IB Business
Management
•Unit 5.1 pg. 614
•Production Methods
Production
•Referred to as operations
management
•Concerned with producing the right
goods/services in the right
quantities in a timely & costeffective manner
Production
•Productivity is the rate at which
inputs are transformed to outputs
(how efficient is the business?)
•The form of production that a
manager chooses will help
determine a firm’s productivity
Production Sectors
Primary sector: extracting raw
materials, harvesting crops, rearing
animals (mining, agriculture, fishing)
Production Sectors
Secondary sector: turning natural
resources into finished goods (steel
production, car manufacturing)
Production Sectors
Tertiary sector: providing services
(finance, insurance, health care,
education)
4 Factors of Production
• Land, labor, capital, enterprise
– Known to production managers as Five
M’s: materials, manpower, machines,
money, mgmt
• These factors are combined in costeffective way to ensure value-added is
performed during ‘production’
– The value of outputs (products) is greater
than the inputs (PROFIT)
Production
• What is the best production method for
businesses?
• What is best for one business may not
be best for another
• The same kind of product can be
produced using different methods
• 3 types of production:
– job, batch, mass
Methods of Production
Job production: business creates individual
product from start to finish to meet
customer’s standards
•Items are “tailor-made”
•Usually used by small firms
•No economies of scale
•Examples: Custom computers, haircut,
custom home, office building, Disneyland
Advantages of Job Production
•Quality: highly-skilled labor is used
•Motivation: workers feel proud of
finished product
•Uniqueness: adds value to the
production process
•Flexibility: each product can be
altered to the customer’s request
Disadvantages of Job Production
• Expensive: labor-intensive.
• Higher cost for consumer
• Time consuming
• Few economies of scale
• b/c each product is unique
(show Ace of Cakes clips)
http://www.foodnetwork.com/ace-of-cakes2/video/index.html
Methods of Production
Batch production: producing a
limited number of identical products
• One batch completed
before production switches
to next batch
• Good for businesses that
make a range of products
• Example: Nike produces batches of different
sizes/colors, Krispy Kreme makes batches of
different doughnut types
Advantages of Batch Production
• Economies of scale: machines can produce
larger quantities
• Specialization in production process
• Variety
• EX: b-day cakes made in batch but can be
customized
Disadvantages of Batch Production
•Inflexible: once a batch is started,
it’s difficult to stop
•Storage costs of larger quantities
•Worker boredom
Methods of Production
Flow production: form of mass
production where different operations
are progressively carried out in
sequence
• When one task is complete, the next
stage must start immediately
• Ex: bottled water
Methods of Production
Line production: form of mass production
where the product is assembled along a
conveyer belt
•Also known as an assembly line
•Ex: vehicle manufacturers
Methods of Production
Mass production: producing mass
amounts of standardized products
• Identical products are produced in
large quantities
• Ex: New York Times prints one million
newspapers
Advantages of mass production
• High volume produced at low cost
(economies of scale)
• Reduces average fixed costs (bc so many
products are produced)
• Machines can work 24 hours a day
• Product quality is standardized; low defect
rate
• Low labor costs for unskilled workers
Disadvantages of mass production
• Work is boring & monotonous
• Machine breakdowns cause major problems
• Little flexibility in production methods
• Once a process has begun, cannot make
changes
• Cannot tailor make to customer’s wishes
• Huge set-up costs. (Must buy machines,
maintenance, replacement)
• Effective storage system needed
Labor and Capital Intensity
• Some methods of production are labor
intensive while others are capital
intensive
• Labor intensive:
– Job production, services
– Used in highly skilled professions, ie lawyers
– More personalization
• Capital intensive:
– Batch, mass production
– Disadvantage: product are highly
homogenous, high fixed costs
Review Assignment
Choose the most appropriate method
of production (job, batch or mass) for
each of the following and justify
your answer:
•iPods
•Coca-Cola
•Cookies
•Navy battleships
•42” plasma TVs
•Custom suits