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Unlock This CourseEvery business faces a crucial challenge: how to make their products efficiently, cheaply and to a high standard. This balancing act between cost, productivity and quality determines whether a business succeeds or fails. Think about your favourite chocolate bar - the company making it wants to produce it quickly (productivity), keep costs low so they can make a profit, but also ensure it tastes great every time (quality).
Production management is like juggling three balls at once. Drop one and the whole performance suffers. Let's explore how businesses master this juggling act.
Key Definitions:
Imagine a triangle with cost, productivity and quality at each corner. Businesses must find the right balance between all three. Push too hard on one corner and the others suffer. For example, cutting costs too much might harm quality, whilst focusing only on quality might make production too slow and expensive.
Cost is often the first thing businesses think about because it directly affects profit. However, there are different types of costs to consider and the cheapest option isn't always the best choice.
Production costs fall into several categories, each affecting the business differently:
Costs that don't change with production levels, like rent, insurance and machinery. A factory pays the same rent whether it makes 100 or 1,000 products.
Costs that change with production levels, like raw materials and hourly wages. More production means higher variable costs.
Fixed costs plus variable costs. Understanding total costs helps businesses set prices and make production decisions.
McDonald's revolutionised fast food by focusing on cost control. They standardised ingredients, automated cooking processes and negotiated bulk buying deals. This allowed them to keep costs low whilst maintaining consistent quality across thousands of restaurants worldwide. Their "Speedee System" reduced costs and increased productivity simultaneously.
Productivity measures how efficiently a business converts inputs (like labour and materials) into outputs (finished products). Higher productivity means more products made in less time, which usually leads to lower costs per unit.
Businesses use various strategies to boost productivity without compromising quality:
Machines can work faster and more consistently than humans. Car manufacturers use robots for welding and painting, which increases speed and reduces errors. However, automation requires significant upfront investment.
Well-trained workers are more productive and make fewer mistakes. A skilled baker can make more loaves per hour and waste less dough than an untrained worker. Training costs money initially but pays off through improved productivity.
Quality isn't just about making products that work - it's about meeting customer expectations consistently. Poor quality leads to returns, complaints and damaged reputation, which ultimately costs more than investing in quality from the start.
Businesses use two main approaches to ensure quality:
Checking products after they're made to find defects. Like testing phones before they leave the factory to ensure they work properly.
Building quality into the production process from the start. This prevents defects rather than finding them later.
Everyone in the organisation focuses on quality improvement, from the factory floor to the boardroom.
Toyota developed the "Toyota Production System" which balances all three elements brilliantly. They use "Just-in-Time" production to reduce costs, continuous improvement (Kaizen) to boost productivity and "Jidoka" (automation with human touch) to maintain quality. Workers can stop the production line if they spot quality issues, preventing defective cars from reaching customers.
The real challenge comes when businesses must choose between competing priorities. Sometimes improving one area means accepting compromises in another.
Businesses regularly face these difficult decisions:
Rushing production might increase productivity but could lead to more defects. Fast food restaurants must balance quick service with food quality. Too slow and customers leave. Too fast and food quality suffers.
Using cheaper materials reduces costs but might affect quality. A clothing manufacturer could use cheaper fabric to reduce costs, but customers might notice the difference and stop buying.
The most successful businesses find ways to improve all three areas simultaneously, rather than sacrificing one for another.
Smart businesses look for solutions that improve multiple areas:
New technology or methods can reduce costs, increase productivity and improve quality. 3D printing allows companies to make prototypes faster and cheaper whilst maintaining precision.
Motivated workers are more productive and care more about quality. They also suggest improvements that can reduce costs. Google's "20% time" policy led to innovations that improved all aspects of production.
Eliminating waste in all forms - time, materials and effort. This reduces costs, speeds up production and often improves quality by reducing errors.
Apple chooses to focus heavily on quality and accepts higher costs as a result. They use premium materials, extensive testing and precise manufacturing. This strategy allows them to charge higher prices, which more than compensates for the higher production costs. Their productivity comes from efficient design and manufacturing processes, not from cutting corners.
Businesses need ways to measure how well they're balancing cost, productivity and quality. Key performance indicators (KPIs) help track progress and identify areas for improvement.
Different metrics help businesses monitor each aspect of production:
Cost per unit, material costs as percentage of sales, labour costs per product. These help identify where money is being spent and opportunities for savings.
Units produced per hour, output per worker, machine utilisation rates. These show how efficiently resources are being used.
Defect rates, customer satisfaction scores, return rates. These indicate how well products meet customer expectations.
Modern businesses face new challenges in balancing cost, productivity and quality. Environmental concerns, changing customer expectations and technological advances all affect production decisions.
Today's businesses must also consider environmental impact. Sustainable production methods might cost more initially but can reduce long-term costs through energy savings and waste reduction. Companies like Patagonia have built their reputation on sustainable, high-quality production, even though it costs more upfront.