Each and every business organization has its own production process that is clearly defined.
Production means making tangible goods such as computers, cars or clothes and the provision of intangible services such as banking, transportation or education.
The study of operations management provides the opportunity to investigate how products are made at a very detailed level.
What is a production process?
Production is the process of making a product from scratch. It involves converting inputs such as land, labor and capital into saleable goods and services.
The production process can be short and simple involving only one or two people such as cooking a meal in the restaurant. Or, it can be more complex involving the input of many people such as car manufacturing or mining.
The basic flow structures in the production process include the following ones:
- Job shop. For example, copy center making a single copy of a student term paper.
- Batch shop. For example, copy center making 10,000 copies of an ad piece for a business.
- Assembly line. Or, continuous flow. For example, automobile manufacturer or petroleum manufacturer.
This production process applies to both manufacturing industries and service industries. In all businesses at all stages of production, the production process is basically the same, or very similar.
Ensuring an efficient production process is an essential skill in any business organization anywhere in the world.
Production process = Transformation process
Production is a transformation process because it ‘transforms’ inputs into outputs. Essentially, the role of this transformation process is to convert resources into ready products services cost-effectively.
Here are examples of basic transformations happening in the production process:
- Conversion. From iron to steel.
- Fabrication. From fabric to clothes.
- Assembly. From parts to components.
- Testing. For quality of products.
The most important feature of this transformation process is that it increases the value of inputs when factors of productions such as raw materials are transformed into finished products which will meet the needs and wants of the market and the customers within them.
Operating systems
An operating system is the method of organizing resources in order to achieve the desired outcome. Every operating system has three stages including, the production process and outputs.
(1) INPUTS: These include production resources, or factors of production, which are required for generation of goods or services. They are generally classified into four major groups:
- Land. Including all natural resources.
- Labor. Including all human resources.
- Capital. Including all machines.
- Enterprise. Bringing all the previous resources together for production.
(2) PRODUCTION PROCESS: A simple input-output model can represent how operations are the result of a transformational process where value is added. The firm will use different amounts of different resources in order to produce a different-end product. The production process can be either labor intensive or capital intensive.
(3) OUTPUTS: These include the actual goods and services for sale. They are finished products that can then be packaged, transported, maybe exported or imported, and then sold on the market to customers.
Proper organization of raw materials, labor and machines by a knowledgeable and skillful business manager is essential to guarantee a successful product which is produced efficiently.
5Ms
The factors of production are commonly known to marketing managers and production managers as the 5Ms:
- Materials
- Manpower
- Money
- Machines
- Management
These factors of production are combined in a cost-effective way to ensure that there is value-added during the production stage of the transformation process. The value of the output should be greater than the costs of production, thereby earning a profit for the business.
5Ms can be a useful tool in devising both marketing plans and production plans.
Types of production processes
The type of production process that a company uses will depend on a number of factors, including the type of product or service it produces, the volume of production, and the level of customization required.
There are many different types of production processes with the main types including:
- Physical – Manufacturing
- Locational – Transportation
- Exchange – Retailing
- Storage – Warehousing
- Physiological – Healthcare
- Informational – Telecommunications
In addition to these general categories, there are many other types of production processes that can be used to produce specific products or services.
How to produce coffee?
Adding value in the production process
The production process will add-value in a cost-effective way allowing a business to charge a higher price for the finished product than what the firm had paid in terms of costs. Hence, added value is the difference between the cost of purchasing raw materials and the price that the finished product is sold for.
The amount of value created and added to the inputs depends on a number of factors including:
- Product design. This should allow for economic manufacturing while having quality features that will enable to charge a high price. Customers are typically wiling to pay higher prices for products that offer higher quality.
- Efficiency of production process. This includes combining and managing resources efficiently by reducing waste in order to add value. Higher productivity reduces costs per unit allowing for increasing added value. Therefore, efficient operations processes are closely linked to value added.
- Ability to charge higher price than the cost of inputs. This is about convincing customers to pay more for a product than the cost of the inputs used to produce that product. Typically, a marketing campaign can increase the willingness of consumers to pay for the product far in excess of its input costs.
The aim is to add value to the inputs that are bought in by the business, so that the resulting output can be sold at a profit. Otherwise, businesses cannot earn a profit.
Core services vs. Value-added services
Adding value is the same as creating value. Both core services as well as value-added services can be created using the production process:
- Core services. Core services are basic things that customers want from products they purchase. Core services performance objectives include quality, flexibility, speed and price, or cost reduction.
- Value-added services. Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way. Value-added services performance objectives include problem solving, information, sales support and field support.
Added value occurs during the production of a good or service because the value of the output is greater than the costs of production.
When is production process successful?
The aim of the successful business person is to produce the highest volume of output possible for the least amount of cost, in order to make the most profit.
The successful business person is one who achieves a balance between the time and volume of the production process as well as the satisfaction of the customer. The design of the production space can influence output levels, factor use, efficiency, cost levels, quality procedures, etc.
However, increasing production often results in a decrease in the standard or
quality of the product produced causing a decrease in sales as dissatisfied customers look elsewhere to satisfy their expectations.
Additional things to consider about the production process
Break-even Analysis. This model seeks to determine the point in units produced and sold where we will start making profit – total sales revenue and total cost are equal. It is a standard approach to choosing among alternative processes or equipment.
Process flow design. A process flow design can be defined as a mapping of the specific processes that raw materials, parts, and sub-assemblies follow as they move through a plant. The most common tools to conduct a process flow design include assembly drawings, assembly charts, and operation and route sheets.
In summary, a successful business person will ensure that the production process is efficient and cost-effective. This can be achieved by use the right production techniques to ensure that people are not duplicating work and tasks are undertaken in a logical sequence. As well as delegating tasks to different people who take responsibility for a particular part in the overall production process.
