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CHAPTER 10 - PRODUCTION OF GOODS AND SERVICES
Transcript of CHAPTER 10 - PRODUCTION OF GOODS AND SERVICES
PRODUCTION OF GOODS & SERVICES
What is PRODUCTION?
the processing and/or assembling of raw materials by workers using machinery and equipment to produce a product or provide service
Raw material inputs are converted into finished products through successive stages:
- represents the main step in a process, method, or procedure where the raw material is changed into something else.
- includes natural resources such as forests, mountains, and bodies of water like rivers, lakes, and seas.
COSTS OF PRODUCTION
the creation of goods and services or the creation of utility
UTILITY - means
it requires a set of inputs to yield a set of outputs
INPUTS may include:
Moment or time
- is putting parts together to form a final product.
- may mean painting, varnishing, polishing, trimming, cleaning, and glazing, among others.
- makes sure that the operation has been carried out correctly as to quality and quantity.
FACTORS OF PRODUCTION
- refers to both physical and mental efforts like the works of farmers, fishermen, workers, clerks, lawyers, teachers, and doctors, among others.
- pertains to machines, equipment, buildings, and other physical resources, which are used in the production of goods and services.
- coordinates the other factors of production such as land, labor, and capital.
- represent the payments for the factors of production
when the production costs are high, prices go up!
decrease in purchasing power of customers
lower quantity demand for goods & services
decrease in sales
COST OF A PRODUCT is made up of three parts:
- includes the workers whose inputs are closely related to or associated with the making of the product.
- are all other costs incurred in making of the products but do not become part of the product.
- are material inputs that become part of the product.
the use of the buildings, machine, and equipment, and their maintenance and replacement
power, fuel, lubricants, water, heating, and supplies used to keep the manufacturing resources running;
salaries or wages of all workers
transport costs of raw materials;
office costs such as stationery, printing, telephone, and postage
MAKING PRODUCTION EFFICIENCY YOUR GOAL
- defined as the arithmetical ration between the amount produced and the amount of all resources used in production
- synonymous with
efficiency in utilizing inputs to produce outputs
Consider materials and labor as input in the following manner:
Productivity of materials.
- there is an increase of 10% in utilization of materials if a skillful tailor is able to cut 11 suits from a bale of cloth, from which an unskilled tailor can only cut 10
Productivity of labor
- If a worker who has usually been producing 40 units of product per day was able to raise his production output to 60 units because of improved work methods, then , the productivity of the worker has increased by 50%.
Productivity of machines
A machine was observed to produce an average of
1,000 pieces of a particular component per hour
. Adjustment of the speed of the machine increased its production volume to
1,300 pieces per hour.
This means that there is an increase of
300 pieces over the volume previously produced.
We can therefore say that the
productivity of the equipment has increased by 30% as result of adjusting its speed.
PLAN YOUR WORK
Without an adequate plan, you may not be able to anticipate any or all of the following potential problems from occurring:
You should, therefore, keep in mind the following vital points so that you can cut down on wasted time:
Plan the delivery and supply level of materials and purchased parts so that you never run out of stock;
Plan the jobs to be done so that as soon a worker has finished one job, there is another ready for him; and
Plan your machine maintenance so that machines stop only when you want and do not break down during production
• For every product of service you sell, you will get a corresponding return in terms of revenue or profit.
• Quality is an essential part of the productivity formula. In production, workers will not always produce 100% good product. Almost always, there are rejects- products that have to be reworked, or worse, thrown away.
• When you produce defective products, you incur unnecessary costs, such as: time, effort, and money.
On the average, you incur an additional cost doing repairs.
• People think that good quality is always expensive and that poor quality product is always cheap to manufacture. It’s not always true.
How to Develop and Improve Product Quality
1. Control manufacturing information
- you should see to it that your production workers are given complete, easy-to-understand, clear, and simple instructions on the process of production.
2. Control purchases and storage of raw materials
- you should obtain the correct materials of defined quality from suppliers, and see to it that these are appropriately stored to prevent spoiling or deterioration.
3. Control manufacturing process
- prevent fabrication of defective products by instituting inspection points or simple routine checks on important processes or steps, through adequate planning, good machine maintenance, and proper motivation of production employees.
1. Control finished products -
verify by means of adequate tests and criteria to check whether the finished product meets the quality standard or not.
2. Control measuring instruments and test equipment -
schedule periodic calibrations and adjustments or maintenance of test and process equipment for adequate control.
3. Control corrective action -
use information from control areas 1-5 to ensure that deficiencies affecting quality are promptly and systematically detected and corrected.
Manage and Control Your Inventories Property
Inventory management and control
means that you must take care
not to have too much, nor too little of the required stocks
. In other words,
neither overstock nor under-stock.
to keep sufficient stocks of raw materials, in-process goods, and finished goods in order to meet your production and sales targets. This is called inventory.
Having so much such extra materials, goods in process, and finished products allows you to:
Meet sudden increase in sales demand; and
Make up rejected or damaged parts and product.
Running short of raw materials suddenly will slow down or disrupt your production.
It might also mean a potential loss of sales or customers.
How to Control the Inventory?
The basic idea behind inventory control is to operate your business effectively with the least amount of stock. To be able to do this, you should know:
- When to order
➢ - How often to order
➢ - How much to order
Basic stock goods
are those which are either sold at as much the same rate at all times or regularly used in production.
are those that move quickly at some time and slowly than others.
The Importance of Marketing
Marketing is an activity that the entrepreneur will be involve in for as long as the business exists.
For a true blooded entrepreneur, market aspect should be given due importance, if not at all, the most important aspect when one gets into business. This postulation is for the simplest reason:
No matter how good or excellent the product is technically, it is nothing if there is no buyer on the market.
A business venture thrives not for excellent technical specification of the product per se, but by the market reaction it brings and the volume/amount of sales, as well as the profits it brings to the capitalist or entrepreneur.
Marketing Concept and Philosophy
1. Customer needs and wants
the entrepreneur develops an organization-oriented marketing strategy to accomplish its goals.
2. Organizational integration
Whether an entrepreneur owns start-up company of 3 staff, he or she hurdles to integrate a customer focus as a philosophy for all the people in the company.
The foundation of contemporary marketing management and entrepreneurial success evolves around the aspect of marketing concept.
The marketing concept is a
that is implemented and integrated throughout the business,
to serve customers better than competitors
achieve specific goals.
The marketing concept is made up of three components:
it is essential to strive not just for the sales, but also for the effective marketing that contributes to profitable sales
The Market Research
A market research will help entrepreneurs discover who wants to buy the product or service. In other words, entrepreneurs will be guided as to the particular market segment; hence, entrepreneurs can focus their efforts on doing something to address that particular market segment.
Market research will guide entrepreneurs as to the following:
- Define your product or service
- Define your market – who are your customers?
- Identify what motivates those customers to buy
- Price your product or service
- Reach your customers through advertising, publicity, and sales calls
- Compete with other companies providing the same products or service
- Position your products in the market place
- Cope with outside forces, such as the economy
- Understand your industry and how your company fits in
- Evaluate your community
Where to get Information?
Some of the most common sources of information on potential markets for new products and services can be generated by way of the following:
1. Library Research
2. Questionnaire survey
3. Existing research report
4. Published market statistics
5. Trade association meetings and trade shows
7. Phantom products
8. Professional market surveys
The Need for Marketing Plan
A marketing plan works as a survival, as well as a preventive tool. The marketing plan keeps the entrepreneur on track.
Execution strategies -
Execution strategies spell out concrete operational plan to put forward the products or services towards the customers’ place ending up in a buying process.
Marketing objective must be specific as to what is there that needs to be accomplished.
Marketing mix -
Defines the position of the business or the product in a market place. The marketing mix should work in concert with tye product or service, price, place, promotion and position.
Channel of Distribution
Channel of distribution
refers to the marketing institutions and interrelationships responsible for the physical flow of goods and services from the producer or manufacturer to consumer or industrial users.
Middlemen or agents
are involved in the movement of goods and services from the producer/manufacturer, and the most discounts and incentives are needed, this means diminishing factor to an entrepreneur’s profit.
While it is possible for the entrepreneur or producer to go directly to the consumers and end-users, such could be impractical as this involves costs and expertise where the entrepreneur may not posses.
The entrepreneur can use any of the following modalities whichever is appropriate for his business:
This refers to a system of marketing by which an organization communicates directly with costumers to generate a response and/or transactions.
This is where the producers or manufacturers generally dispose or sell its products, who in return, sells the same to the retailers or end-users.
In many cases, manufacturer’s representatives contact the wholesaling companies and are paid commissions on their sales.
Pricing is the value placed on goods and services offered to the public. A product or service may be paid in the form of money or it could be paid with other goods and/or services. For this transaction to take place, a value is placed on the product or service.
The Concept of Fair Pricing
Fair pricing is one that is attractive to potential clienteles or market with reasonable returns for the entrepreneur. In the case of products or services which are real outputs of highly creative and innovative thinking, price may be perceived as high enough or even exorbitant; however, markets for these kinds of entrepreneurs usually do not complain as what matters is the value added to their kinds of businesses or needs.
Basic Pricing Principles
In pricing a product or service, the following will serve as a fundamental guidelines:
All prices must cover costs;
The best and most effective way of lower sales price is lowering the costs;
Prices must be regularly upgraded to reflect market developments;
Prices must be established to ensure sale;
Product utility, longevity, maintenance, and end use must be judged continually, and target prices should then be adjusted accordingly;
Prices must be set to preserve order in the market place; and
Prices must be fixed to support an overall corporate goal
Pricing a Service
Among service providers, pricing of services rendered vary with the type of business, but the same three elements are present in every situation. The three elements include:
1. Labor cost-
this includes salaries, wages, and benefits paid to the employees, as well as contractors/subcontractors who performed, supervised, or manage the business.
2. Overhead expenses-
these items include indirect expenses required operationalize the business.
this refers to the amount of income earned after all costs of producing and providing the service have been met.