Topic D Revision Notes – Source: Tutor2u.net
Batch production
Batch production occurs when many similar items are produced together.
Each batch goes through one stage of the production process before moving
onto next stage. Good examples include:
• Cricket bat manufacture
• Baking / meal preparation
• Clothing production
The benefits and drawbacks of batch production include:
Advantages
Disadvantages
Making in batches reduces unit costs
Time lost switching between batches –
machinery may need to be reset
Can still address specific customer
needs (e.g. size, weight, style)
Need to keep stocks of raw materials.
Cash also investment in work-inprogress
Use of specialist machinery & skills
can increase output and productivity
Potentially de-motivating for staff
Job production
Job production involves firms producing items that meet the specific
requirements of the customer. Often these are one-off, unique items such
as those made by an architect or wedding dressmaker. For an architect,
each building or structure that he designs will be different and tailored to
the needs of each individual client.
With job production, a single worker or group of workers handles the
complete task. Jobs can be on a small-scale involving little or no technology.
However, jobs can also be complex requiring lots of technology.
With low technology jobs, production is simple and it is relatively easy to get
hold of the skills and equipment required. Good examples of the job method
include:
• Hairdressers
• Tailoring
• Painting and decorating
• Plumbing and heating repairs in the home
High technology jobs are much more complex and difficult. These jobs need
to be very well project-managed and require highly qualified and skilled
workers. Examples of high technology / complex jobs include:
• Film production
• Large construction projects (e.g. the Millennium Dome)
• Installing new transport systems (e.g. trams in Sheffield and Manchester)
The main advantages and disadvantages of using job production include:
Advantages
Disadvantages
Products are usually high quality
Cost of producing one unit or job is
higher
Producer meets individual customer
needs
Labour –intensive
Greater job satisfaction – involved in
all stages of production
Requires investment in skills and
training
Flow Production
As a business grows the scale of its operations, it often needs to change its
method of production to allow greater production capacity.
A small business might use job or batch production to provide a personalised
or distinctive product. However, if the product is intended for much larger,
mass markets, then alternative methods of production may be required in
order for the product to be produced efficiently. A key production method
in these circumstances is flow production.
Flow production involves a continuous movement of items through the
production process. This means that when one task is finished the next task
must start immediately. Therefore, the time taken on each task must be
the same.
Flow production (often known as mass production) involves the use of
production lines such as in a car manufacturer where doors, engines, bonnets
and wheels are added to a chassis as it moves along the assembly line. It is
appropriate when firms are looking to produce a high volume of similar
items. Some of the big brand names that have consistently high demand are
most suitable for this type of production.
Advantages
• Flow production is capital intensive. This means it uses a high proportion
of machinery in relation to workers, as is the case on an assembly line.
The advantage of this is that a high number of products can roll off
assembly lines at very low cost. This is because production can continue
at night and over weekends and also firms can benefit from economies of
scale, which should lower the cost per unit of production.
Disadvantages
• The main disadvantage is that with so much machinery it is very difficult
to alter the production process. This makes production inflexible and
means that all products have to be very similar or standardised and
cannot be tailored to individual tastes.
• Another disadvantage of using flow production is that the work can be
pretty boring for employees involved. Keeping staff motivated is
therefore an important issue for management.
Process production
Process production involves a series of processes which raw materials go
through. The end result is a large quantity of finished product. Process
production tends to be quite capital intensive (i.e. requiring significant
investment in production machinery and facilities). Examples include:
• Oil refining
• Cement
The advantages and disadvantages of using process production include:
Advantages
Disadvantages
Processes can normally be automated
which reduces unit costs
Large quantities can be produced
Ideal for products which have to be
of a consistent quality
Heavy investment required in
process design and production
equipment / facilities
Difficult and disruptive if the
production process has to be
stopped
Little opportunity to make different
versions of the product
Cell Production
Cell production has the flow production line split into a number of selfcontained units. Each team or ‘cell’ is responsible for a significant part of
the finished article and, rather than each person only carrying out only one
very specific task, team members are skilled at a number of roles, so it
provides a means for job rotation.
Cell production is a form of team working and helps ensure worker
commitment, as each cell is responsible for a complete unit of work.
Amongst the benefits claimed for cell production are:
• Closeness of cell members should improve communication, avoiding
confusion arising from misunderstood or non-received messages
• Workers become multi-skilled and more adaptable to the future needs of a
business
• Greater worker motivation, arising from variety of work, team working and
more responsibility
• Quality improvements as each cell has ‘ownership’ for quality on its area
Some of the downsides of using cell production include:
• The business culture has to encourage trust and participation, or workers
can feel that they are being constantly pushed for more and more output
with no respite
• The company may have to invest in new systems suitable for cell production
• Cell production may not allow a firm to use its machinery as intensively as in
traditional flow production
The allocation of work to cells has to be efficient so that they have enough
work, but not so much that they are unable to cope
Lean Production
Lean production is an approach to management that focuses on cutting out
waste, whilst ensuring quality.
Lean production aims to cut costs by making the business more efficient and
responsive to market needs.
The lean approach to managing operations is really about:
• Doing the simple things well
• Doing things better
• Involving employees in the continuous process of improvement
• …and as a result, avoiding waste
The concept of lean production is an incredibly powerful one for any business
that wants to become and/or remain competitive. Why? Because waste
equals cost. Less waste therefore means lower costs, which is an essential
part of any business being competitive.
The pioneering work of Toyota (a leader in lean production) identified
different kinds of waste which can be applied to any business operation.
These are:
Type of waste
Description
Over-production
Making more than is needed – leads to
excess stocks
Waiting time
Equipment and people standing idle
waiting for a production process to be
completed or resources to arrive
Transport
Moving resources (people, materials)
around unnecessarily
Stocks
Often held as an acceptable buffer,
but should not be excessive
Motion
A worker who appears busy but is not
actually adding any value
Defects
Output that does not reach the
required quality standard – often a
significant cost to an uncompetitive
business
Just-in-time (JIT) Production
Just-in-time (“JIT”) aims to ensure that inputs into the production process
only arrive when they are needed. Implemented successfully, stock levels of
raw materials, components, work in progress and finished goods can be kept
to a minimum.
This requires a carefully planned scheduling and flow of resources through
the production process. Modern manufacturing firms use sophisticated
production scheduling software to plan production for each period of time,
which includes ordering the correct stock.
Supplies are delivered right to the production line only when they are
needed. For example, a car manufacturing plant might receive exactly the
right number and type of tyres for one day’s production, and the supplier
would be expected to deliver them to the correct loading bay on the
production line within a very narrow time slot.
The main advantages and disadvantages of JIT can be summarised as
follows:
Advantages
Disadvantages
Lower stock holding means a
There is little room for mistakes as
reduction in storage space which
minimal stock is kept for re-working
saves rent and insurance costs
faulty product
As stock is only obtained when it
is needed, less working capital is
tied up in stock
There is less likelihood of stock
perishing, becoming obsolete or
out of date
Avoids the build-up of unsold
finished product that can occur
with sudden changes in demand
Production is very reliant on suppliers
and if stock is not delivered on time,
the whole production schedule can be
delayed
There is no spare finished product
available to meet unexpected orders,
because all product is made to meet
actual orders – however, JIT is a very
responsive method of production
What is Quality?
Quality is important to businesses but can be quite hard to define. A good
definition of quality is:
“Quality is about meeting the needs and expectations of customers”
Customers want quality that is appropriate to the price that they are
prepared to pay and the level of competition in the market.
Key aspects of quality for the customer include:
• Good design – looks and style
• Good functionality – it does the job well
• Reliable – acceptable level of breakdowns or failure
• Consistency
• Durable – lasts as long as it should
• Good after sales service
• Value for money
‘Value for money’ is especially important, because in most markets there is
room for products of different overall levels of quality, and the customer
must be satisfied that the price fairly reflects the quality.
Why quality is important to a growing business
Good quality helps determine a firm’s success in a number of ways:
• Customer loyalty – they return, make repeat purchases and recommend the
product or service to others.
• Strong brand reputation for quality
• Retailers want to stock the product
• As the product is perceived to be better value for money, it may command a
premium price and will become more price inelastic
• Fewer returns and replacements lead to reduced costs
• Attracting and retaining good staff
These points can each help support the marketing function in a business.
However, firms have to work hard to maintain and improve their reputation
for quality, which can easily be damaged by a news story about a quality
failure.
Managing quality
Achieving high quality does not happen by accident. The production process
must be properly managed to achieve quality standards. Quality management
is concerned with controlling activities with the aim of ensuring that
products and services are fit for their purpose and meet the specifications.
There are two alternative approaches to managing quality:
• Quality control
A definition of quality control is:
“The process of inspecting products to ensure that they meet the required
quality standards.”
This method checks the quality of completed products for faults. Quality
inspectors measure or test every product, samples from each batch, or
random samples – as appropriate to the kind of product produced.
The main objective of quality control is to ensure that the business is
achieving the standards it sets for itself.
In almost every business operation, it is not possible to achieve perfection.
For example there will always be some variation in terms of materials used,
production skills applied, reliability of the finished product etc.
Quality control involves setting standards about how much variation is
acceptable. The aim is to ensure that a product is manufactured, or a
service is provided, to meet the specifications which ensure customer needs
are met.
At its simplest, quality control is achieved through inspection. For example,
in a manufacturing business, trained inspectors examine samples of work-inprogress and finished goods to ensure standards are being met.
Advantages of quality control
With quality control, inspection is intended to prevent faulty products
reaching the customer. This approach means having specially trained
inspectors, rather than every individual being responsible for his or her own
work. Furthermore, it is thought that inspectors may be better placed to
find widespread problems across an organisation.
Disadvantages of quality control:
• A major problem is that individuals are not necessarily encouraged to
take responsibility for the quality of their own work.
• Rejected product is expensive for a firm as it has incurred the full costs
of production but cannot be sold as the manufacturer does not want its
name associated with substandard product. Some rejected product can
be re-worked, but in many industries it has to be scrapped – either way
rejects incur more costs,
• A quality control approach can be highly effective at preventing
defective products from reaching the customer. However, if defect
levels are very high, the company’s profitability will suffer unless steps
are taken to tackle the root causes of the failures.
• Quality Assurance
A definition of quality assurance is:
“The processes that ensure production quality meets the requirements of
customers”.
This is an approach that aims to achieve quality by organising every process
to get the product ‘right first time’ and prevent mistakes ever happening.
This is also known as a ‘zero defect’ approach.
In quality assurance, there is more emphasis on ‘self-checking’, rather than
checking by inspectors.
Advantages of quality assurance include:
• Costs are reduced because there is less wastage and re-working of faulty
products as the product is checked at every stage
• It can help improve worker motivation as workers have more ownership and
recognition for their work (see Herzberg)
• It can help break down ‘us and them’ barriers between workers and
managers as it eliminates the feeling of being checked up on
• With all staff responsible for quality, this can help the firm gain marketing
advantages arising from its consistent level of quality.
• Total quality management (“TQM”)
This is a specific approach to quality assurance that aims to develop a quality
culture throughout the firm. In TQM, organisations consist of ‘quality
chains’ in which each person or team treats the receiver of their work as if
they were an external customer and adopts a target of ‘right first time’ or
zero defects.
Quality Control or Quality Assurance – which is best? Which approach to
managing quality is best? Here is a summary of the main considerations:
Quality Assurance
A medium to long-term process;
cannot be implemented quickly
Focus on processes – how things
are made or delivered
Achieved by improving production
processes
Targeted at the whole organisation
Emphasises the customer
Quality is built into the product
Quality Control
Can be implemented at short-notice
Focus on outputs – work-in-progress
and finished goods
Achieved by sampling & checking
(inspection)
Targeted at production activities
Emphasises required standards
Defect products are inspected out
Costs of poor quality
You can probably come up with several examples from your own experience
of when you have come across poor quality: e.g.
• A product fails – e.g. a breakdown or unexpected wear and tear
• The product does not perform as promised (or what the customer thought
was promised!)
• An order is delivered late
• Poor instructions/directions for use make using the product difficult or
frustrating
• Unresponsive customer service
Poor customer service as listed above results in additional business costs:
• Lost customers (expensive to replace – and they may tell others about
their bad experience)
• Cost of reworking or remaking product
• Costs of replacements or refunds
• Wasted materials
You can see from the list above that poor quality is a source of competitive
disadvantage. If competitors are achieving higher quality, then a business
will suffer. The good news is that a business can benefit by improving its
quality. The key benefits of improved quality are:
•
•
•
•
•
•
Improved image & reputation, which should result in
Higher demand, which may in turn mean
Greater production volumes (possibly providing better economies of scale)
Lower unit costs because of less waste and rejected output
Fewer customer complaints (& more satisfied customers)
Potentially higher selling prices (less need to discount)
Stock control
There are three types of stock that a business can hold:
• Stocks of raw materials (inputs brought from suppliers waiting to be used
in the production process)
• Work in progress (incomplete products still in the process of being made)
• Stocks of finished products (finished goods of acceptable quality waiting
to be sold to customers)
The aim of stock control is to minimise the cost of holding these stocks
whilst ensuring that there are enough materials for production to continue
and be able to meet customer demand. Obtaining the correct balance is not
easy and the stock control department will work closely with the purchasing
and marketing departments.
The marketing department should be able to provide sales forecasts for the
coming weeks or months (this can be difficult if demand is seasonal or prone
to unexpected fluctuation) and so allow stock control managers to judge the
type, quantity and timing of stocks needed.
It is the purchasing department’s responsibility to order the correct
quantity and quality of these inputs, at a competitive price and from a
reliable supplier who will deliver on time.
As it is difficult to ensure that a business has exactly the correct amount of
stock at any one time, the majority of firms will hold buffer stock. This is
the “safe” amount of stock that needs to be held to cover unforeseen rises
in demand or problems of reordering supplies.
Stock management
Good stock management by a firm will lower costs, improve efficiency and
ensure production can meet fluctuations in customer demand. It will give the
firm a competitive advantage as more efficient production can feed through
to lower prices and also customers should always be satisfied as products
will be available on demand.
However, poor stock control can lead to problems associated with
overstocking or stock-outs.
If a business holds too much buffer stock (stock held in reserve) or
overestimates the level of demand for its products, then it will overstock.
Overstocking increase costs for businesses as holding stocks are an expense
for firms for several reasons:
• Increases warehouse space needed
• Higher insurance costs needed
• Higher security costs needed to prevent theft
• Stocks may be damaged, become obsolete or perish (go out of date)
• Money spent buying the stocks could have been better spent elsewhere
The opposite of an overstock is a stock-out. This occurs when a businesses
runs out of stocks. This can have severe consequences for the business:
• Loss of production (with workers still having to be paid but no products
being produced)
• Potential loss of sales or missed orders. This can harm the reputation of
the business.
In these circumstances a business may choose to increase the amount of
stock they hold in reserve (buffer stock). There are advantages and
disadvantages of increasing the stock level.
Advantages
Can meet sudden changes in
demand
Less chance of loss of production
time because of stock outs
Can take advantage of bulk buying
economies of scale
Disadvantages
Costs of storage – rent and
insurance
Money tied up in stocks not being
used elsewhere in the business
Large stocks subject to
deterioration and theft