What production means
Production is the process of turning inputs (land, labour, capital and enterprise) into outputs — the goods and services that satisfy customer wants. A business adds value when the selling price of the output is greater than the cost of the inputs used to make it.
Key idea
Value added = selling price of the product − cost of the bought-in materials and components. Higher value added means more can be earned to cover other costs and profit.
Managing resources: productivity and efficiency
Productivity measures how much output is produced from each unit of input, most often labour. Raising productivity lowers the cost per unit, which lets a firm compete on price or earn a wider margin. Managers raise productivity by training workers, improving machinery, better motivation and reducing waste.
- Lean production aims to cut every kind of waste — time, materials, movement and stock.
- Just-in-time (JIT) stock control means materials arrive exactly when needed, so little money is tied up in inventory and storage costs fall.
Methods of production
| Method | Best for |
|---|---|
| Job production | One-off, made-to-order items (a wedding cake, a bridge) |
| Batch production | Groups of identical items made in stages (loaves of one type of bread) |
| Flow production | Large quantities of standardised goods made continuously (bottled drinks) |
Example
A bakery bakes 200 white loaves, then cleans the line and bakes 200 brown loaves. Making identical items in distinct groups is batch production, which balances variety with reasonable cost.
Remember
- Value added = price − bought-in costs.
- Productivity = output per unit of input; raising it cuts unit cost.
- JIT reduces stock; it needs reliable suppliers.