Chapter 13
Production and
Business Operations
13-1 Types of Production
13-2 Production Planning
13-3 Planning and Managing Business
Operations
Introduction to Business
© Thomson South-Western
PRODUCTION AS AN ECONOMIC ACTIVITY
 The economy begins with production.
 The three categories of products used
by business and consumers are:
 Natural Resources – raw materials
supplied by nature
 Agricultural Products – crops and animals
grown by farmers
 Processed Goods – products that have
been changed in form to increase their
value and usefulness
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Introduction to Business
© Thomson South-Western
The following types of businesses make products:
•Producers – develop products to sell to other
businesses or consumers
•Extractors – obtain natural resources, such as
water, oil, coal, and timber from the earth for
processing and use
•Farmers – tend land and other natural resources
to grow crops and livestock that are later sold and
processed
•Manufacturers – obtain materials from other
producers and convert them into products for sale
to consumers and other businesses.
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Introduction to Business
© Thomson South-Western
Forms of Production
 The forms of production are extraction,
cultivation, processing, and
manufacturing.
 Extraction and cultivation – products are
obtained from nature or grown using natural
resources – most basic form of production – Ex:
crops, livestock, fish
 Processing – involves changing and improving
the form of another product. Most processed in
some way – ex: timber cut to lumber/oil converted
to gasoline
 Manufacturing – combines raw materials and
processed goods into finished products.
Manufacturing can be as simple as a craftsman
using tools and materials to build cabinets.
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Introduction to Business
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MANUFACTURING
 Manufacturers get products or raw
materials from other businesses. They
change them into a form that their
customers can use. They do not improve
current products on the market.
 A manufacturing process – several
manufacturers are a part of the total activity
needed to produce goods that are purchased
by consumers or other businesses.
 Types of manufacturing procedures
 Mass production
 Custom manufacturing
 Materials processing
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Introduction to Business
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Types of Manufacturing Procedures
 Mass Production – An assembly process
that makes large number of identical
products using a continuous, efficient
procedure. Mass production usually requires
a larger work area.
 Ex – Automobile plants/Beverage bottling
 Custom Manufacturing – building a specific
and unique product to meet the needs of one
customer. The manufacturer works closely
with the customer to plan and design the
product.
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 Materials Processing – changing the form of
raw materials so they can be consumed or
used to make other products. Ex –
refineries/oil to gas
 Continuous Processing – raw materials move
through specially designed equipment. Ex – raw
milk to powdered milk
 Intermittent Processing – uses short production
runs to produce a precise amount of a variation of
product. The machines are reconfigured each
time of production. Ex – A printer uses
intermediate processing to complete a special
order of stationary.
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Introduction to Business
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PRODUCTION ACTIVITIES
A business cannot rely on selling the same
products year after year. As customer needs and
competition changes, new products will have to
be developed.
 Product development
 Product research - $$$ for new ideas! Business spent over
$200 billion in research in 2003.
 Applied research - studies existing products to develop
design improvements or new product uses.
 Pure research – research done without a specific product
in mind with a goal of discovering new solutions to
problems.
 Product design – engineers create models and test them.
The decision is made to market product.
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Production planning
 Production process – The activities,
equipment, and resources needed to
manufacture a product.
 Production resources
 Personnel
Inventory management
 Inventory – is a detailed account of a
company’s materials, supplies, and
finished products.
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Introduction to Business
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MANUFACTURING
PROCEDURES
 Organizing the work area
 Improving manufacturing
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Introduction to Business
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CONTINUOUS PROCESS
IMPROVEMENT
Step 1 Involve everyone.
Step 2 Identify process activities.
Step 3 Establish quality performance
standards.
Step 4 Select measurement tools.
Step 5 Monitor performance continuously.
Step 6 Improve process quality.
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Introduction to Business
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Why have manufacturers implemented Continuous Process
Improvement (CPI)?
CPI is designed to help an organization achieve its goals by
improving the quality of work.
CPI involves everyone. It begins by listing all activities
involved in the process. Standards are developed for quality.
Standards are based on benchmarks or the best practices
among all competitors. Measurement tools are chosen and
measurements are taken to determine if activities are meeting
the standards that have been set.
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THE IMPORTANCE OF
BUSINESS OPERATIONS
 The day-to-day operations of a business
often determine its success or failure. Meet
customer needs, have competitive prices
 Things can go wrong:
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Work efficiency
Security issues
Damage of buildings/equipment
Lack of maintenance
Poor work environment
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Types of business operations
 Facilities management – buildings are
one of the largest investments of a
business.
 Facilities management protects the
company’s investment of thousands or
millions of dollars.
 Facilities management begins with making
economic decisions about the buildings
needed.
 Building maintenance and repair is another
vital task of facilities management.
 Energy & environmental management.
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Introduction to Business
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 Logistics – is managing the acquisition,
movement, and storage of supplies,
materials, and finished products in a
business. Newer name: Supply Chain
Management
 Major activities: locating sources of
supplies
 Purchasing
 Transportation & Sales
 Just-In-Time – goods arrive when needed (just
in time) for production, use, or sale rather than
sitting in storage. Just-in-Time logistics
requires careful planning and coordination.
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 Scheduling – involves determining the
activities that need to be completed, the
people who will complete the work, and
the resources needed for the task.
 Safety and security – companies are
responsible for protecting people and
property. Many events and circumstances
can result in injury to people or damage to
property.
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Introduction to Business
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 Information management – uses
technology to access and exchange
information to complete the work of an
organization.
 Information Management has 4 goals:
1. To collect, organize, and securely maintain all
needed information.
2. To provide instantaneous access to information
required to perform work and make decisions.
3. To prevent access to information by those
unauthorized to use it.
4. To use technology to improve communication
and information sharing.
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TOOLS FOR BUSINESS
OPERATIONS
 Management tools
 Operational Plan – identifies how work will be
done, who will do it, and what resources will be
needed.
 A standard is a specific measurement against
which an activity or result is judged. Businesses
set standards for key activities to make sure an
appropriate level of quality is maintained.
 Using technology to manage operations
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Common types of operations software
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Project management
Budgeting
Scheduling
Inventory
Computer security
Document management
Manufacturing automation – monitors and often
controls manufacturing machines, checks for errors
and defects, and reports on production levels.
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Introduction to Business
© Thomson South-Western