Chapter 41 · Production and Productivity
Learn when to use job, batch or flow production, how to calculate productivity, and why changes in working methods affect a business and its stakeholders.
Learning objectives
- Understand job, batch and flow production processes.
- Understand labour-intensive and capital-intensive production.
- Understand the impact of different production methods.
- Understand how to calculate labour and capital productivity.
- Understand the impact of productivity improvements.
Job Production
Businesses transform materials, labour, machinery and expertise into goods or services. The method of production determines how much can be made, the speed of supply, required skills and costs. A custom suit and a factory-made chocolate bar illustrate very different methods.
Getting Started: M.K. Siddiqi
M.K. Siddiqi offers an example of job production through custom-made suits in Chittagong, Bangladesh. Historical accounts describe long experience in the same workshop, production of individual suits in under 48 hours and nearly 10,000 suits made. Each customer chooses fabric, style and size.
- Advantages: individual customer requirements can be met, quality can be high and skilled employees may feel motivated by varied work.
- Disadvantages: output is relatively slow, specialised skills can be expensive, and long lead times may make orders costly.
- Examples: bespoke suits, a wedding dress, a purpose-built office block, legal work and an individually designed advertisement.
A customer who wants a uniquely fitted wedding suit may pay more for Siddiqi’s work because the product is different from standardised suits. The higher price may be necessary to cover skilled labour and longer production time.
Batch Production
Batch production is used when there is demand for a number of identical products but the business may need to switch to a different design, flavour or specification later. A food producer might make one recipe of soup and then reconfigure the equipment for another recipe. One example involves aircraft-seat armrests made in batches of 2,000 as an engineering example.
Table 41.1: Batch Production Stages
| Operation | What happens |
|---|---|
| Laser cutting | The required shape is cut from metal sheet |
| Part marking | Each armrest receives an identifying number |
| Punching | Holes are created to reduce weight |
| Folding | Metal is folded into the required shape |
| Assembly | Components and fasteners are joined |
| Plating | A zinc coating is applied |
| Packaging | Finished armrests are packed for transport |
For each batch, operations can be organised in sequence. A larger batch may spread set-up costs over more units, but more work-in-progress may be held while the whole batch completes an operation.
Example: Mars, Incorporated
A useful contrast is between individually tailored suits and mass-produced confectionery. At large producers such as Mars, sweets and snacks can be made in high volumes using specialised machinery, unlike one-off designs tailored to a single customer.
Flow Production
Flow production is most appropriate when a business has a large, fairly predictable market for standardised output. Production is continuous, workers and machinery specialise in particular operations, and businesses can benefit from lower average costs at high output.
- Large quantities of similar products are manufactured.
- Work moves through stages continuously, so the business needs reliable equipment and a steady supply of resources.
- Machinery and capital investment are usually substantial.
- Workers may specialise in a limited number of tasks.
Repetitive and Process Production
Repetitive flow production produces many items of the same type, such as plastic toy components or food cans. Process production changes materials through a sequence of chemical or industrial processes, for example refining crude oil into usable fuels. Both are types of flow production in the example.
Activity 1: Saudi Aramco
Oil refining uses linked processing stages, such as heating crude oil in a fractional-distillation column. Different materials are separated and treated before finished fuels and other products are collected. Large-scale refineries can achieve high output but require extensive capital investment.
Continuous oil refining can achieve very high output and low unit costs, but costly machinery, maintenance and disruption risks make reliability especially important. The financial and production figures are historical data.
Labour-intensive and Capital-intensive Production
Businesses choose combinations of labour and machinery based on production requirements, resource availability and cost. Handmade tailoring is relatively labour-intensive, whereas highly automated chocolate manufacture and oil refining are capital-intensive. A labour-intensive method is not automatically better or worse; its suitability depends on the kind of product and the business.
| Consideration | Labour-intensive | Capital-intensive |
|---|---|---|
| Typical resource | Skilled or semi-skilled people | Specialised machines and plant |
| Flexibility | People may adapt individual orders | Machines are effective for repeated output but changes may require retooling |
| Costs | Wage and training expenses | Investment, maintenance and energy expenses |
| Suitable example | Tailoring and personal services | Large-scale food production and refining |
For a unique service, human judgment and customisation may be important. For standardised output demanded in large quantities, machinery may provide greater speed and consistency.
The Impact of Using Different Types of Production
The choice between job, batch and flow production affects quality, flexibility, employee experience, the cost of production and production delays. The best method depends on product type, market demand and available finance.
Job Production: Advantages and Disadvantages
- Benefits: custom-made products, potentially high quality, varied and satisfying work.
- Limitations: higher unit costs, slower production and longer lead times.
Batch Production: Advantages and Disadvantages
- Benefits: more output and some specialisation while allowing different designs or recipes between batches.
- Limitations: planning between stages can be difficult; small batches may have high unit costs and goods can wait as work-in-progress.
Flow Production: Advantages and Disadvantages
- Benefits: high output, speed and lower unit costs once a production line is operating.
- Limitations: expensive start-up, potentially repetitive work and costly interruption if machinery breaks down.
| Method | Typical order size | Variation | Main trade-off |
|---|---|---|---|
| Job | One or a small number | High | Customisation but higher unit cost |
| Batch | Groups of similar items | Medium, between batches | Flexibility but coordination and set-up time |
| Flow | Large continuous quantities | Usually lower | Low unit cost but expensive plant and stoppage risk |
Halfway questions
Try each question yourself before choosing Show suggested answer. Explain calculations and apply your answers to the case studies.
Why is job production appropriate for M.K. Siddiqi?
Show suggested answer
Each suit has different customer requirements. Making one custom suit at a time allows him to meet precise sizes, styles and quality expectations.
Explain how batch production differs from flow production.
Show suggested answer
In batch production a group of items completes each stage before production changes to the next group or specification. Flow production runs standardised output continuously through a series of operations.
What happens during the plating stage of the armrest example?
Show suggested answer
The armrest receives zinc plating, as shown in Table 41.1.
Give one advantage and one disadvantage of flow production for Saudi Aramco.
Show suggested answer
High continuous output can lower unit costs. However, breakdowns or maintenance problems can halt linked processes and be expensive.
How might workers experience job production differently from flow production?
Show suggested answer
Job production often involves skilled, varied work with responsibility for a whole product. Flow production may involve repetitive, specialised tasks; some workers may find this less motivating.
A manufacturer requires many identical units and can afford machinery. Which method is most suitable, and why?
Show suggested answer
Flow production is a plausible choice because continuous, standardised large-scale output can lower unit costs. The business must also manage initial investment and breakdown risk.
Productivity
Output can increase when more inputs are used or when the same resources work more efficiently. Productivity measures output per unit of input rather than total output alone. Labour productivity = Output ÷ Number of workers.
Calculating Labour Productivity
Labour productivity = Total output ÷ Number of workers. Give the units as products per worker for the period being measured.
The racing-cycle factory example reports 12,000 cycles made by 20 workers in 2015, and 15,000 cycles made by 24 workers in 2016.
| Year | Output | Workers | Output per worker |
|---|---|---|---|
| 2015 | 12,000 cycles | 20 | 600 cycles |
| 2016 | 15,000 cycles | 24 | 625 cycles |
Labour productivity increased from 600 to 625 cycles per worker, an increase of 25 cycles or approximately 4.17%, even though the number of workers also increased.
The printed calculation box displays “635 cycles per worker” for 15,000 ÷ 24, but the arithmetic result is 625, which is also the figure stated in its concluding sentence. The lesson uses 625 for this calculation.
Calculating Capital Productivity
Capital productivity measures output generated by capital employed: Capital productivity = Total output ÷ Capital employed. Comparisons are meaningful only when capital is measured consistently.
Activity 2: Huber
Huber, a German-based container manufacturer, considered closing one of four factories as demand weakened. The following historical example provides output and workforce data for comparing labour productivity.
| Factory | Output | Workers | Labour productivity |
|---|---|---|---|
| India | 28,500 | 150 | 190 |
| Germany | 54,000 | 270 | 200 |
| China | 79,050 | 310 | 255 |
| Brazil | 46,000 | 200 | 230 |
The Indian factory has the lowest output per worker in the table (190). Huber might therefore review it first, but a responsible closure decision would also consider demand, unit costs, quality, transport, employment effects and other non-financial factors.
Increasing Labour Productivity
Increasing labour productivity means achieving more output per worker. Businesses can improve it through training, better machinery, incentives, improved organisation and reductions in wasted time.
Training, Motivation and Organisation
- Education and training: improve employee skills, accuracy and use of equipment.
- Financial incentives: piece rates, performance-related pay or profit sharing may encourage effort where appropriate.
- Non-financial incentives: job rotation, teamwork and meaningful responsibility can improve motivation.
- Better organisation: improve factory layout, workstation placement and workflow to reduce avoidable delays.
- Labour flexibility: train employees to perform different tasks and, where suitable, introduce flexible start and finishing times (flextime).
These methods can raise efficiency, but each has costs or limits. Training may take time, incentive pay may not suit every role, and reorganisation may initially disrupt production.
If a batch-production workshop trains its staff to operate two machines, workers can be moved temporarily to the stage where work is accumulating, helping reduce delays between operations.
Increasing Capital Productivity
Capital productivity can improve when existing equipment produces more output, new technology is introduced or machinery is used more efficiently. Businesses can also make broader operational changes to lower production costs and reduce wasted resources.
Downsizing
Downsizing reduces business capacity, often by closing units or laying off employees. It may reduce operating costs and stop profitable departments from supporting consistently loss-making ones, but it can harm morale and lead to lost skills.
Relocation
A company may move production to take advantage of cheaper premises, wages, transport or other resources. One example involves factories and call centres in different countries as examples. Relocation has transition costs, risks and effects on existing workers.
Outsourcing
Outsourcing means giving work previously performed by the business to a specialist external firm. For example, a manufacturer may use a transport company for distribution instead of operating its own fleet. This may cut costs, but requires careful control of quality and reliability.
Lean Production
Lean production focuses on reducing the amount of resources and waste used in production. This chapter introduces it here and treats it fully in Chapter 42; this lesson retains only the introductory explanation given in Chapter 41.
The Impact on Business of Productivity Improvements
Improving productivity can affect profitability, competition, employees and customers. The outcome depends on how improvements are achieved and whether benefits outweigh the cost of the changes.
Financial Impact
More output from the same resources can lower costs per unit and increase profit. However, purchasing new machinery may reduce cash reserves, require borrowing or raise debt, especially before the equipment reaches full use.
Competitiveness
Lower unit costs or better quality can help a firm offer more competitive prices, attract customers and increase market share. More efficient production can also improve its ability to compete with firms in other countries.
Workforce
Employees may benefit from bonuses, training and more interesting work. Other changes can remove jobs, cause stress or reduce morale, particularly when productivity is raised through automation, outsourcing, relocation or downsizing. The business needs to manage these effects.
Customers
Customers may benefit from lower prices, faster service, improved reliability or better-quality products when productivity rises. These benefits are not guaranteed if the firm chooses not to pass cost savings on or if quality deteriorates.
| Stakeholder or issue | Possible benefit | Possible drawback |
|---|---|---|
| Business finances | Lower unit costs and stronger profit | Upfront investment, borrowing and cash-flow pressure |
| Competitiveness | Improved price or quality | Competitors may respond |
| Workers | Training, reward and more efficient work | Redundancy, disruption or repetitive jobs |
| Customers | Lower prices and improved service | Quality can suffer if changes are poorly managed |
Large vs Small Businesses
Large businesses producing huge amounts of standardised output are more likely to use flow production. Smaller businesses may choose job production because customers want individually tailored goods or because output is relatively low. Nevertheless, company size alone does not determine the right method: a major construction firm may still use job production for a one-off office building.
End-of-chapter questions
Try each question yourself before choosing Show suggested answer. Explain calculations and apply your answers to the case studies.
Define labour-intensive production and give one suitable example.
Show suggested answer
It uses relatively more labour than machinery or capital. M.K. Siddiqi’s bespoke tailoring is an example.
Compare one advantage of batch and flow production.
Show suggested answer
Batch production allows businesses to switch between designs or recipes between runs. Flow production supports continuous high-volume output and lower unit costs for standardised goods.
A cycling factory made 15,000 cycles using 24 workers. Calculate output per worker.
Show suggested answer
15,000 ÷ 24 = 625 cycles per worker.
Calculate Huber’s labour productivity in China and Brazil.
Show suggested answer
China: 79,050 ÷ 310 = 255 units per worker. Brazil: 46,000 ÷ 200 = 230 units per worker.
Huber’s lowest-productivity factory was in India. Should it automatically close that factory?
Show suggested answer
No. India has 28,500 ÷ 150 = 190 units per worker, the lowest figure; however, labour cost, product quality, orders, workforce welfare and transport costs could change the best decision.
Explain two methods of increasing labour productivity.
Show suggested answer
Training may improve employees’ skill and accuracy; better organisation of workflow reduces waiting. Motivation, flexibility and financial incentives are further methods.
Distinguish between downsizing and outsourcing.
Show suggested answer
Downsizing reduces the business’s capacity or workforce. Outsourcing transfers specific activities to an outside specialist under contract.
Give one financial benefit and one financial risk of investing in automated equipment.
Show suggested answer
It may lower unit costs and improve margins, but the equipment can require borrowing or spending cash before savings are realised.
Why might improved productivity benefit customers but harm some workers?
Show suggested answer
More efficient output can lower prices or improve quality for customers; automation or outsourcing may remove some jobs or reduce morale.
Explain why a manufacturer might switch from one-off job production to batch production as orders for standardised products increase.
Show suggested answer
Batch production can spread setup costs across several items, improve specialisation and reduce repeated design work. The manufacturer must still allow for changeovers and fluctuating orders.
Assess whether a growing manufacturer should invest in automated machinery to increase labour productivity.
Show suggested answer
Automation may increase output per worker, consistency and unit-cost savings, but has high upfront costs, training needs and the risk of underused capacity. The decision depends on demand, finance, quality and flexibility.
Chapter 41 recap
Businesses select job, batch or flow production to suit customer demand, resources, production costs and desired flexibility. Labour productivity = output ÷ workers, while capital productivity measures output relative to capital. Improvements in efficiency can lower costs and improve competitiveness, but may also require investment and affect employees.