3.1 Production Processes

The Supply Chain

The supply chain includes every organisation, individual, resource, and process required to create the product or service so it can be sold to the customer.

Typically starts with the suppliers of raw materials

Production and assembly of the product

Ends with the final product or service, sold to the customer

An efficient and dependable supply chain is crucial to a business. Supply chain problems can result in:

The business not being able to produce, and therefore sell, products
This will result in a loss of sales and income
It may damage the firm’s reputation, reducing future sales

Flow Production

A large number of identical products are manufactured
Used for mass-market consumer goods
Maximum efficiency is needed to achieve economies of scale
Manufacturing is typically on a production line, often operating 24 hours a day, with a high-level of automation
Expensive to set up due to buying machinery, lots of staff

Job Production

The opposite of flow production
Products are individually made to the customer’s specific requirements
Requires skilled labour, which can be expensive
Very little, if any, automation
Products are slow and expensive to make, but are high quality

Improving Efficiency

Improved efficiency helps a business produce more goods with less wasted time and materials. This enables them to spend less making each unit. Efficiency is measured using cost per unit.

There are many different ways for businesses to improve efficiency. You need to know about lean production, and just-in-time.

Lean Production

Using as few resources and reducing waste as much as possible to improve efficiency.

Anything which a business buys, but does not turn into a sellable product, is waste. This can include items which fail quality checks, or resources which are discarded during production (e.g. a T-shirt maker who has bits of material left over).

A business will also have to pay to dispose of waste material.

Just-In-Time (JIT)

A form of lean production
Materials are delivered to the factory as they are needed in the manufacturing process
When the product is complete, it will be sent straight out to the customer
No raw materials, work-in-progress, or finished goods are stored

Advantages

Reduced storage costs
Smaller manufacturing facilities
Less chance of perishable goods wastage
Businesses only buy and pay for what they need

Disadvantages

Complex to administer
Supply delays or faulty materials can cause major delays to production

Just-In-Case (JIC)

The opposite of Just-In-Time
Raw materials and finished products are kept in stock just in case they are needed
‘Buffer stock’ of raw materials ensure production can continue if there is a delivery problem

Advantages

Better able to cope with sudden increases in demand
Reduces risk of production being affected if there is a supply problem

Disadvantages

Storing stock can be expensive
A risk of some stock never being used, which is costly