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