Methods of production

• Job production: one unique item at a time, made to the customer's specification (a bespoke kitchen, a bridge, a wedding cake). High quality and high price, but very high unit costs and skilled labour is essential.
• Batch production: groups of identical items pass through each stage together (bread, paint, clothing sizes). More flexible than flow and gives some economies of scale, but machines must be reset between batches, creating downtime and work-in-progress stock.
• Flow production: continuous mass production on a line (cars, bottled drinks). Very low unit costs and high output, but a huge capital investment, little flexibility, and a breakdown anywhere stops everything.
• Cell production: the line is broken into teams, each responsible for a complete unit of work. It combines flow-production efficiency with the motivational benefits of teamwork (Mayo) and job enrichment (Herzberg).

Productivity, efficiency and competitiveness

Factors influencing productivity: training and skills, motivation, the quality of capital equipment and technology, the method of production, and management and organisation.

The link to competitiveness: if output per worker rises while the wage stays the same, the labour cost per unit falls. The firm can then cut price (competing on cost) or keep price and enjoy a wider margin. This is the central mechanism of cost leadership.

Labour-intensive production (a high proportion of labour to capital) is flexible and cheap to set up, and suits personal services. Capital-intensive production has high fixed costs but a very low variable cost per unit — it is efficient only at high volumes, because that is what spreads the fixed cost.

Your turn — labour productivity

Productivity and unit costs

Capacity utilisation

• Under-utilisation (low %): fixed costs are spread over fewer units, so the fixed cost per unit rises and profitability falls. Staff may feel insecure and there is an appearance of failure — though it does leave room to respond to a surge in demand.
• Over-utilisation (at or near 100%): unit costs are at their lowest, but there is no slack for machine maintenance, staff are stretched and stressed, quality slips, lead times lengthen and any new order must be turned away.

Ways to improve capacity utilisation: raise demand (marketing, price cuts), rationalise (cut capacity by closing a site or selling machinery), subcontract spare capacity to other firms, or produce for another brand (white-labelling).

The sweet spot is around 90%: low unit costs, but with enough slack for maintenance, training and unexpected orders.

Your turn — capacity utilisation

Your turn — fixed cost per unit

Why utilisation matters

Which method of production?

Tap a characteristic, then tap the production method it describes.

The stock control diagram, buffer stock and JIT

Implications of poor stock control: too much stock ties up cash, incurs storage and insurance costs, and risks obsolescence and waste. Too little causes stock-outs — lost sales, idle production lines and damaged customer relationships.

Just-in-time (JIT): stock arrives exactly when it is needed, so buffer stock is near zero. It releases working capital, cuts storage costs and waste, and exposes quality problems immediately — but it demands utterly reliable suppliers and leaves no cushion against a supply-chain shock.

Lean production extends this to all forms of waste (over-production, waiting, defects, excess motion). Competitive advantage comes from the lower unit costs and faster response times lean methods make possible.

Evaluating JIT

Quality control, assurance, TQM and Kaizen

• Quality control: inspecting the finished output and rejecting defects at the end of the process. Simple, but waste has already been created and the cost has already been incurred.
• Quality assurance: building quality into every stage of the process, so defects are prevented rather than detected. Each worker checks their own output before passing it on.
• Quality circles: small groups of employees who meet regularly to identify and solve quality problems in their own area — motivating (empowerment) and effective, since the people doing the job know it best.
• Total Quality Management (TQM): a whole-organisation culture in which quality is everyone's responsibility and every colleague is treated as an internal customer. Very powerful, but it requires major cultural change and heavy training investment — many TQM programmes fail for exactly that reason.
• Kaizen (continuous improvement): many small, incremental improvements suggested by staff, rather than a few big leaps.

Competitive advantage from quality: fewer defects means lower reworking and warranty costs, less waste, a stronger brand and greater customer loyalty — which reduces price elasticity of demand and supports premium pricing.

Match the quality term

Tap a description on the left, then the quality method it describes.

Quality assurance versus quality control

Capacity and quality together

The big ideas to know

You have covered production, capacity, stock and quality for Theme 2.4. Press Finish to see your score.