10.2 The Production Process: How Do We Make It?

One for All: Mass Production

Mass production, manufacturing many identical goods at once, was a product of the Industrial Revolution. The Model-T automobile developed by Henry Ford in the early 1900s is a good example of early mass production. Each car turned out by Ford’s factory was identical, right down to its color. If you wanted a car in any color except black, you were out of luck. Electronics, clothing, processed food products, and appliances are other examples of goods that are mass-produced. The emphasis in mass production is on keeping manufacturing costs low by producing uniform products using repetitive and standardized processes. As products became more complicated to produce, mass production also became more complex. Appliance manufacturers, such as Whirlpool, must now incorporate sophisticated technologies like smart phone integration into their designs. As a result, the types of assembly stations and training needed have evolved.

Just for You: Customizing Goods

In mass customization, goods are produced using mass-production techniques, but only up to a point. At that point, the product or service is custom-tailored to the needs or desires of individual customers. For example, American Leather, a Dallas-based furniture manufacturer, uses mass customization to produce couches and chairs to customer specifications within 30 days. The basic frames in the furniture are the same, but automated cutting machinery precuts the color and type of leather ordered by each customer. Using mass-production techniques, they are then added to each frame.

Customization is the opposite of mass production. In customization, the firm produces goods or services one at a time according to the specific needs or wants of individual customers. Unlike mass customization, each product or service produced is unique. For example, a local jewelry store may specially design and produce jewelry for their customers. This could include rings, necklaces, cuff links, watches, and earrings. Each customer order varies based on the design of the piece, quantity needed, and the materials used to produce the item. A manufacturing firm that produces goods in response to customer orders is called a job shop.

Some types of service businesses also deliver customized services. Doctors, for instance, must consider the illnesses and circumstances of each individual patient before developing a customized treatment plan. Real estate agents may develop a customized service plan for each customer based on the type of house the person is selling or wants to buy. The differences between mass production, mass customization, and customization are summarized in Exhibit 10.5.

Converting Inputs to Outputs

As previously stated, production involves converting inputs (natural resources, raw materials, human resources, capital) into outputs (products or services). In a manufacturing company, the inputs, the production process, and the final outputs are usually obvious. Harley-Davidson, for instance, converts steel, rubber, paint, and other inputs into motorcycles. But the production process in a service company involves a less obvious conversion. For example, a medical center converts the knowledge and skills of its medical personnel, along with equipment and supplies from a variety of sources, into health care services for patients. Table 10.1 provides examples of the inputs and outputs used by various other businesses.

There are two basic processes for converting inputs into outputs. In process manufacturing, the basic inputs (natural resources, raw materials) are broken down into one or more outputs (products). For instance, wood pulp (the input) is processed to make paper products such as paper towels or tissues (the output). The assembly process is just the opposite. The basic inputs, like natural resources, raw materials, or human resources, are either combined to create the output or transformed into the output. A cellphone, for example, is created by assembling thousands of parts, which are its raw material inputs. Steel manufacturers use heat to transform iron and other materials into steel. In services, customers may play a role in the transformation process. For example, a financial advisor combines their knowledge and expertise with the client's information about their personal finances in order to assist the client with retirement investments.

Production Timing

A second consideration in choosing a production process is timing. A continuous process uses long production runs that may last days, weeks, or months without equipment shutdowns. This is best for high-volume, low-variety products with standardized parts, such as paper towels, personal care items, and office supplies. Some services also use a continuous process. Household utility companies that deliver gas, electricity, water, and internet are examples. Per-unit costs are low, and production is easy to schedule.

In an intermittent process, short production runs are used to make batches of different products. Machines are shut down to change them to make different products at different times. This process is best for low-volume, high-variety products such as those produced by mass customization or customization. The jewelry store discussed previously is an example of a firm using an intermittent process. Based on the product they are producing, they may utilize different equipment and materials at different times.

Although some service companies use continuous processes, most service firms rely on intermittent processes. For instance, a salon providing a variety of services to clients such as coloring or styling, surgeons performing medical procedures, and financial advisors offering different investment products to suit each customer utilize an intermittent process. Note that their “production runs” may be very short—one grilled salmon or one physical exam at a time.