Production Process: Efficiency, Productivity & Technological Innovation

Posted on Nov 4, 2024 in Economy

Production Process Efficiency and Productivity

Production Definition

Production can be defined from various perspectives:

  • Economic: Companies develop products from resources to meet consumer needs.
  • Technical: Combining components (labor, materials, machinery, etc.) following procedures to create goods or services.
  • Functional-Utilitarian: Adding value to goods; creating value.

Production Factors

Production requires combining material, human, and organizational resources. The primary factors are:

  • Natural Resources/Land: Raw materials, energy, and supplies.
  • Labor: Human effort/time spent in production.
  • Capital: Financial resources and capital goods (machinery, facilities).

Combining these factors yields a product. A broader perspective also includes business organization (management/administration) as a factor.

Classification of Production Processes

The production process is the overall system characterizing a productive activity.

Classification criteria:

  • Time Horizon:
    • Continuous Production: Uninterrupted flow (e.g., refineries).
    • Intermittent Production: Non-continuous (e.g., construction).
  • Production Process Employed:
    • Manual Production: Solely manual effort.
    • Mechanized Production: Balanced labor and machinery.
    • Automated Production: Minimal human input (monitoring/surveillance).
  • Product Differentiation:
    • Mass Production: Single, homogeneous product.
    • Individual Production: Differentiated products.
  • Production Process Configuration:
    • Workshop Production: Goods move between workshops based on operational needs.
    • Fixed Position Production: Machines/operators move to the product.
    • Assembly Line Production: Elements follow a logical sequence of operations.
  • Demand Fulfillment:
    • Production for Stock: Based on sales expectations.
    • Production to Order: Based on customer specifications.

Production Yields and Productivity

The production function relates resources used to total output. It’s expressed as Q = F(L, K), where:

  • Q = Output
  • L = Labor
  • K = Capital

Productivity measures output relative to input:

  • Labor Productivity (PL): Q / L (units per worker)
  • Capital Productivity (PK): Q / K (units per machine)

Total Productivity: (Value of Production) / (Cost of Production)

Production Efficiency

The production function represents maximum output for a given input combination.

Technical Efficiency: Technology A is more efficient than B if it produces the same output with fewer inputs or more output with the same inputs.

Economic Efficiency: Choosing the lowest-cost technology.

Importance of Technological Innovation: R&D+i

Production requires procedures/methods (technology).

Technology: Combining production factors to create goods/services.

Technology Change: Combining factors differently to produce the same product.

Companies invest in Research and Development (R&D) to improve technologies and processes, leading to increased production and/or cost savings.

R&D: Systematic creative work to increase knowledge (research) and create new applications (development).

R&D+i (Research, Development, and Innovation): R&D plus the implementation of novel products or processes within the company.