Production Options (Leaving Cert Business): Revision Notes

Production Options

• When starting a business that will produce goods, one of the most important decisions is choosing the right production method.
• The production method you select will affect costs, quality, time, staffing needs, and customer satisfaction.
• There are three main production methods to consider, plus the option of subcontracting work to other businesses.
• These include:
  1. Job production
  2. Batch production
  3. Mass production

1. Job production

Job production focuses on creating unique, customised products that are specifically made to meet individual customer requirements. Each item produced is different and tailored to particular specifications.

This method works well for businesses offering personalised services or products. For example, a tailor creating a bespoke wedding dress, an artist painting a portrait, a furniture maker crafting custom pieces, or a garage building a one-off motorbike.

Advantages of job production:

• Higher prices - Because products are customised and unique, customers are willing to pay premium prices for exactly what they want
• Customer satisfaction - Meeting individual customer needs precisely builds strong relationships and enhances business reputation
• Employee motivation - Workers tend to be highly skilled craftspeople who take pride in their specialised work and are well-compensated
• Flexibility - Can quickly produce emergency parts or provide urgent services, which builds customer loyalty

Disadvantages of job production:

• Skilled labour required - Need highly trained, experienced workers who command higher wages, making it more labour-intensive
• Time-consuming - Each item takes much longer to produce compared to other methods since everything is made from scratch
• Higher costs - Specialised materials, tools, and equipment are expensive, and small-scale operations cannot benefit from bulk purchasing discounts
• Customer risk - If a customer cannot pay (perhaps due to financial problems), finding alternative buyers for custom items can be very difficult

2. Batch production

Batch production strikes a balance between customisation and efficiency by manufacturing limited quantities of identical products at the same time. Once one batch is completed, production switches to make a different product.

This method suits businesses with moderate demand for several different products. The key is having flexible production systems that can switch between different product types efficiently.

Advantages of batch production:

• Lower costs - Achieves some economies of scale compared to job production, reducing unit costs
• Competitive pricing - Products cost less than job-produced items, making them more accessible to customers

Disadvantages of batch production:

• High initial investment - Requires substantial spending on automated machinery, materials, technology (like computer-aided design), and larger premises
• Additional systems needed - Must implement stock control systems to manage inventory and marketing plans to sell the batches produced

3. Mass production

Mass production involves the continuous manufacturing of large quantities of standardised products, typically using assembly lines where workers specialise in specific tasks rather than making complete products.

This method works best for products with high, consistent demand. The focus is on maximising efficiency through specialisation and automation.

Advantages of mass production:

• Lower prices - Large-scale production achieves significant economies of scale, reducing costs per unit and allowing competitive pricing
• Quality consistency - Standardised processes make quality control easier and more reliable
• Market competitiveness - Lower production costs enable businesses to compete effectively on price

Disadvantages of mass production:

• Massive capital investment - Setting up production lines and purchasing machinery requires enormous upfront costs, plus ongoing maintenance expenses
• Staff problems - Repetitive work can lead to high employee turnover due to boredom and typically lower wages
• Inflexibility - Making changes to products becomes difficult and time-consuming once production systems are established

Changing production methods

As businesses grow and market conditions change, they may need to switch from one production method to another. For instance, a successful small business might need to move from batch to mass production to meet increasing demand. However, this transition involves several important considerations:

• Financial implications: Upgrading to more automated production requires significant investment in new machinery and larger facilities. If the business cannot fund this from retained profits, it may need to raise money by selling shares or taking out loans.
• Ownership changes: To raise necessary funds, businesses might need to change their legal structure. For example, a partnership might become a private limited company to sell shares, which provides access to more capital but changes how the business is controlled.
• Operational adjustments: Moving to larger-scale production requires implementing proper stock control systems to avoid waste and losses. If expanding geographically, distribution networks and associated costs must be carefully planned.

Subcontracting and outsourcing

Rather than handling all production internally, businesses can pay other companies to manufacture some or all of their products or services. This approach allows the main business to focus on core activities like marketing, sales, and business development.

Many well-known companies use this approach effectively. Nike outsources footwear manufacturing to factories in China, India, and Vietnam. Common outsourced services include accounting, customer support, research, and design work.

Advantages of subcontracting:

• Reduced investment - No need to purchase expensive equipment that might not be used year-round
• Access to expertise - Specialist contractors may have better skills or capacity than the business could develop internally
• Lower staffing costs - Fewer employees needed, and the contractor handles all labour-related responsibilities and costs

Disadvantages of subcontracting:

• Security risks - Sharing confidential business or customer data with external companies increases the risk of information leaks
• Potential competition - Contractors who learn about business operations might become competitors themselves
• Quality concerns - Poor work by contractors can damage the main business's reputation, even though the work was done externally