Production Manager must decide on using the most appropriate production system.
A production system is the combination of factors of production (mix of labor and machinery used in operations) that business uses in the process of transforming inputs into finished products that are supplied to customers.
In general, businesses can be described as either being labor intensive, capital intensive or using automation. These are three main types of production systems:
- Labor intensive. Where mainly people are used to produce products.
- Capital intensive. Where mostly machines are used to produce products.
- Automation. Where production of products is controlled by a computer.
While some methods of production are labor-intensive some other ones are heavily capital-intensive or use automation.
Automation
This is a production system in which all production operations are controlled by computers. The manufacturing of a product relies heavily on automated production systems including advanced machinery and sophisticated equipment.
Automation in the highly capital-intensive production process performs tasks that were previously done by humans and single machines. Flow production relies entirely on automated systems to manufacture large amounts of a standardized product with very few workers required. This can include anything from using robots to assemble final products made of individual components to using sensors to monitor quality control.
It is important to note that some highly-advanced products may not be produced at all without using automated production.
Examples of automated production
By using the automated production line a modern car manufacturer like Ford producing vehicles or a beverage company like The Coca-Cola Company producing bottles of soft drinks can boost the firm’s productivity. Many industries that supply mass-produced goods are capital intensive due to the nature of the production process.
Here are some examples of highly-automated industries: assembly lines in automobile manufacturing plants, robotic welding in shipyards electronics manufacturing, pharmaceutical manufacturing and medical robots in hospitals, automated packaging lines in food processing factories, Automated Guided Vehicles (AGVs) in warehouses, and semiconductor manufacturing.
Advantages of automated production
- Increased productivity and efficiency. Automated production can significantly increase productivity and efficiency by eliminating the need for manual labor and speeding up processes.
- Improved accuracy and quality. Automated systems are programmed to perform tasks with precision and consistency. This can lead to improved accuracy and quality of products or services.
- Cost savings and reduced operational expenses. Automated production can help to reduce operational expenses by reducing the need for labor, materials, and energy. It tends to be capital-intensive with many tasks relying on automation. Therefore, unit costs of production are relatively low.
- Enhanced safety in hazardous work environments. Automated systems can remove workers from dangerous work environments, such as those with exposure to toxic chemicals or heavy machinery.
- Scalability and flexibility to adjust to changing demands. Automated production can be scaled up or down to meet changing demand, and can be programmed to produce a variety of different products.
Disadvantages of automated production
- High initial investment cost. Automated production systems can be very expensive to purchase and install. Fixed Costs (FC) tend to be high and the cost of financing the purchase of equipment can be beyond some businesses. Additionally, the pace of technological changes can quickly render the latest production equipment. Any computer systems that become obsolete will be expensive to replace.
- Technical challenges and limitations. Automated production systems can be complex and require skilled workers to operate and maintain them. Maintenance costs are often high too and skilled engineers and computer programmers might be needed to monitor and adjust the performance of the plant.
- Lack of flexibility and limited creativity. Automated production systems are typically programmed to perform specific tasks, and may not be able to adapt to changes in product design or manufacturing processes.
- Homogenous products. Standardized products will have no Unique Selling Point (USP). Additionally, standardization will result in a lower selling price for the product, with lower profit margins being made.
- Oversupply. While it is possible to manufacture thousands of products a day in highly automated factories with an absolute minimum of staff, there may not be sufficient demand for the product to justify its mass production.
- Potential job losses. Automated production can lead to job losses, as machines and robots can replace human workers in many tasks.
How to choose between different types of production systems?
The most appropriate production system for a business depends on several factors including:
- Aims and objectives of the organization. More capital-intensive technologies will be used by businesses where the main objective is maximizing profit as operating in mass markets will allow for minimizing unit cost of production. On another hand, more labor-intensive production allows for possible cost reductions during a recession when some of the workforce might be laid off to better control costs.
- Business size. Smaller businesses may not be able to afford expensive capital equipment due to limited sources of finance. On another hand, large businesses will most likely use automated production lines in order to fulfill huge market demand.
- Relative cost of labor and capital. When the relative prices of these two inputs are much different from one another, the business will choose the production system that is cheaper. Assuming that substitution resources are feasible. If labor costs are high and rising, then using more capital equipment might be preferred. Consequently, when costs of purchasing capital are high, then the firm will choose more labor-intensive production methods.
- Product. The nature of the product will determine whether it should be produced using labor intensive methods, capital intensive methods or whether the process should be fully automated. Additionally, the product image that the firm wishes to establish will play a role in choosing the type of production system.
- Size of the market. Larger markets will require more capital-intensive technologies such as using automation with mass production (flow production methods). Whereas businesses that serve smaller markets are more likely to use more labor-intensive types of production.
The main factors to consider in choosing the right production system includes the cost of labor and capital (whichever is lower) as well as the size of the market (the larger the market the more capital-intensive production).
