PRODUCTION AS AN ECONOMIC ACTIVITY Objective 2.03

Importance of Production The economy begins with production. Consumers need Products/Services to satisfy their needs and wants. Businesses also need Products/Services To use in/with their own Products/Services. To resell to consumers.

The three categories of products used by business and consumers are: Natural Resources – raw materials supplied by nature Agricultural Products – crops and animals grown my farmers Processed Goods – products that have been changed in form to increase their value and usefulness

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

Extraction and Cultivation Types of Production Extraction and Cultivation Processing Manufacturing Obtaining products from nature or using natural resources to grow Examples: Chicken Tomatoes Broccoli Changing and improving the form of another product Examples: Honey Mango Soil Combining raw materials and processed goods into finished products Examples: Cosmetics China Shoes

Types of Manufacturing Procedures Mass Production Custom Manufacturing Material Processing The process of using assembly activities to produce large quantities of identical products Examples: Krispy Kreme Donuts Maybelline Lipstick Nike sneakers The process of producing a specific and exclusive product for a customer Examples: Ceramics Prosthetic Limb Signs The process of changing raw materials to another form in order to be consumed or used to make other products Examples: Paper Soap Glass Plastic Steel Cement

Production and Manufacturing Planning Production and manufacturing involve the following activities in order to produce products: Product Development Production Planning Inventory Management

Production Development Improving an existing product or developing new kinds of products

Why Do Business Create New Products? New product development is an important way for businesses to stay ahead of the competition and continue to appeal to the changing needs of existing customers. In addition, new product development can open up new marketing channels and help to increase market share.

Product Research Performed by engineers and other scientists to develop new products or to discover improvements for existing products.

Applied Research Marketing research that studies existing products to develop design improvements or new products. Example: Engineers working for an automobile manufacturer will study the current designs to improve the efficiency of engines or increase passenger safety.

Pure Research Discovers new solutions to problems – done without a specific product in mind. Example: Scientists working for drug manufacturers study diseases and immune systems of the body. Their goal is to uncover treatments and cures.

Product Design Turning the idea into a product that can be made and sold with a profit. Creating models and testing them to come up with the best possible design. Determining all the materials and parts needed for the final product. Determining the cost of making the product. Determining the selling price.

Production Planning Production Process consists of activities, equipment, and resources needed to manufacture products. Production Resources consists of machines, tools, and other equipment needed for production. Personnel consists of employees and skills needed for production

Inventory Management A detailed account of a company’s materials, supplies, and finished products.

Inventory Management Maintains the supply of all resources needed for production and the products produced. A vital manufacturing activity. Keeping records of the supply and the cost of all resources used in production. Ensure that suppliers deliver orders on time and in the correct quantities and price. Maintaining adequate storage space to make sure the parts and materials can be easily located and moved to productions lines as needed. Ensuring that materials are safe and secure and can be moved quickly and easily. Moves finished products for storage or for immediate distribution to customers. Keeping accurate product inventory in order to make sure orders can be filled.

Marketing Procedures

Continuous Process Improvement (CPI) The purpose of CPI is to make sure manufacturing processes are completed as effectively and efficiently as possible.

Continuous Process Improvement (CPI) Six Steps: Involve everyone. Identify process activities. Establish quality performance standards. Select measurement tools. Monitory performance continuously Improve process quality.

Common Business Operations: Facilities Management Logistics Scheduling Safety and Security

Facilities Management Buildings are one of the largest investments of a business. House the work and workers Provide space for all of the business operations Provide space for storage of materials, supplies, and products Facilities management protects the company’s investment.

Making Economic Decisions About the Buildings Buy existing buildings Building new buildings Rent buildings Studying long-term plans of the company Are current building adequate, is more space needed, are some facilities no longer needed or out-of-date? Purchase land

Building Maintenance and Repair Scheduled cleanings Painting Carpets Update Equipment Exterior Maintenance Landscaping Repairs to facilities and equipment

Energy and Environmental Management Energy costs - rapidly growing expense Need a ready supply of electricity, gasoline, heating oil, and water Keep utility costs under control Ways to conserve energy resources Monitor quality of air, building temperature, and other environmental factors to maintain a healthy and productive workforce

Logistics Managing the acquisition, movement, and storage of supplies, materials, and finished products in a business. Supply Chain Management – newer term for logistics All of the businesses involved from the time raw materials are obtained until finished products are sold. Major Activities Locating sources of supplies Purchasing Transportation Sales

Logistics (Continued) Responsible for effective communication and information among everyone in the supply chain Just-in-Time Goods arrive when needed for production, use, or sale rather than sitting in storage Requires careful planning and coordination among supply chain members. Requires effective information system

Scheduling Determining the activities that need to be completed, the people who will complete the work, and the resources needed for the task. Scheduling Employees Right number of Full-Time, Part-Time, Temporary Employees The right number of employees to complete the scheduled work Right number of employees with the right skills Hire more/Reduce number of employees Training Determining daily/weekly work schedule Schedule carefully so as not to exceed the budget but still get the work finished

Safety and Security Protecting people and property Security Safety Study the resources and activities of a business to identify potential security problems Prepare security plans and procedures to prevent problems whenever possible Safety Prevent accidents and injuries Maintain safe work areas and work procedures Provide safety training and enforce rules and regulations designed to reduce accidents Place safety posters around the workplace Recognize work units that have a record of no accidents or injiries for a period of time

Business Operation Tools Management Tools Technology Tools

Management Tools Operational Plan – identifies how work will be done, who will do it, and what resources will be needed. Operating Budget – is a detailed financial plan for a specific area of the business. Schedule – is a time plan for completing activities. Procedures – are lists of steps to be followed for performing a particular work activity. Standards – are specific measurements against which an activity or result is judged.

Technology Tools Supply Chain Management Software – allows cooperating companies to share order, production, and shipping information, track products, and exchange customer data. Collaboration Software – also called groupware, provides real-time communications capabilities by voice, text, and video; allows team members working at their own computers from anywhere in the world to view the same documents on their computer screens and work on them as a team. Computer Security – provides access and restrictions, usage data, privacy, and virus protection for computers and networks. Inventory – helps the managements of sales, purchases, and payments; tracks production, usage, and sales levels; and even prints bar codes.

Technology Tools (Continued) Project Management – Keeps track of project calendars, tasks, to-do lists, work assignments, and project resources. Budgeting – Automates budget planning, compares budgets from one time period to another, and coordinates budgets among departments. Document Management – controls the production, storage, and managements, and distribution of electronic documents Manufacturing Automation – monitors and often controls manufacturing machines, checks for errors and defects, and reports on production levels. Scheduling – manages employee, facility, resource, and production scheduling. Allows easy review of schedules by all participants as well as quick updating.