MANUFACTURING PRODUCTION
Job Production
Job production involves
producing or responding to
one individual order. Think
bridges/ stadiums
Batch Production
Batch production is when a small
quantity of identical products are
made. Batch production may also be
labour intensive. Batches of the
product can be made as often as
required. The machines can be easily
changed to produce a batch of a
different product.
Flow (or mass) Production
The manufacturing of the
same good in large amounts
for a continuous period of
time.
Productivity
 Looks at how well resources such as raw
materials, labour and capital can be used to
produce a product or service.
 Firms might want to measure productivity to
improve control of the business and identify
strengths and weaknesses and to make
comparisons with competitors.
What are Economies of Scale?
Economies of Scale are the cost advantages that a business can exploit by expanding their scale of production in the long run. The effect is to reduce the long
run average (unit) costs of production over a range of output. These lower costs are an improvement in productive efficiency and can feed through to
consumers in the form of lower market prices. But they can also give a business a competitive advantage in the market. They lead to lower prices, but also higher
profits, consumers and producers will both benefit.
There are many different types of economy of scale and depending on the particular characteristics of an industry, some are more important than others. They are
the result of a complex series of factors which together form the benefits of operating on a bigger scale of production in the long run.
 Why can you now buy high-performance personal computers for just a few hundred pounds when a similar computer might have cost you over £2000 just a
few years ago?
 Why is it that the average market price of digital cameras is falling all the time?
The answer is that scale economies have been exploited bringing down the unit costs of production and gradually feeding through to lower prices for consumers.
Internal Economies of Scale (IEoS)
Internal Economies of Scale arise from the growth of the firm itself. Examples include:
 Technical Economies of Scale:
a. Large-scale businesses can afford to invest in expensive and specialist capital machinery. For Example, a national chain supermarket can invest in
technology that improves stock control and helps to control costs. It would not, however, be viable or cost-efficient for a small corner shop to buy this
technology.
b. Specialisation of the workforce: Within larger firms they split complex production processes into spate tasks to boost productivity. The division of labour
in mass production of motor vehicles and in manufacturing electronic products is an example.
c. The Law of Increased Dimensions. This is linked to the cubic law where doubling the height and width of a tanker or building leads to a more than
proportionate increase in the cubic capacity – an important scale economy in distribution and transport industries and also in travel and leisure sectors.

Marketing economies of scale and monopsony power: A large firm can spread its advertising and marketing budget over a large output and it can
purchase its factor inputs in bulk at negotiated discounted prices is it has monopsony (buying) power in the market. A good example would be the ability
of the electricity generators to negotiate lower prices lower prices when negotiating coal and gas supply contracts. The major food retailers also have
monopsony power when purchasing supplies from farmers and wine growers.

Managerial Economies of Scale: This is a form of division of labour. Large-scale manufactures employ specialists to supervise production systems.
Better management; investment in human resources and the use of specialist equipment, such as networked computers that communication that raise
productivity and reduce unit costs.

Financial Economies of Scale: Larger firms are usually rated by the financial markets to be more ‘credit worthy’ and have access to credit facilities, with
favourable rates of borrowing. In contrast, smaller firms often face higher rates of interest on their overdrafts and loans. Businesses quoted on the stock
market can normally raise fresh money (i.e. extra financial capital) more cheaply through the issue of equities. They are also likely to pay a lower rate of
interest on new company bonds issued through the capital markets.
What is Economies of scale?
Economies of scale occur
when the average costs of
running a business fall as a
firm increases its output
and size.
•Technical
•Purchasing
•Financial
•Managerial
•Risk bearing
•Marketing
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1. Purchasing Economies
Occurs when a business
buys goods in bulk and
benefits from discount.
6. Marketing Economies
Occurs when a business
grows and the average cost
of advertising per unit falls
5. Risk-bearing Economies
Occurs when a business
produces a range of
products, which means it is
not dependant on just one
product.
•Location
•Skilled Labour
•Transport
•Reputation of
Area
2. Managerial Economies
Occurs when a large firm
can employ specialist
workers to complete tasks
and can spread the cost
3. Financial Economies
Occurs when a large
business can borrow money
at a lower rate of interest
than a smaller business
4. Technical Economies
Occurs when a business
invests in new technology
and is able to increase
production. As a result,
production costs per unit
will fall.
Lean
Production
Japanese production
technique, which
Waste
aims to reduce
Lean Production
attempts to
eliminate…
waste.
Labour
Intensive
Production that uses
many workers, and
Purchased from
Materials
manufacture goods.
Cheap Labour,
Possible reasons for
suppliers to
many factories
moving to China.
Quality
Quality is checked
Control
inspectors.
Batch
Production
Export
Management, that is
totally quality.
few machines.
Raw
Good Transport
T.Q.M.
Labour
Productivity
𝑂𝑢𝑡𝑝𝑢𝑡
𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
Diseconomies
An increase in
of Scale
Average Cost, due
to increased size.
Kaizen
Improvement, that
Bread and clothing
External Economies
Reduced Average
could be produced
of Scale
Cost, due to
by a team of
using this technique.
Selling goods and
services to other
countries.
Lead
The time taken for
Time
new stock.
J.I.T.
Aims to reduce the
a supplier to send
cost of holding
is continuous.
location.
Capital
Intensive
Job
Production
Production that uses
few workers, and
many machines.
A tailor made suit is
an example of…
Tariff
A tax on imports.
Flow
Continuous
stock.
Marketing,
Purchasing
Economies of
Scale
Reliable
Suppliers
Two examples of
Economies of Scale.
Production
production, using
many machines.
The cost saving, due
Poor Motivation and
Examples of two
to an increase in
Communication
Diseconomies of
business size.
Needed if a
company is going to
use J.I.T.
Scale.
Secondary
Industry
Manufacturing and
construction are
examples of…
Primary, secondary and tertiary sectors
There are three main types of industry in which firms operate. These sectors form a chain of production which provides customers with
finished goods or services.

Primary production: this involves acquiring raw materials. For example, metals and coal have to be mined, oil drilled from the ground,
rubber tapped from trees, foodstuffs farmed and fish trawled. This is sometimes known as extractive production.

Secondary production: this is the manufacturing and assembly process. It involves converting raw materials into components, for
example, making plastics from oil. It also involves assembling the product, eg building houses, bridges and roads.

Tertiary production: this refers to the commercial services that support the production and distribution process, eg insurance, transport,
advertising, warehousing and other services such as teaching and health care.
What is stock?
Stock is any item stored by a business for use in production or sales. Stock can be:
1. Raw materials and components waiting to be used in the manufacturing process, eg tyres stored by a car factory.
2. Finished goods held in store so that a customer order can quickly be met from stock.
Holding stock incurs warehouse storage costs and ties up working capital. Funds must be found to pay for materials, components and
unsold goods with interest.
Running out of one item of stock could bring the whole factory to a halt. Staff must still be paid even though they do not have the parts to
carry on production.
Stock control aims to hold sufficient items on site to enable production while minimising stock holding costs. There are two methods of stock
control - just in case and just in time.
Just in time
A fork lift truck collecting stock in a warehouse
Just in case stock control is costly. To reduce spending and improve competitiveness, a business can switch to an alternative method of stock
control called just in time. With just in time, a business holds no stock and instead relies upon deliveries of raw materials and components
to arrive exactly when they are needed. Instead of occasional large deliveries to a warehouse, components arrive just when they are needed
and are taken straight to the factory floor.
The benefits of reduced warehouse costs must be balanced against the cost of more frequent deliveries and lost purchasing economies of
scale from bulk buying discounts.
Technology in Business
Secondary sector
CAD- Computer aided design
CAM- Computer aided manufacture
CNC- Computerised numerical control
Tertiary sector
EPOS/ EFTPOS- The system that allows Debit and credit cards to be used to pay for items in shops and online. More advanced systems also allow
for automated stock control by monitoring goods sold and ordered new products when the stock reaches a certain number.
Ecommerce- selling goods online