Introduction to Production

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Production can mean “any transformation process which can be directed by human beings or which human beings are interested[1] in, viz.a transformation which a certain group of people consider desirable”. The aforementioned meaning can lead to the following characteristics of production:

  • Input elements: The inputs used in produce are transformed into a product/service thus losing its original identity. For example, wood pulp as a critical input for paper making loses its original identity and becomes paper. Accordingly, operational inputs (like wood pulp) are used to prepare to paper
  • Output or resultant elements: The process of production leads to any product/service (output). For example, paper making process which utilizes wood pulp, solvents and other raw materials processed in machines to form paper.

Production Function

The above mentioned input and output elements can be specified by a production function. This production function specifies the output of a firm (or a process) in accordance to all combinations of inputs[2]. The production function considers physical aspects of a production process but not the non-physical aspects like prices involved in production. Economics provides a simplified definition of production function and is stated as follows. The firm’s production function, for a particular good, “q”, q = f (K,L), shows the maximum amount of the good that can be produced using alternative combinations of capital (K) and labor (L)[3]. The function also includes other production factors like land, water, raw materials and technology, depending upon the nature of the company and the industry it represents and their description is summarized below:

  1. Raw materials: Any material or substance used in the primary production or manufacturing of a product is a raw material. Mostly, raw materials are natural resources like oil, iron or wood though some raw materials are also altered to be used in different resources. For example, cellulose-related products created out of wood pulp are used as binding agents in tablet making (pharmaceutical sector) or in shampoos, lotions, etc, as thickening agents.
  2. Machinery: A machine is any device that uses energy or force (either through heat or electricity) to facilitate the transformation of raw materials into a product.
  3. Labour and related services: Labour is a measure of work done by human beings and also known as human capital with reference to their skills but not necessarily related to their actual work.
  4. Capital goods: Capital goods are means of production and include machinery, tools, equipment and various buildings which are used to produce other goods and services. These goods are not produced for immediate consumption and are known as intermediate goods used further to produce the actual output
  5. Land: Land is a primary input and a factor of production which is not consumed but without which production is not possible. As an asset, it includes anything on the ground (such as buildings, fence, trees, water), above the ground (air and space rights) and under the ground (minerals), down to the centre of the earth
  6. Entrepreneur: Entrepreneur is a person who has possession of the enterprise or venture and presumably accountable for inherent risks and its outcome.

The basic usefulness of a production function is to evaluate and manage processes involved in allocating resources to produce efficient products/services within a defined period of time, which is also known as operations management. The relationship between production and operations management is explained in the following section.

Production and operations management

Production is generally considered synonymous to manufacturing and can be associated to factories, machinery and equipment. However, the field of production has been expanded to service-related activities like banking, hotel management, transportation and education and thus acquired a new name production and operations management or operations management. Operations or operation management refers to processes involved for production involving suitable business practices to create economically efficient products/services (output). Business practices refer to methods, procedures, processes or rule employed by an organization to produce efficient product/services and enable long-term sustainability for the organization (including profits and overall well-being).

Operations for Manufacturing and Service sectors

Manufacturing and service operations can be distinguished based on the following features:

  • Nature and consumption of output
  • Nature of work (jobs)
  • Degree of consumer contact
  • Uniformity of output
  • Quality assurance
  • Measurement of performance

The following table summarizes the differences based on the above mentioned features:

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[1] Operations Management, Barron’s Business Review Series

[2] Production and Operation Management, V.K. Bakliwal

[3] Microeconomic Theory, Walter Nicholson