One of the most important production decisions is the choice of production method and the factor inputs.
There are several different ways in which goods and services can be produced. The typical production methods in the modern business include:
- Job production.
- Batch production.
- Mass production (flow production).
- Mass customization.
- Cell production.
In deciding about production method businesses often need to consider the most suitable method for new production, an analysis of existing production methods, whether to substitute machinery for labor, the use of new technology, organization of the production layout or changing production method completely.
What is the most appropriate production method for a given situation?
In general, there is no one correct production method, but it will vary from business to business.
It is important for business managers to weigh up the advantages and disadvantages of each of those five production methods. It is because even the same kind of product can be produced using different methods, such as leather shoes, sports cars or wristwatches.
Briefly, agriculture tends to be very land intensive, job production tends to be labor intensive (it is possible to have job production which is capital-intensive, such as the construction of roller coasters), batch production tends to be capital intensive while flow production requires automation.
That is why companies choose their method of production based on a number of factors.
Factors in choosing the right production method
The following factors will influence the choice of the most appropriate method of production for a business:
- Nature of the product. The type of a product being produced such as a one-off unique product or standardized one. As well as variety of products expected by customers. Complexity of design should also be considered. The firm must know which market segment(s) it is going to target.
- Costs of factors of production. Labor-intensive job production will be more suitable when consumers are willing to pay higher price for traditional craft-made goods that create a sense of distinction. However, for lower-priced products where profit margins are not high, then capital-intensive methods will be more suitable to remain profitable.
- Expected sales. The quantity that the business is likely to sell. When there are few customers who demand products adapted to specific customer requirements, then job production should be used.If the market demands a large number of units but at different times of the year, then batch production should be used. If a business wants to sell millions of identical standardized products, then mass production (flow production) should be chosen. And when the firm aims for the cost advantages of high volumes combined with the ability to make slightly different products for different markets, then mass customization would be most appropriate.
- Size of target market. When the market is very small, then job production is likely to be used. The business will be producing low volumes of high-cost product for a very small market with high disposable income. When the market is very large, then mass production (flow production) is likely to be used. The business will be producing high volumes of low-cost product for a very large market with low disposable income.
- Amount of capital available. Small firms with low amount of capital available will be using job production or batch production because they are unlikely to be able to afford expensive assembly lines. Large firms with high amount of capital available will be using mass production (flow production) or cell production because they are likely to be able to afford custom-made expensive production lines.
- Availability of other resources. This mainly includes access to fixed capital, working capital and human capital. While job production requires skilled craftspeople, large-scale mass production (flow production) requires a supply of a large land area. The production method will be adapted to suit available resources in a local area, if any of these resources are unavailable or very limited in supply.
- Current state of technology. State of existing technology will determine whether businesses will be able to achieve what you need to. This can either enhance or limit how flexible production can be. Advanced technology can give firms the flexibility to produce a variety of different products within a very short span of time. With improved levels of technology in recent decades, production methods have changed dramatically – labor intensive production methods now became capital intensive.
- Government regulations. A business may have to meet certain targets for recycling or waste emissions. Government rules and policies for operating in a certain location may prevent a business from using particular production method. This may include meeting certain targets for waste creation, recycling or pollution emissions.
There is not one correct method when it comes to choosing production method, but it will vary from one business to another business. Additionally, there is not a single source suggesting that a particular business should adopt a particular production method.
To make the right choice, both advantages and disadvantages of different production methods need to be compared and contrasted before a recommendation can be made. All in all, whichever system of producing products is chosen, there will always be an impact on other areas of the business.
