CHAPTER 5

PRODUCTION
PROCESS
Asst. Prof. Vasin Chooprayoon, PhD
vasin@rsu.ac.th
PRODUCTION DEFINITION

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PRODUCTION DEFINITION
▪Production is a process of combining various material inputs and
immaterial inputs (plans, know-how) in order to make something
for consumption (the output). It is the act of creating output, a
good or service which has value and contributes to the utility of
individuals.

Source: Armstrong, G., Adam, S., Denize, S. and Kotler, P. (2014). Principles of
Marketing, 6th ed. Pearson Education Australia/Prentice Hall.

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DEFINITION OF PRODUCTION PROCESS
▪ The production process is the way that businesses create
products.
▪ The process involves transforming a range of inputs into
the market's required outputs.

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THREE MAIN PARTS TO THE PRODUCTION PROCESS

Inputs
▪ Labour Transformation
▪ Land Outputs
▪ Product Design ▪ Finished Goods
▪ Machinery ▪ Process Planning
▪ Raw materials ▪ Services
▪ Production Control
▪ Capital ▪ Maintenance
▪ Information

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 THREE MAIN PARTS TO THE PRODUCTION
PROCESS (CONT.)
▪ A firm must purchase all the necessary inputs and
transform them into the product (outputs) it wishes to sell.
▪ For example, a football shirt manufacturer must buy the fabric, pay
someone for a design, invest in machinery, rent a factory, employ
workers to make the football shirts, and then sell them.

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FOOTBALL SHIRT MANUFACTURING PROCESS

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THREE MAIN PARTS TO THE PRODUCTION
PROCESS (CONT.)
The process involves two main sets of resources:

1) The transforming resources include the buildings,

machinery, computers, and people that carry out the
transforming processes.
2) The transformed resources transform raw materials
and components into end products.

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THREE MAIN PARTS TO THE PRODUCTION
PROCESS (CONT.)
▪ Any production process involves a series of links in a
production chain.
▪ At each stage, a firm adds value in the course of production.
▪ Adding value involves making a product more desirable to
a consumer so that they will pay more for it.

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THREE MAIN PARTS TO THE PRODUCTION
PROCESS (CONT.)
▪ Adding value, therefore, is not just about manufacturing but
relates to all processes, e.g. advertising, promotion, and
distribution, that make the final product more desirable.
▪ Businesses need to identify the processes that add value to
enhance these processes for the benefit of the business.

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PRODUCTIVE EFFICIENCY
▪ How well-organised a firm is undertaking this
transformation process will determine its success.
▪ It is known as the productive efficiency of a firm, and it will
want to be as efficient as possible in transforming its inputs
into outputs (i.e. using the minimum number of inputs
possible to achieve a set production).
▪ The productive efficiency will reduce the cost per unit of
production and allow the firm to sell at a lower price.

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OBJECTIVE OF THE PRODUCTION
PROCESS
▪ Ultimately, the objective of the production process is to
create goods and services that meet the needs and wants of
customers.
▪ A business can meet the needs and wants of customers
when the business can produce the correct number of
products in the shortest possible time, of the best quality,
and all at a competitive price.

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PRODUCTION AND RESOURCE
REQUIREMENTS
▪ Production consists of all those processes that involve
converting inputs into finished outputs and selling them in
the marketplace.
▪ In order to carry out production activities, a business needs
to use up resources.
▪ What, then, are the typical resources used in the production
process?

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PPM is a measure of the
number of defects in a
process or product.

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 Flour Sifters Sugar Grinder and Biscuit Grinder

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 Biscuit Laminator

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 Gauge Rolls Machine

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 Biscuit Moulders

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 Biscuit Cooling Conveyer

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 Biscuit Horizontal Flow from Wrap

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 Biscuit Carton Sealing

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PRODUCTION AND RESOURCE
REQUIREMENTS (CONT.)
Example: producing biscuits in a factory.
The essential resources that a business needs to produce
biscuits include:
1) raw materials - e.g. sugar, dough, water, currants, chocolate, and other
related materials.
2) people - the employees that are involved in running the machinery
3) machinery - to mix the ingredients, cook the biscuits, pack the biscuits
and check on quality
4) finance - the wages of the employees, the cost of the raw materials, and
the purchase of the machinery will all need financial resources

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PRODUCTION AND RESOURCE
REQUIREMENTS (CONT.)
Example of Biscuit Production
5) time - is a resource that a business often neglects.
However, the timing of operations requires planning and
organising
6) plant - the building in which the production process takes
place
7) land - on which a business builds its plant
8) marketing and advertising resources
9) managerial resources
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PRODUCTION AND RESOURCE
REQUIREMENTS (CONT.)
▪ When considering the list, we discover that it is pretty extensive.
▪ To ensure that a business produces biscuits in the required way
and, when required, needs organisation.
▪ Production planning is organising the production process so the
business can manage all the various parts in a structured way.
▪ The business needs to set out production schedules, and the
company usually creates using a diagrammatic format with numbers
written in to show the quantities of the various resources required at
particular times.

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PRODUCTION AND RESOURCE
REQUIREMENTS (CONT.)
▪ Production managers are responsible for production
planning.

▪ Nowadays, companies carry out a lot of production

planning using Information and Communications
Technology (ICT) packages.
▪ It allows the companies to use such techniques as Just-In-Time
production when they carefully specify the timing of the use of
production resources in diagrams.

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AIMS AND FUNCTIONS OF PRODUCTION
DEPARTMENT
▪ Production is the functional area that turns inputs into
finished outputs through production processes.
▪ The Production Manager ensures that raw materials are
provided and made into finished goods effectively.
▪ The Production Manager must ensure that the production line
carries out all work smoothly and supervise procedures to
make work more efficient and enjoyable.

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FIVE PRODUCTION SUB-FUNCTIONS
In a manufacturing company, the company will split
production functions into five sub-functions:
1) The production and planning department will set
standards and targets for each production process section.
▪ The quantity and quality of products come off a production line,
which the company must closely monitor.
▪ In businesses that concentrate on lean production, it is common
practice for all employees to monitor the quality of each production
stage rather than checking at the end, which is typically the case
for companies that adopt a quality control approach.

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FIVE PRODUCTION SUB-FUNCTIONS
(CONT.)
2. The purchasing department is responsible for ensuring
the timely and quality delivery of materials, components,
and equipment necessary for the smooth operations of the
production process.

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FIVE PRODUCTION SUB-FUNCTIONS
(CONT.)
3. The store department will be responsible for keeping all
the required tools, spares, raw materials, and equipment
necessary to maintain the manufacturing process.
In cases where sourcing becomes unreliable, it would be
essential to maintain buffer stocks.
Computerised stock control systems can help control stocks
at minimal but necessary levels to ensure that production
continues without interruptions.

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FIVE PRODUCTION SUB-FUNCTIONS
(CONT.)
4. The design and technical support department will
research new products or modifications and provide cost
estimates for production using different methods and
quantities.
They will also design, test, and develop new product
processes, types, and prototypes.
Additionally, the technical support department may suggest
improvements to work practices.

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FIVE PRODUCTION SUB-FUNCTIONS
(CONT.)
5. The works department is responsible for product
manufacturing, production line maintenance, repairs, quality
control, and inspection.
A crucial aspect of modern production is to ensure that all
product quality meets requirements, meaning that a product,
process, or service should perform as expected.

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LEAN PRODUCTION
▪ Lean production involves producing goods and services
while eliminating waste, resulting in a more efficient and
profitable process.

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 LEAN PRODUCTION (CONT.)
Example:
▪ The Jaguar car production plant at
Castle Bromwich, near
Birmingham, has adopted the lean
production approach to design its
production line.
▪ In the past, Jaguar production took
up significantly more factory
space due to stock and supply
storage on the factory floor.
▪ Nowadays, all stocks are kept in a
separate storage area and
delivered just in time to support
the production process.

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LEAN PRODUCTION (CONT.)
Kanban
▪ The production line operatives work with only the minimum
amount of required stocks.
▪ They use a signalling system called 'kanban' to inform the
stores if they need further supplies.
▪ 'Kanban' is a Japanese word that means a card or signal.
▪ This system is used in factories to notify the next
production stage that they require more materials,
components, or parts.

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LEAN PRODUCTION (CONT.)
Kanban
▪ A Kanban is a card staff use to instruct suppliers to send
more materials.
▪ However, Kanbans can take different forms.
▪ Some Japanese companies use solid plastic markers or
coloured ping-pong balls to represent different parts.

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LEAN PRODUCTION (CONT.)
The advantages of lean production include reduced or
eliminated waste, lower costs resulting in higher profits, a
cleaner and less cluttered work environment that is easier to
operate in, decreased damage to equipment and inventory,
and fewer workplace accidents.

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CHAIN OF PRODUCTION
▪ The production chain comprises the different stages
involved in creating a specific product.
▪ For example, the production chain for furniture may include
the following steps:

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 CHAIN OF PRODUCTION (CONT.)

[1] Growing trees and

limbering of timber

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 [2] Sawing up of timber in Sawmill
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 [3] Seasoning of timber

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 [4] Construction of furniture by carpenters
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 [5] End product
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CHAIN OF PRODUCTION (CONT.)
▪ The production chain consists of a series of stages that
increase the value of the final product.
▪ The trees in the forest may have limited value, but when a
company processes them through sawing, seasoning, and
construction, their value multiplies several times.

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CHAIN OF PRODUCTION (CONT.)
Adding value
▪ Adding value means increasing the worth of a product for
the buyer.
▪ For instance, if a sawmill acquires trees for £10,000 and
sells them for £25,000, it has added £15,000 worth of value.
▪ Apart from the production stages, we also need to consider
the distribution chain that involves transportation and
communication as the goods reach the end retailer.

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CHAIN OF PRODUCTION (CONT.)
Adding value
▪ Value-added tax is the value the producers added each
stage of production, which the end customers have to pay
the added value.
▪ It is important to note that service industries add value.
▪ For example, in a restaurant, the service of the cook and the
waiter or waitress makes the raw ingredients that initially
made up the meal much more desirable.

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CALCULATING COSTS OF PRODUCTION
Costing plays a crucial role in production because it serves the
following purposes:
1) It enables us to determine the appropriate price for a product or
service by calculating the cost of producing it or carrying out an
activity.
2) It helps us identify the specific items or activities that contribute to
an organisation's total cost, production line, or process.
3) It allows us to pinpoint and eliminate any costs deemed excessive.
4) It provides us with the means to compare the costs of various
activities.

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CALCULATING COSTS OF PRODUCTION
Two main types of costs are associated with production:
direct and indirect.
[1] Direct costs are those that a company can directly
attribute to the production of each unit of output.
For example, when producing a car, a company like Audi
will incur direct material costs, such as metal and plastic,
and direct labour costs, such as the number of labour hours
multiplied by the average wage.

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CALCULATING COSTS OF PRODUCTION
2) Indirect costs refer to the overhead expenses incurred
during the production of cars, such as factory lighting,
rent, and management salaries.
The company must suitably distribute these costs to the
products manufactured.
For instance, an accountant will calculate the indirect
costs allocated to each car produced.

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CALCULATING COSTS OF PRODUCTION
(CONT.)
Costing
After assessing the direct and indirect costs, essential decisions can
be made, such as determining the appropriate price to charge
customers for each car produced, identifying which products to
expand production of and which to decrease, and finding ways to
save on production costs.

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CALCULATING COSTS OF PRODUCTION
(CONT.)
Costing
Costing is a crucial aspect of production that helps
determine profitable output and areas for reducing wasteful
production.

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LOCATION OF PRODUCTION
An ideal production location should include one or more of the following factors:
1. Proximity to the point of sale: The closer the production location is to the sales
point, the more productive it will be.
2. Proximity to raw materials: Being close to the sources of raw materials will help
increase productivity.
3. Located away from residential areas: A production facility that is noisy or
environmentally unfriendly should be situated away from population centres.
4. Access to skilled labour: A production facility should be located near a source of
skilled labour to ensure that it has the necessary workforce.
5. Adequate space for expansion: A production location should have enough space
for expansion if the business grows.
6. Good communication links: A production location should have good
communication links to ensure the business can communicate with suppliers,
customers, and other stakeholders.
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DOCUMENT AND DATA FLOW IN PRODUCTION
PROCESS
1. A Planned Order Document is a request to produce a
specified quantity of goods, similar to a purchase
requisition. The company uses the document for
materials made within the company.
2. A production controller creates a Production Order
Document to turn planned orders into actual
manufacturing processes.

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DOCUMENT AND DATA FLOW IN PRODUCTION
PROCESS (CONT.)
3. A Material Withdrawal Slip is a document that lists all the
necessary materials required to produce the specified
quantity of finished goods mentioned in the production
order.
4. A Goods Receipt Document is a record kept for the
warehouse.

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DATA FLOW

Warehouse Production Warehouse Production Warehouse

Request Authorise Issue raw Create Receive

production production materials production finished goods

Production
order Material Production Goods
Planned
withdrawal order receipt
order
slip
Material
withdrawal
slip

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