Unit 5.

2 Production
methods
November 2023
Grade 12 Business
Class objective:
Explain each production method
Analyze the above production method
Evaluate the best production method given stimulus material.
Production Methods
Job Production aka customized production – producing a one-off tailor
made item to the specifications of the customer.
Examples: bespoke suit, movies, construction of buildings, dams, special

jewelry, commissioned art

Usually labor intensive, labor usually specialized i.e. construction labor.

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Efficiency
 Production decisions involve deciding
methods for new production runs and the
analysis of existing methods.
 Decisions may include:

◦ Substitute machinery for labor?

◦ Use of new technology?
◦ Organization of the production layout?
◦ Change of production method?
Efficiency
 Any production method relies on efficiency –
this can be viewed in different ways:
 Productivity – a measurement of output per unit
of the factor used (labor, capital or land)
Total Output
Productivity = -------------------
Units of Factor
 Technical Efficiency – output produced using the
fewest possible inputs
 Productive Efficiency – output produced at the
lowest possible cost
Labor intensive versus Capital intensive

Labor intensive – larger proportion of labor is

used in the production process.
Benefit – offer a more personalized service to
customers

Capital intensive – larger proportion of

machinery and equipment is used in the
production process.
Benefit – machinery can run 24 hours a day
which reduces average fixed costs
 Factors to consider in choosing between the
two:
a) Which is cheaper – labor or capital?
b) What is the size of the market? – the larger
the market the more capital intensive it is
likely to be
Production Methods

There are five main methods of production:

1. Job (customized) production
2. Batch production
3. Mass production
4. Flow/Process production
5. Cell production
1. Job production
 The business will create an individual product
from start to finish, which meets the specific
requirements of the customer – usually one-
off products such as a wedding dress.
 Advantages:

1. Product is usually high quality as highly

skilled labor is used
2. Can charge a higher price due to the
uniqueness of the product
3. Workers are more motivated as they see a
product through from start to finish
Disadvantages:
1. Method tends to be labor intensive and so
production is expensive
2. Time consuming method of production
3. Large amounts of working capital (money for
running expenses) are needed as the
production time from start to selling is
usually long
4. No benefit of economies of scale
 Class objective:
Explain each production method

2. Batch production
Analyze the above production method
Evaluate the best production method given
stimulus material.

 Involves producing a limited number of

identical products – one batch is fully
completed before work begins on another
batch (e.g. bakery makes a batch of bread;
then a batch of muffins, etc.)
 Advantages:

1. Benefits of economies of scale as raw

materials are bought in larger bulk
2. Variety of products can be produced – more
choice for customers
 Class objective:
Explain each production method
Analyze the above production method
Evaluate the best production method given
stimulus material.

 Disadvantages:
1. Large stocks so storage costs can increase
the costs of production
2. Repetitive work may lead to boredom and
so low motivation of workers
 Examples: doughnuts small bakery shop

where produce one batch at a time.

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 Class objective:
Explain each production method

3. Mass production
Analyze the above production method
Evaluate the best production method given
stimulus material.

 Involves producing large quantities of identical

products eg printing magazines
 Tends to be highly capital intensive {use of

specialised machinery}
Advantages:
1. Large benefits of economies of scale as products
are produced in large quantities
2. Lower average fixed costs as fixed costs can be
spread over a large number of units of output
3. Products are all of the same quality – helps
consumers with buying decisions
4. Unskilled labor is used, so labor costs are low
 Class objective:
Explain each production method
Analyze the above production method
Evaluate the best production method given
stimulus material.

 Disadvantages:
1. Work is repetitive and boring – low motivation

2. If the assembly line breaks down at any stage – all

production stops
3. Very little flexibility in terms of changing the
design of the product
4. High set-up costs as machinery is expensive

5. High storage costs for high volumes of stock

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4. Flow/Process Production Class objective:
Explain each production method
Analyze the above production method
Evaluate the best production method given

Focuses on continuous process of

stimulus material.


manufacturing products that are

standardized (homogeneous) in large
quantities.
 Involves the use of production lines such as in a

car manufacturer where doors, engines, bonnets

and wheels are added to a chassis as it moves
along the assembly line.
 Flow production differs from mass production in that
production occurs on a much larger scale, with production
assembly lines often kept running 24 hours a day, 7 days a
week to maximize output and to eliminate waste (the extra
cost of starting and stopping the production process).
 Advantages:
1. Production methods are capital-intensive,
output is on a large scale
2. Cost effective method as costs can be spread
over the high volume of output
3. The use of dedicated machinery and
equipment means that products are of a
standardized quality.
4. Labor costs are low as relatively unskilled
workers are required to operate much of the
machinery
 Disadvantages:
1. The work is likely to be monotonous and
therefore boring
2. There is inflexibility because once the
production process begins there is little
chance of altering the design or specifications
3. The methods are capital intensive and involve
huge set-up costs
4. The systems are inflexible – it is not possible
to rework products that are sub-standard as
production is continuous
 Class objective:
Explain each production method

5. Cell production
Analyze the above production method
Evaluate the best production method given
stimulus material.

 Cell production is an important ingredient of

lean manufacturing and refers to
a manufacturing system where the workforce is
divided into self-contained teams designed to
complete a particular manufacturing process or
product.
 A piano manufacturer assembles 6 pianos

concurrently in 6 cells. Cells take components

and parts as inputs and produce completed
pianos. Each cell has 5 members on each shift
with every member full trained on all steps that
are required to produce a finished product.
 Advantages:
1. Teams operate with some independence in
decision-making eg choose their own leader;
how and when to rotate tasks – leads to more
motivation
2. Teams are accountable for the quality of their
work – improves quality standards
3. Team spirit leads to higher productivity
Disadvantages:
4. Output is lower than mass production
5. Conflict between team members may occur
6. Conflict between teams can occur
7. Capital intensive, so has high set-up costs
Whichever production system is chosen, there
are impact on other areas of the business

 Effects on Marketing:
 Job production = personalized service; high
prices; personal promotion strategies

 Mass production = impersonal service; lower

prices as there are substitute products;
impersonal mass media promotion
 Effects on Human Resources:
 Labor intensive or capital intensive – which is
cheaper?
 Mass production – lower skilled workers

required; poor motivation levels due to

boring repetitive work; low wages paid; large
pool of applicants to choose from; low
training costs

 Job production – high skilled workers; high

wages; smaller numbers of applicants to
choose from; higher training costs
 Effects on Finances:
 Mass production - Capital intensity is
expensive and requires large investment in
machinery and equipment

 Job production – most finances are spent on

wages and other finanacial benefits for
workers
EXAM TIP!
 Common mistake

 Students often comment that batch

production is only suitable when small
quantities are being produced. While
this is true to some extent, batch
production can be used to produce large
quantities of output too.

 Many students treat mass production

and flow production as the same
method of production. While there are
similarities, be sure you can explain the
differences.
Comparison of the main production
methods 1 of 3

Job Production Batch Production Mass Production

Set-up time There is a long As set-up is There is a very
set-up time as usually a long set-up as it
there is a new modification of takes time to
set-up for every an existing synchronize the
new job process, set-up whole process.
time can be
reasonably fast.
Otherwise it is
as for mass
production.
Cost per unit High Medium Low
Comparison of the main production
methods 2 of 3

Job Production Batch Production Mass Production

Capital This can be A mixture of This can involve
(machinery) flexible as it machines is large numbers
depends on used, but this of general-
specific use. method is based purpose
on general- machines
purpose designed for a
machines. specific
function.
Labor High skilled Workers are Workers are
workers are semi-skilled and unskilled and
needed – and need to be need minimum
may be craft flexible. training.
workers.
Comparison of the main production
methods 3 of 3

Job Production Batch Production Mass Production

Production time This is likely to Once set up, Production is
be long. production can swift.
be swift.
Stock This involves High quantities There will be
low quantities of of raw materials high quantities
raw materials are needed. of raw materials
and finished There will be and finished
stock but a high medium stock and a low
amount of work amounts of amount of work
in progress. work in progress in progress.
and finished
stock.
Changing production method
would have implications for all
the business functions
Implications for HR:
 Some workers may have to be redeployed,
retrained, or even let go, so human resources
would need to be carefully managed

 Refining the roles and responsibilities of

workers and middle managers would require
careful planning
Implications for Marketing:
 Production runs can reflect the orientation of
a business as well as the choice of product
available to the consumer, so the image or
perception of the business may be altered.
 Distribution channels may be affected, which

may lead to differing response times.

 Changes in costs of production could be

passed on to the consumer through changes

in price (which are likely to mean an increase,
at least in a short term, to pay for the
transition costs).
Implications for Finance:
 Changing production method will have an
impact on stock control, which affects costs.
 Changes may take time and could interrupt

current production, causing delays in the

working capital cycle.
 Any change will need financing, whether it is

short term or for significant developments

that may require major long-term funding.
What is the most appropriate
method of production for a given
situation?
 The most appropriate method will vary from
B2B – there is no one correct method
Factors affecting the decision
include:
 The target market – for example, the
business may be producing a high volumes of
a low-cost product for a very large market
with little disposable income
 The state of existing technology – this can

limit how flexible production can be

 The availability of resources – fixed capital,

working capital, and human capital

 Government regulations – for example, a

business may have to meet certain targets for

recycling or waste emissions
 Once a business has a particular production
method in place, it is not easy to change it,
because of the opportunity costs involved.

 However, it may be possible and suitable to

combine different methods which may result
in integrating the advantages of each
different model and making the business
more productively efficient.
 Example:
◦ Thai restaurant might have a continuous supply of
a staple food such as green curry, but would
produce batches of a less popular dish, for example
Tom Yam soup, and would even be able to make a
special order on demand
◦ Apple might mass produce its most famous iPhones
and iPads, but could also have limited editions of
luxury gold-plated $30,000 models.
In this way, the business can achieve economies of
scale from the mass-produced products while
satisfying the need for changed in demand for
more customized and higher market products.
 There is no single recipe suggesting that a
particular business should adopt a particular
production method: there are always
advantages and disadvantages to be
compared and contrasted before a
recommendation can be made.
Questions 5.2.1 – 5.2.3
Exercises
 CUEGIS
Pages 487-488
Key Terms
REVIEW
 Batch Production
• Involves producing a set of identical
products. Work on this method is
fully completed before production
switches to another batch. It is used
where the demand for a product is
frequent and steady.
 Capital Intensive
• Means that the manufacturing or
provision of a product relies heavily
on machinery and equipment, such as
automated production systems.
Hence, the cost of capital accounts
for the largest proportion of capital
– intensive firm’s overall production

• costs.
Cellular manufacturing or
cell production
• Organizes workers into independent
group with each team comprising of
multi-skilled staff with responsibility
and autonomy for completing the
whole unit of work in the production
process.
Flow/Process Production
• Uses continuous and progressive
processes, carried out in sequence.
When one task is completed, the
next stage of production starts
immediately.
 Mass Production
• Is the large-scale manufacturing of a
homogeneous (standardized) product.
Unit costs of production are
relatively low when using mass
production methods.
 Job Production
• Involves the manufacturing of a
unique or one-off job. The job can be
completed by one person (such as a
tailor) or by a team of people (such
as architects and engineers).
 Labor intensive
• Means the production relies heavily
on labor input, so the cost of labor
accounts for the largest proportion
of a firm’s overall production costs.
It is most apparent in the provision
of personalized services (ie private
tutors, hair dressers, masseurs and
• artists).
 Productivity
• Measures the level of labor and/or
capital efficiency of a business by
comparing its level of inputs with the
level of its output.
 Specialization
• Means the division of a large task or
project into smaller tasks, allowing
individuals to concentrate on an area
of expertise. It is an essential part
of mass and flow production.
 Standardization
• Means producing an identical or
homogeneous product in large
quantities, such as printing a
particular magazine, book or
newspaper.