Production Systems: A Deep Dive into Processes, Technology, and Productivity

Posted on Nov 29, 2024 in Economy

Production Systems: Definition and Components

The core of any enterprise is its production system—the area responsible for producing goods and/or services to meet consumer needs. Production is any activity that increases a good’s fitness for use, essentially creating value or utility.

The Role of Production

Production transforms inputs (factors of production like labor and raw materials) into outputs (goods and services). This process occurs in all organizations, whether they produce tangible products (e.g., cars) or services (e.g., healthcare).

Production System Objectives

Traditional Objective: Increase productivity.
Current Objectives:

  • Costs: The economic value of resources consumed in production. Cost analysis determines value creation.
  • Quality: A product’s ability to meet customer needs, often measured against competitors’ offerings. High quality can be a key differentiator.
  • Time: The time it takes for a product to reach the customer. Speed to market and delivery reliability are crucial competitive factors.
  • Flexibility: The ability to adapt quickly to changing market demands and competitive landscapes.

Factors of Production

Traditional Factors:

  • Land/Natural Resources: Raw materials and energy.
  • Labor: Hours of labor, often categorized as homogeneous.
  • Capital: Machinery, buildings, and facilities.

Additional Factors:

  • Human Capital: Workers’ talent, experience, and training. Skilled workers contribute to higher productivity.
  • Technology: Applied scientific knowledge embodied in theories and processes.

Types of Production Processes

Businesses design production processes to suit their characteristics and objectives. Some common types include:

  • Project-Based Production: Creating unique products with specific requirements. Each project necessitates a unique process (e.g., bridge construction).
  • Intermittent Production:
    • Workshop (Craft): Small-scale production tailored to client needs, with low automation and a wide range of goods.
    • Batch Production: Larger series, more consistent products, and a higher degree of automation. Parts may be produced in different locations (e.g., furniture).
  • Mass Production: Sequential production lines, high volume, and automation. Temporary interruptions may occur (e.g., automobiles).

Technology in Production

In economic theory, technology represents different input combinations (labor and capital) to achieve a given output. It’s often embedded in machinery and equipment, and is constantly evolving through research and development.

Phases of Technological Progress

  • Research:
    • Basic/Pure Research: Seeks scientific knowledge, often conducted in universities.
    • Applied Research: Seeks knowledge with business objectives, conducted in company R&D departments.
  • Development: Applies research findings and incorporates them into production.
  • Process Experimentation: Tests the success or failure of new technologies.
  • Innovation: A successful invention with market acceptance. Developing proprietary technology requires significant R&D investment.

Technological innovation is crucial for business survival and competitiveness.

Technological Alternatives

The choice of production process and the level of technology are closely linked. Three main options exist:

  • Manual Production: Labor-intensive processes.
  • Mechanized Production: Labor-driven processes using machinery.
  • Automated Production: Processes driven by machinery with minimal human supervision.

Key Automation Elements:

  • Robots: Multifunctional, programmable machines.
  • Flexible Manufacturing Systems (FMS): Computer-controlled robots with varying configurations.
  • Computer-Aided Design/Computer-Aided Manufacturing (CAD/CAM): Integrates design and manufacturing using specialized software.
  • Computer-Integrated Manufacturing (CIM): Automates a wider range of activities, including commercial and financial areas.

Production Function and Productivity

The production function shows the maximum output achievable with a given set of inputs. It’s typically represented as Q = f(L, K), where Q is output, L is labor, and K is capital.

Productivity

Productivity measures the efficiency of the production function—the relationship between output and the resources used to produce it. Productivity improvement involves either reducing inputs while maintaining output or increasing output while maintaining inputs. Increased productivity often leads to lower prices.

Global Productivity

Global productivity relates total output to all input factors. It’s often expressed in monetary units. To compare productivity across time, constant currency values should be used to avoid price fluctuations affecting the results.

Partial Factor Productivity

Partial factor productivity relates output to a single input factor, usually labor. It can be expressed in physical or monetary units.