Production

Making Things People Need and Want

Imagine you're crafting a custom sandwich for a friend. You're picking the best ingredients, putting them together, and presenting it to make your friend's lunchtime special. This process is a bit like production in the business world.

What's Production?

Production is the process of creating goods (like sandwiches) or providing services (like delivering that sandwich right to your friend's desk) that people need or want.

Production of Goods and Services

Goods are physical items, like food from a food truck or a smartphone. Services are activities done for others, like teaching a cooking class or fixing a car. Both goods and services exist to fulfill human wants and needs, making our lives easier, better, or more enjoyable.

Managing Resources Effectively

To make goods or provide services, businesses need to manage resources effectively. This includes materials (like bread and cheese for sandwiches), labor (the people who make the sandwiches), and capital (equipment like ovens and delivery scooters). Efficiently using these resources means the business can produce more and waste less.

Production vs. Productivity

Production is about the output—how many sandwiches are made in a day. Productivity measures how well resources are used. If a food truck uses the same amount of cheese and bread to make more sandwiches than yesterday, its productivity has increased.

Influences on Production and Productivity

Several factors can affect both:

Technology: Using better kitchen equipment can speed up sandwich making.
Skills and Training: Teaching staff new, faster sandwich-making techniques can boost productivity.
Quality of Materials: Higher quality bread might not only taste better but could also be easier to slice and handle, speeding up production.

Boosting Efficiency, Managing Inventories, and Embracing Lean Production

When running a food truck, or any business, making things better, faster, and more cost-effective is always on the menu. Let’s break down how businesses can crank up efficiency, manage their inventories smartly, and slim down waste through lean production.

Benefits of Increasing Efficiency and How to Do It

Efficiency means doing things in a way that saves time, money, or effort. For a food truck, this could mean:

Automation and Technology: Using a digital inventory tracking system instead of counting supplies by hand saves time and reduces errors.
Improved Labour Skills: Training your team to work faster and multi-task, like prepping veggies while waiting for the grill to heat up, can serve customers quicker.

Benefits: More efficiency means your food truck can serve more delicious tacos or burgers faster to happy customers, boosting sales and keeping costs down.

Why Businesses Hold Inventories

Inventories are the supplies and ingredients you keep on hand. Businesses hold inventories for a few reasons:

Meet Demand: Having enough cheese and buns on hand means you can keep making burgers during a lunch rush without running out.
Deal with Delays: If your bread delivery gets stuck in traffic, having an extra stock means you can still keep serving sandwiches.

Challenges: Too much inventory can be a problem too—it takes up space and, if not used, can go to waste, like lettuce wilting in the fridge.

The Concept of Lean Production

Lean production is all about doing more with less—less time, fewer resources, and minimal waste. It’s like creating a perfect meal using only the necessary ingredients, nothing more.

Just-in-Time (JIT) Inventory Control: This means getting ingredients just when you need them, not weeks before. For a food truck, it’s like ordering fresh buns and veggies for the next day’s sales, so everything’s fresh and there’s no waste.
Kaizen: A Japanese term meaning “continuous improvement.” It’s about always looking for ways to do things better. Maybe it’s rearranging your truck for faster food prep or finding a quicker cleaning method at the end of the day.

Benefits: Lean production can lower costs (because you’re not wasting money on unused stock), improve quality (since ingredients are fresher), and make customers happier (with quicker service).

Applying These Concepts to a Food Truck Business

Imagine "Tasty Travels," a food truck that wants to up its game:

They implement technology with a new app that predicts the busiest times and what menu items will be most popular, helping plan exactly how much of each ingredient to stock.
They train their staff to not only cook but also manage inventory and interact with customers, making the team more versatile and the service smoother.
Tasty Travels adopts a just-in-time approach by partnering with local suppliers who can deliver fresh produce and meats daily, reducing waste and ensuring top-notch ingredients.
They embrace Kaizen by holding monthly meetings where the team suggests and implements small changes to improve efficiency and customer satisfaction.

Understanding Demand for Factors of Production

When starting a business, like a food truck, you need several key ingredients—not just the kind you cook with, but resources known as factors of production: land (or a parking spot for your truck), labor (people to cook and serve), and capital (the truck and cooking equipment). How much of these you need and how you use them can depend on a few important factors.

Influences on Demand for Factors of Production

Demand for the Product: If everyone’s craving your gourmet tacos, you’ll need more ingredients (land), more chefs and servers (labor), and maybe even a second food truck (capital).
Price of Different Factors: If the rent for parking spots skyrockets, or if chefs' salaries go up, it might affect how you run your truck. Maybe you find a cheaper spot or streamline your menu to require less labor.
Availability: If there’s a shortage of food trucks for sale, you might need to start smaller or look into leasing. Similarly, if there’s a limited supply of the perfect parking spots, you might need to adjust your location strategy.
Productivity: If new kitchen tech or a more efficient layout lets you cook faster with less waste, you can serve more customers without increasing costs.

Labour-Intensive vs. Capital-Intensive Production

Labour-Intensive Production

This means relying more on human effort than on machines. For a food truck, it’s about having a big team doing everything from cooking to serving to cleaning.

Advantages: It can be more flexible and personal. You can quickly train staff for a new menu item or to provide special customer service.
Disadvantages: It can be costly, especially if wages are high, and it might limit how quickly you can serve during peak times.

Capital-Intensive Production

This approach leans more on machinery or equipment. Think of installing high-tech kitchen gadgets in your food truck that can cook faster or more efficiently.

Advantages: It can lower long-term costs since machines can work faster and don’t get tired. Plus, it can ensure consistent food quality.
Disadvantages: The upfront cost can be high, and if the technology becomes outdated or breaks down, it can be expensive or disruptive to update or repair.

Choosing Between Labour-Intensive and Capital-Intensive Production

Choosing between these methods depends on what’s right for your business at its current stage and future goals.

For a New Food Truck: Starting labour-intensive might make sense, focusing on building a brand and customer experience with a hands-on team.
Expanding: As you grow, investing in capital-intensive methods might help scale up, allowing you to serve more customers efficiently.

Lean Production

Lean production is like organizing a really efficient and tidy kitchen for your food truck, where everything has its place, waste is minimal, and every action is streamlined to serve customers quickly with the best quality food. Let’s dig into what lean production is all about and how it can be a game-changer for businesses, especially food trucks.

The Aims and Purposes of Lean Production

Lean production is a method used by businesses to maximize value for customers while minimizing waste. The main goals are to:

Reduce Waste: This isn't just about physical waste but also time, effort, and resources that don't add value to the customer.
Improve Quality: Ensuring the products or services are top-notch and meet customer expectations.
Increase Efficiency: Making processes faster and smoother, so customers get what they want quicker.

Strategies to Achieve Lean Production

Kaizen (Continuous Improvement): This is about always looking for small ways to make things better. For a food truck, it could mean rearranging the workspace to make sandwich assembly faster.
Quality Circles: Small teams that focus on solving problems and improving quality. Imagine your food truck staff meeting weekly to brainstorm how to keep the kitchen cooler on hot days.
Simultaneous Engineering: Designing processes to work together more efficiently. It's like planning how to cook and pack meals at the same time to speed up delivery.
Cell Production: Organizing workstations so that everything needed to complete a task is within reach, reducing movement and time. Think of a mini assembly line inside your food truck where one person preps veggies, another grills, and another assembles the final product.
Just-In-Time (JIT) Manufacturing: Ordering supplies only as needed to reduce storage space and waste. This means buying fresh ingredients daily based on expected sales.
Waste Management: Actively identifying and eliminating waste in processes, from unused ingredients to inefficient cooking methods.

Limitations of Operational Strategies

While these strategies offer many benefits, there are some limitations, such as:

Initial Costs: Implementing these strategies can be expensive and time-consuming at first.
Dependency on Suppliers: JIT manufacturing requires reliable suppliers. If they're late, it could mean you have no ingredients to cook with.
Resistance to Change: Employees might resist new methods or find them challenging to adopt.

The Links Between Lean Production and Business Aspects

Lean production ties closely to several key aspects of running a business:

Inventory Control: By using JIT, you keep inventory low, reducing costs and waste.
Quality: Continuous improvement and quality circles help maintain high standards.
Employee Roles: Workers are more engaged and empowered to suggest improvements.
Capacity Management: Efficient processes mean you can serve more customers without increasing costs or space.
Efficiency: Every aspect of lean production is about doing more with less, making your food truck or business run smoother and faster.

By applying lean production principles,

Specialisation and Division of Labour

Imagine a food truck where one person is a whiz at grilling burgers, another is super fast at chopping veggies, and someone else is a pro at taking orders. This is a simple example of specialisation and division of labour. Let's break down these concepts and see how they play out in different settings, from individual roles to global economies, and explore their pros and cons.

Specialisation and Division of Labour Explained

Specialisation is when a person, business, or country focuses on producing a particular product or service. For our food truck, it means one person specializes in cooking, another in customer service.
Division of Labour is the process of dividing work into unique tasks performed by different people. It’s like having a separate chef, server, and cashier in a food truck, instead of one person doing everything.

Different Forms of Specialisation

Country: A country might specialize in what it can produce best, like France is known for wine.
Region: A particular area might be known for a specific product, like Silicon Valley for tech innovation.
Town: Some towns become known for a particular industry, like Hollywood for movies.
Firm: A company might specialize in a certain type of food, like a food truck that only serves vegan dishes.
Factory: Within a manufacturing setting, a factory might only produce one part of a product, like tires for cars.
Individual: A worker might specialize in a specific skill, like an expert barista in a coffee shop.

Advantages and Disadvantages of Division of Labour

For a manufacturer:

Advantages:
- Efficiency: Workers become highly skilled at their tasks, speeding up production.
- Costs: Lower training costs and higher productivity can reduce overall costs.
Disadvantages:
- Monotony: Doing the same task repeatedly can become boring for workers.
- Dependency: The production process might halt if one specialized worker is absent.

For a worker:

Advantages:
- Skill development: Specializing in a task can lead to high skill levels.
- Job satisfaction: Being an expert in a role can be fulfilling.
Disadvantages:
- Lack of variety: Repetitive tasks can lead to job dissatisfaction.
- Job security: Changes in technology or demand can make specialized skills obsolete.

Impact on Workers, Firms, and the Economy

Workers: Specialisation can lead to better wages for those with highly developed skills but may also result in job dissatisfaction due to repetitive tasks.
Firms: By adopting division of labour, firms can increase productivity and reduce costs, but they also face the risk of workflow disruptions if a specialized worker is unavailable.
Economy: Specialisation can lead to increased efficiency and economic growth. However, it can also lead to economic vulnerabilities if a country or region relies too heavily on one industry or product.

Costs of Production

First, we need to understand the different types of costs:

Fixed Costs (FC): These are costs that don't change, no matter how many burgers you sell from your food truck. Examples include the monthly payment for the food truck and insurance.
Variable Costs (VC): These costs vary depending on how much you're selling. For every burger sold, costs like ingredients and packaging would be considered variable costs.
Total Cost (TC): This is the sum of fixed and variable costs.
Average Total Cost (ATC): This is the total cost divided by the number of items sold.
Average Fixed Cost (AFC): This is the fixed cost divided by the number of items sold.
Average Variable Cost (AVC): This is the variable cost divided by the number of items sold.

Calculating Costs of Production

To calculate these costs, you'll add up your fixed and variable costs to find your total cost. Then, you can find your average costs by dividing the total cost by the number of items you plan to sell.

Drawing and Interpretation of Cost Diagrams

Diagrams can help us see how costs change as we sell more. As we sell more burgers, our total costs go up, but our average costs per burger might go down because the fixed costs (like the truck) are spread over more sales.

Revenue

Total Revenue (TR): This is the total amount of money made from selling burgers.
Average Revenue (AR): This is the average amount made per burger sold.

Calculating Revenue

To calculate total revenue, you multiply the number of burgers sold by the price per burger. Average revenue is found by dividing total revenue by the number of burgers sold.

Making Cost-Based Decisions

Let's say you're deciding whether to attend a big event with your food truck. By understanding your costs and expected revenue, you can decide if the event will cover your costs or even make a profit.

For instance, if your fixed costs for the event are $200 (permit and extra staff) and your variable costs are $2 per burger (ingredients and packaging), you need to sell enough burgers to cover these costs. If you sell each burger for $5, you can calculate how many you need to sell to break even or make a profit.

Break-Even Analysis

Break-even analysis tells you how many burgers you need to sell to cover all your costs. At this point, your total revenue equals your total costs, and you make no profit but also no loss. It's a crucial calculation for planning and decision-making in your food truck business.