The business will use the following formula:

Total cost = Primary cost + overhead expenses

Selling price = cost price + % profit on the cost price

Total revenue = selling price × number of units sold

Profit = total revenue – total costs

11.5.5 Understanding break-even point

To ensure the success and/or sustainability of a business, management needs to know and

understand when the business will break even. This means that the same amount of money that

was flowing out of the business is flowing into the business.

The meaning of break-even points

The break-even point refers to the amount of revenue necessary to cover the total fixed and

variable expenses of a company within a specified period. It means that the company breaks even

where its total cost = total income. Only after the break-even point, profits start to accumulate.

112

Calculating the break-even point

To calculate the break-even point, we need to consider three factors: fixed cost, selling price, and

variable cost per unit.

Formulas that will be used to calculate the break-even point

Contribution margin = selling price – variable cost per unit

Break-even point = fixed costs .

contribution margin

Let’s look at an example of the calculation of a break-even point.

In a mobile candy shop, they sold 12 units for the month. The variable cost was R25. The fixed

cost of the business was R2 500 per month. The unit price was R5 per unit. The unit selling price

is R60 (R5 × 12). Calculate the break-even point.

Calculation

1. Calculate the contribution margin.

Contribution margin = selling price – variable costs

= (R5 × 12) – R25

= R60 – R25

= R35

2. Calculate the break-even point.

Break-even point = fixed costs .

contributing margin

= 2500

35

=71, 4 units

Note: The candy shop has to sell 71,4 units to cover its costs. If it sells

more than 71,4 units it will start to make a profit.

Graph of the break-even point