Optimizing Production: Systems, Costs, and Planning Strategies

Posted on Jul 15, 2025 in Business Administration and Innovation Management

Production Process Management Essentials

The Production System Explained

What is Production?

Production refers to the process of transforming inputs into outputs (goods or services) to satisfy consumer needs. It involves several key components:

  • a) Procurement Sources:
    • Managers
    • Workers
    • Suppliers
    • Creditors
  • b) Inputs:
    • Labor
    • Energy
    • Capital
    • Raw Materials
  • c) Process:
    • Technology
    • Facilities
  • d) Outputs:
    • Goods
    • Services
  • e) Markets:
    • Target Markets

What Defines a Production Function?

A production function describes the relationship between the inputs used in production and the maximum output that can be produced with those inputs.

What are Inputs in Production?

Inputs are the resources used in the production process, such as labor, capital, raw materials, and energy.

Understanding Production Costs

Concept of Cost

When a company acquires goods and services (e.g., buildings, machinery, patents, materials, labor, energy) for its productive activity, the monetary expression of this acquisition is called spending.

Cost refers to the spending consumed during the productive activity.

Spending that is consumed over a period is considered an investment.

Therefore, the term spending refers to the time of acquisition, while cost refers to the time of consumption.

Total Cost Formula

Total Cost = Fixed Cost + Variable Cost

Cost Classification

  • Depending on the nature of the factors (e.g., cost of raw materials, labor costs).
  • Depending on the factors attributable to the products:
    • Direct Costs
    • Indirect Costs

Types of Costs

  • Explicit Costs and Implicit Costs.
  • Reversible Costs (increase or decrease in the same direction as production volume varies) and Irreversible Costs (increase in leaps with production increases but do not decrease when production lowers).
  • Cost of Inaction (or Standby) and Production Preparation Costs.
  • Short-Term Costs and Long-Term Costs.

Cost Control in the Company

Productivity Measurement

Productivity can be expressed by:

  • The number of man-hours required to obtain a given unit of product.
  • Production volume obtained with a given amount of labor (man-hours).
Factors Influencing Productivity Levels

The productivity level depends on:

  • a) Size of the company.
  • b) Size of the market in which it operates.
  • c) The degree of capitalization of the company (amount of capital employed per worker).
  • d) Organization structure.
  • e) Staffing and personnel provision within the company.
  • f) Administrative complexities.
  • g) Taxation.
  • h) Occupational regulations.
Job Assessment Systems

Common job assessment systems include:

  • a) Position Grading System: Implies that several people evaluate job descriptions and grade them in order of importance to the company.
  • b) Classification System: Involves the deployment of grades or classes of work into which positions are adjusted. It is seldom used in business but is common in public administration or armed forces.
  • c) Factor Comparison System: Consists of evaluating 5 factors for each position: mental requirements, skills, physical requirements, responsibilities, and working conditions.
  • d) Point System: The most common system. Instead of using monetary amounts, points are used to determine the weight and valuation of each factor.

Strategic Production Planning

Planning involves setting goals and developing courses of action for achieving those objectives.

The Production Planning Process

The planning process typically includes:

  • Determination of Strategic Objectives (long-term).
  • Determination of the Master Production Plan (medium-term).
  • Determination of Weekly Production Activities (short-term).

The Production Process

The production process includes the equipment and steps needed to carry out production or service provision. It encompasses:

  • Technology.
  • Process Design and Flow.
  • Production Objectives: Quality, Cost, Flexibility.

Classification of Production Processes (Applicable to Products)

  • a) According to its evolution over time:
    • Continuous Production Processes.
    • Intermittent Production Processes.
  • b) According to the product range:
    • Simple Production Process.
    • Multiple Production Process.
    • Joint Production.
    • Alternative Production.