Production Division

1. What is production?
"Production is the process of transforming raw materials or purchased components into finished
products for sale."

Image Credits Moon Rodriguez.

Meaning of Production
Production is a process of transforming (converting) inputs (raw-materials) into outputs
(finished goods). So, production means the creation of goods and services. It is done to
satisfy human wants. Thus, production is a process of transformation.
The functions of the production department
The production department often works very closely with the purchasing department. The
purchasing department is responsible for understanding what clients want and providing it to
them at a price that is comfortable.
The purchasing department will tell the production department what needs to be produced, how
much it needs to cost to make it and will give an idea of how many pieces of products are
needed in order to satisfy the demand of customers.
The production department uses labor, machinery and a variety of techniques to be able to
produce what the customers need or want.
The production department also relies on the purchasing department to get them the materials
and accessories that are necessary for the production of goods.
The production department is often responsible for the maintenance and proper care of the
machinery and equipment that it uses to produce the goods.

Role of the production department

I.

The first function is to establish standards in regard to the quality and the quantity of the
products being made. Typically, these standards are placed throughout the process, not
just at the beginning or end.

II.

The second function of the department is to work with the purchasing department to
ensure enough materials are on the production line and to ensure replacement of any
broken equipment. The purchasing department works with other departments to make
sure purchased equipment and materials are all stocked and available.

III.

The next function is to work with the design and technical department to ensure the
product is built to the correct specifications and to place any new designs or changes to
the product onto the line.

IV.

Finally, the production department collaborates with the works department to ensure there
is a proper workforce available to check the quality of the product and make any
necessary repairs to any equipment that breaks.

V.

The production department does not work directly with the marketing department.
However, it remains in contact with marketing to ensure the products are attractive and
desired by customers.

2. Factors of production.
There are 4 factors of production which when combined contribute to the production of goods
and services.
They are
1.
2.
3.
4.

Land
Labour
Capital
Enterprise/ entrepreneurship

Land

All natural
resources
Ex- soil,
water, timber,
uranium etc
The payment
for land is
called rent.

Labour

Capital

Consists of all
human labour
employed to
carry out the
work of an
organization.
Labour
involves all
the efforts put
by the
employees to
produce goods
and services.
The payment
for labour is
called wages
or salaries.

All man made

or artificial
resources.
Ex- money,
machines,
buildings etc
The payment
for capital is
called interest.

Entrepreneur

An
entrepreneur
comes up with
an idea and
makes plans
and decisions
to carry out a
business
venture. He
takes all the
risks
concerning his
business
venture.
An
entrepreneur
manages all
the other
factors of
production to
make a
business
successful.
The payment
for
entrepreneursh
ip is
profit/loss.

3.

Types of Production Methods

There are two main types of production used to produce goods:

1. Labour intensive method
2. Capital intensive method

Many business organizations in developed countries

have opened manufacturing plants in the developing countries and employ more human
labour in production.
Labour intensive method: this is where more human labour is used in production than
technology.
This method was used during the period of the industrial revolution when factories were first
developed in the U.K. However, over the years modern technology has developed introducing
fully automated factories where minimum human involvement is required in the process of
production.

An early automobile factory

Capital intensive method: this is where more modern technology and machines are used in
production than human labour. With the development of technology, modern machinery and
fully automated factories allow goods to be to made quickly.

In capital intensive production the process of converting raw material into finished
product takes place smoothly in a flow using high tech machinery.
The method used will depend on a few factors:
1. The type of product made
2. The availability of technology / skill and knowledge of workers and finances
3. the region where production is taking place
In the developed regions of the world the capital intensive method is mostly used. This is
because of the availability of finances which can be invested on new technology. On the other
hand, the labour intensive method is used in developing countries where there is a large
population and therefore a high rate of unemployment. Further these countries do not have the
finances to obtain the latest technology.
Activity- identify the different countries where each of these methods are used.
Labour intensive

Capital intensive

1.
2.
3.
4.

Advantages and disadvantages of the two methods of production

Labour intensive

Capital intensive

Advantages

Advantages

1. Solves the unemployment problem in

poorer, developing regions.

1.Quick and efficient production and higher

output.

2. Uplifts the standard of living.

2.High
quality

quality

production-consistent

3. Is best suited for certain types of

products. Ex- handicrafts, watches,
jewelry, certain items of clothing etc.
where skill and finesse are required.
4. Reduces environment pollution.

3. Can keep up with the latest trends

in products/ designs

4. Can produce quickly to meet the needs and

match the changes in the world market.

5. Is best suited for countries which do not 5.Work can be carried out 24 hours a day, 7
have the finances to invest in new days a week all year long
technology and also do not have the
technical knowhow.
6. Know technical break downs.

6.Machines dont break down easily or need

rest.

7. Labour intensive method is cheaper 7. Machines can be used immediately after

especially in the developing regions.
installation.
Disadvantages
1. Slower production/ workers need rest.
2. Quality can be poorer than in the CI
method.
3. There can be production break downs
due to illness, absenteeism, low
efficiency etc
4. Workers have to be trained which takes
time and money.
5. Workers have to be motivated and kept
happy so that they will do a good job.
6. There could be trade union action such
as go slows and strikes.

Disadvantages
1. Initial investment is very high
2. They have to be serviced and
maintained.
3. Breakdowns can happen.
4. CI method can cause unemployment to
people who are not well educated.
5. Existing workforce can be made
redundant due to introduction of new
technology.