Section 4
4.1 Production is the effective management of resources in
producing goods and services.
The operations department in a rm overlooks the production
process. They must:
• Use the resources in a cost-effective and ef cient manner
• Manage inventory effectively
• Produce the required output to meet customer demands
• Meet the quality standards expected by customers
Productivity
Productivity is a measure of the ef ciencyof inputs used in the
production process over a period of time. It is the output
measured against the inputs used to produce it. The formula is:
fi fi fi
, Businesses often measure the labour productivity to see how
ef cient their employees are in producing output. The formula for it
is:
Businesses look to increase productivity, as the output will
increase per employee and so the average costs of production
will fall. This way, they will be able to sell more while also being
able to lower prices.
Ways to increase productivity:
• improving labour skills by training them so they work more
productively and waste lesser resources
• introducing automation (using machinery and IT equipment to
control production) so that production is faster and error-free
• improve employee motivation so that they will be willing to
produce more and ef ciently so.
• improved quality control and assurancesystems to ensure
that there are no wastage of resources
Inventory Management
Firms can hold inventory (stock) of raw materials, goods that are
not completed yet (a.k.a work-in-progress) and nished unsold
fi fi fi
, goods. Finished good stocks are kept so that any unexpected rise
in demand is ful lled.
• When inventory gets to a certain point (reorder level), they will
be reordered by the rm to bring the level of inventory back up
to the maximum level again. The business has to reorder
inventory before they go too low since the reorder supply will
take time to arrive at the rm
• The time it takes for the reorder supply to arrive is known as
lead time.
• If too high inventory is held, the costs of holding and
maintaining it will be very high.
• The buffer inventory level is the level of inventory the
business should hold at the very minimum to satisfy customer
demand at all times. During the lead time the inventory will
have hit the buffer level and as reorder arrives, it will shoot
back up to the maximum level.
Lean Production
Lean production refers to the various techniques a rm can adopt to
reduce wastage and increase ef ciency/productivity.
The seven types of wastage that can occur in a rm:
• Overproduction– producing goods before they have been
ordered by customers. This results in too much output and so
high inventory costs
• Waiting– when goods are not being moved or processed in
any way, then waste is occurring
fi fi fi fi fi fi
4.1 Production is the effective management of resources in
producing goods and services.
The operations department in a rm overlooks the production
process. They must:
• Use the resources in a cost-effective and ef cient manner
• Manage inventory effectively
• Produce the required output to meet customer demands
• Meet the quality standards expected by customers
Productivity
Productivity is a measure of the ef ciencyof inputs used in the
production process over a period of time. It is the output
measured against the inputs used to produce it. The formula is:
fi fi fi
, Businesses often measure the labour productivity to see how
ef cient their employees are in producing output. The formula for it
is:
Businesses look to increase productivity, as the output will
increase per employee and so the average costs of production
will fall. This way, they will be able to sell more while also being
able to lower prices.
Ways to increase productivity:
• improving labour skills by training them so they work more
productively and waste lesser resources
• introducing automation (using machinery and IT equipment to
control production) so that production is faster and error-free
• improve employee motivation so that they will be willing to
produce more and ef ciently so.
• improved quality control and assurancesystems to ensure
that there are no wastage of resources
Inventory Management
Firms can hold inventory (stock) of raw materials, goods that are
not completed yet (a.k.a work-in-progress) and nished unsold
fi fi fi
, goods. Finished good stocks are kept so that any unexpected rise
in demand is ful lled.
• When inventory gets to a certain point (reorder level), they will
be reordered by the rm to bring the level of inventory back up
to the maximum level again. The business has to reorder
inventory before they go too low since the reorder supply will
take time to arrive at the rm
• The time it takes for the reorder supply to arrive is known as
lead time.
• If too high inventory is held, the costs of holding and
maintaining it will be very high.
• The buffer inventory level is the level of inventory the
business should hold at the very minimum to satisfy customer
demand at all times. During the lead time the inventory will
have hit the buffer level and as reorder arrives, it will shoot
back up to the maximum level.
Lean Production
Lean production refers to the various techniques a rm can adopt to
reduce wastage and increase ef ciency/productivity.
The seven types of wastage that can occur in a rm:
• Overproduction– producing goods before they have been
ordered by customers. This results in too much output and so
high inventory costs
• Waiting– when goods are not being moved or processed in
any way, then waste is occurring
fi fi fi fi fi fi
