ProductionS10 - WCOB 1023 Business Foundations Production...

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WCOB 1023 Business Foundations Production Introduction to Production What Is Production? Production is the creation of goods and services. It includes the manufacturing of tangible products such as computers, cars, and LCD panels, but it also includes the “production” of services, such as the preparation of a tax return, or the transportation of a good or person. Production is a conversion process that converts inputs such as raw materials, human resources, natural resources, and capital into outputs like products and services. It is one of the major business processes identified earlier in the course. A term that is often used in connection with production is operations management. Operations Management is the management of the production process. Key Production Decisions The production process often involves large investments in capital assets such as buildings, manufacturing plants and equipment. Such investments require a lot of planning and preparation. Issues such as how to manufacture a product, where to locate a plant, how to arrange the equipment within the plant, etc., have huge impacts on future production efficiency and effectiveness. Consequently, a large part of the production literature is devoted to such “production planning” issues. Production Planning is the process of getting ready for production. Since you will soon be running your own companies in the Capsim Foundation business simulation, however, this introductory handout will focus less on production planning and more on the actual process of Producing goods and services . There are three critical production decisions that you’ll soon be faced with. These are: 1. How many units do I need to make? 2. What production capacity do I need? 3. What level of automation is best? The following pages will address each of those decisions in turn. This handout will conclude with an overview of two major production planning decisions. 1 | P a g e
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WCOB 1023 Business Foundations Production How Much To Produce ? How many units do I need to make? This decision starts with determining how many units you’d like to make, called the desired production . After that, you’ll need to check if you are able to make that much. In other words, do you have the available capacity and resources? Businesses use the following formula: Desired Production = Estimated Sales + Desired Ending Inventory – Actual Beginning Inventory. In determining the desired production , the most critical factor is the estimated sales . Clearly, over the long run you need to produce what you’re going to sell, so desired production will equal estimated sales . In the short term, however, the estimated sales figure needs to be increased by the number of units you’d like to have in inventory at the end of the period . For example, you may have sold more than you thought in the previous month, and now you’d want to rebuild your inventory. The desired production will need to be reduced by the units you already have on hand in
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ProductionS10 - WCOB 1023 Business Foundations Production...

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