Chapter 2 Production

2.1 Concept of Production

2.2 Methods of Production

2.3 Types of Production

2.4 Factors of Production

2.5 Specialization

Closely linked to marketing (the action of selling & promoting

products or services)

The process of using resources to add value to a product or service, so as to meet the needs of the customer.

Methods used to transform tangible inputs (raw materials, semi – finished goods, sub – assemblies) and intangible inputs (ideas, information, knowledge) into goods or services.

It creates an OUTPUT which has an EXCHANGE VALUE.

What is PRODUCTION?

Water must be sourced, treated & purified

Plastic bottle needs to be produced

Bottle needs filling with water

Plastic cap must be produced, placed on bottles and sealed

Label must be designed, printed and

stuck on the bottle

The product can be transported to retailer

In order to get something as simple as a bottle of water on a supermarket shelf the following things must be done :-

Definition :  An economic term referring to the

total satisfaction received from consuming a good or service

For a product to be something we can use and get some usefulness out of it

An activity is productive if it involves the creation of utility.

There are 5 Types of Utility

UTILITY

Utility of Form

When someone makes something, they assemble a product from parts & you can use it

Exp : the form when applied to a clothing item, it can be the shape and size of the garment and the selection of fabric

Utility of Task When someone does something for you. These

are services which are intangible and cannot be replicated

Exp : Doctor, hairdresser, mechanic

Types of Utility

Utility of Time

Making sure that the product is available when people need it.

Exp : McDonald’s drive through – can’t make customers wait for fries while their burger is done.

Utility of Place Making sure the product is accessible, bring it

to the customer, or have it in a convenient place

PC Expo, Harvey Norman

Types of Utility

Utility of Possession

Letting the customer have the product, usually after they pay, they can “possess” it and hold it and etc.

Transfer of ownership

Types of Utility

Job Production

Involves the production of single, individual items. Exp : Hairstylist – hairdo, boat-builder – a yacht

Batch Production The production of batches of similar products Exp : a baker produces batches of jam doughnuts, cream

buns, cakes and bread. Flow Production

Involves passing sub – assemblies / parts from one stage of production to another in a regular flow. Each stage adds to the product

Exp : bottling of water, an automobile company; Toyota

Methods of Production

(1) PRIMARY INDUSTRY

Industry that extracts raw materials from the earth, such as coal, fish and wheat. Raw materials are mined, collected, grown or cut down.

Examples coal mining, agriculture, oil extraction

(2) SECONDARY INDUSTRY Industry that processes primary products into manufactured goods. Examples car production, making tables

(3) TERTIARY INDUSTRY Businesses that provide a service, either to individuals or to other

businesses Examples hairdressing, banking or solicitors

Types of Production

Types of Production

Extractive Industry Concerned with

primary industries which extracts wealth from nature like fishing, mining, hunting.

Supply raw materials for the manufacturing industry

Manufacturing & Construction

Convert raw materials and intermediate goods into finished goods.

Also includes those firms involved in building of all types of structures like houses, offices etc.

Types of Production

Commercial Services

Help distribute goods from the producer to the consumer

Trading, banking, insurance, warehousing, advertising, transport & communications

Direct Personal services

The provision of personal services

The more advanced & sophisticated a society is, the greater will be the number of firms catering to it

Production Operations Model

Factors of ProductionsInput Transformatio

n ProcessingProcess• Product • ServicesOutput

Feedback

Any production process involves the use of all

factors of production.

Land Natural resources including water and the

proportion of the planet. (Exp : Land, water, minerals, tress, etc.)

Labour Refers to all human resources that could be used

in the production of goods and services. (Exp : workers)

Workers are paid in the form of wages

Factors of Production

Capital

The money invested in business including equipment purchases

Interest is the return to the capital Entrepreneur

The process of bringing the above factors together to make a profit.

The Entrepreneur is the person who takes the risk of organizing the other factors of production to produce goods & services

Factors of Production

Definition : the division of productive activities

among persons/regions/countries No individual or area of country is totally self –

sufficient a.k.a. “Division of Labour”. The social phenomenon of individual human

beings or organizations each concentrating their productive efforts on a rather limited range of tasks.

Specialization

Specialization entails focusing on a narrow

area of knowledge or skill or activity. It involves a person's or an organization's

adapting for the unusually effective or efficient performance of some particular function, often at the expense of the individual's or organization's ability to perform most other functions for themselves, which are then necessarily left to others with more appropriate skills or talents or abilities.

Specialization

Advantages & Disadvantages of Specialization

Advantages Practice makes perfect: Worker

specializes in a particular task and gives in the best, thus producing goods faster and less wastage of material. (FASTER)

Use of machinery: Specialized machinery can be used which is further increase the productivity.

Increased Output: with improvement in efficiency and use of machinery output is increased.

Saves time: There is no time wasted in switching of jobs and thus the momentum of production can be maintained which leads to less wastage of time.

Disadvantages Boredom: Performing the same

task over and over again may lead to boredom for the workers.

Lack of variety: Though the number of goods produced increases but they are identical or standardized.

Low motivation for worker: Repeatedly performing the same task may lead to low motivation level for the worker. The worker might not have the sense of fulfilling a complete task as he is performing only a part of the job.

Lack of mobility: Due to specialization workers might find it difficult to switch between occupations

Individual Specialization

Company Specialization A business or area focuses on the production of a limited scope of products or

services in order to gain greater degrees of productive efficiency within the entire system of businesses or areas.

For example when in a factory an assembly line is organized in a specialized manner rather than producing the entire product at one production station.

Regional Specialization Certain areas have specialized in certain industrial production e.g. coal

mining in Yorkshire, pottery in Stoke Country or National Specialization

Certain countries have advantages in producing certain goods. They may have natural resources or they may be able to produce goods cheaper.

e.g. Sri Lanka Tea, Japan electronics. They then trade these goods for those produced in other countries.

Types of Specialization