Every company must do production planning. Production planning details how the company produces the product. The production plan outlines production targets, required resources, production design, and overall schedule. It also details all the steps involved in production.
Companies organize operations to ensure products or services are completed at the time and standard expected by the methods used.
There are production methods used by businesses, including:
- Job production
- Batch production
- Flow production
- Mass customization
- Cellular manufacturing
Job production, or customized production, is when a company produces a one-off item designed especially for a customer. The company makes products at a time when there is an order, and it is unique for each customer.
The company will produce one product from start to finish. They will customize production according to customer specifications. They deploy a worker or group to do the job from start to finish. After one product is finished, another can be started.
This method is usually applied to produce single-use or unique items such as violins. Other examples are in making wedding dresses and building oil rigs.
The job production method provides more flexibility and is relatively simple. Other advantages are:
- Unique products according to customers’ unique requirements
- High quality, done by skilled hands
- Better customization according to customer wishes, increasing customer satisfaction
- Can adjust orders where work begins when orders are received
- High involvement in the entire production process from start to finish
- Suitable for personal services such as haircuts
- Increased employee motivation because their work is not monotonous
However, the job production method is expensive if we compare the relative proportion between the selling price and production cost. In addition, because it is labor intensive, companies rely heavily on workers’ knowledge and skills, making it difficult to automate. Other limitations are:
- Long working capital cycle
- Low economies of scale
- High labor costs due to labor-intensive
- Long production time to complete a product
- Expensive and inflexible to increase production when demand increases
- Requires a highly skilled workforce
- Requires competent supervisors and management
Batch method produces identical output in limited quantities (batches). Each item in a batch passes through a stage before moving on to the next step. The production process is stopped when each batch has been completed.
This production method allows the company to change or modify the product during the manufacturing process if necessary. After one batch is completed, a new batch, usually a different product, is produced using the same equipment and labor.
This method is usually used to produce several products when demand is higher and more regular. Production in bakeries usually relies on this method. Workers are deployed to make different products, such as white bread rolls, brown bread rolls, and croissants.
Batch production provides several advantages, such as technical economies of scale and purchasing economies of scale, which are higher than job production. Other advantages are:
- Diversify risk by producing various products
- More flexibility for production and meeting customer demands
- Allows to respond quickly to changes in demand
- More varied work to make different products
- Higher economies of scale, for example, by buying materials in large quantities
However, the batch production method is more complex. In addition, money is also tied up in work-in-process because orders can only be shipped once the entire batch has been completed. Other drawbacks are:
- Expensive when many small batches are produced
- Additional costs and delays in setting up equipment during batch changes
- More warehouse space is needed to stock different raw materials and components
- Need to rearrange machinery and equipment when changing batches
Flow production is a system in which all the operations required are performed sequentially, one after the other. It produces goods in a continuous flow process. Also known as mass production, continuous production, or line production.
Flow production is usually applied to mass-producing standard products, such as car assembly. Bottling plants, bicycle manufacturing, packaged food products, and television are other examples.
Production flow depends on the division of labor and specialization. The company divides the production process into several assembly lines with specific tasks. Workers perform the same routine tasks at each assembly station, allowing them to do them more quickly over time. Companies can also rely on automation technology assisted by robots and machines.
Flow production allows companies to reduce production costs significantly due to high economies of scale. Products are standardized and processed faster without system reprogramming as in batch production. Other advantages are:
- Production takes place continuously, making it suitable for production in large quantities.
- Processes are automated, thereby reducing the need for labor and errors due to negligence
- Automation also allows goods to be produced quickly.
- Jobs are specialization, making employees more skilled by learning by doing.
- Materials can be purchased in bulk, allowing for deep discounts.
But, flow production is inflexible and can cause boredom among workers due to monotonous tasks and work. Other drawbacks are:
- Operating system failure occurs when one station stops; it disrupts the whole system because they are interdependent.
- Setting up and installing a production system can be costly.
- Customization is low, making meeting unique customer needs challenging.
- Production requires expensive machines and equipment.
- The method is inflexible, and it is difficult to switch to another technique once the production line is established.
- Warehousing costs are high because mass-produced goods must be stored before being shipped to consumers.
- This method only suits products with a large market and high demand.
Cell production is a system in which the production flow is divided into several teams/cells. Each cell is responsible for one part of the production process. So, each has a target to complete and works independently but depends on each other to achieve the target. Also known as cell manufacturing or cellular manufacturing.
Cell production provides some autonomy in decision-making in each cell. It also encourages greater responsibility and accountability within the team. Improved quality standards and higher motivation are other advantages.
In addition, team members may engage in job rotation. They are multi-skilled, so they can move from one cell to another.
However, team tensions and conflicts can arise and interfere with achieving targets. A team depends on other groups to meet final production targets.
Output may also be lower than mass production.
In addition, working in a team can be very tedious. Employees must complete the same work unless they are designated for job rotation.
Mass customization adopts mass production systems but adds flexibility. Thus, companies can produce massively but better meet customer requirements. In addition, this production method allows customers to define what product features they want.
Mass customization combines the latest technology with a multi-skilled workforce. It uses a computer-aided production system to make production flexible. Thus, they can produce differentiated products at high volumes.
Customization matters in focused or differentiated marketing. It creates higher added value and is more likely to satisfy customer needs and wants.
Mass customization offers computer-assisted automation of production. Computers also make it possible to keep records and data related to production, which become inputs in planning and development. In addition, mass customization offers several advantages, including:
- Products with higher added value through differentiation
- Low cost because it is mass-produced
- Automating boring and routine jobs and tasks – now done by computers
- Higher job satisfaction by automating multiple jobs and tasks
- Better quality products through automation and with less human intervention
However, mass customization can be costly to set up. It relies on computers, robots, and machines. Other drawbacks are:
- Production systems are quickly obsolete because technology is constantly changing
- Employee retraining – and therefore additional costs – when new technology is introduced
Factors to consider when choosing a production method
Which method is more appropriate depends on several factors, including:
- Product type and nature
- Required volume
- Target market
- Availability of resources
- Business size
- Skill level required by workers
Product type and nature. The job production method is used to create unique products. Meanwhile, identical product groups require a batch production method. Meanwhile, similar products at high volume require a production flow method.
Business size. Batch and job production methods are commonly used by small businesses. Meanwhile, large companies usually rely on mass production methods to meet more demand. However, mass production is expensive to set up, so it doesn’t make sense for a small business.
Demand volume. When a company faces high and relatively stable demand volumes, the flow production method is the choice. Meanwhile, less frequent demand requires job production methods.
Target market. Companies may rely on flow production to meet uniform customer needs (mass market). Meanwhile, niche markets rely on job production to meet customers’ needs.
Problems when changing operation method
Setting up production methods requires planning and time. It also consumes capital, for example, to buy machinery, equipment, and computers. Companies must also prepare the related workforce, including their skills.
Time, planning, and capital can increase as companies change from one method to another. They had to dismantle machinery and equipment and redesign the entire production system. They may also have to redesign the product to fit the new method.
Labor-intensive vs. capital intensive
We classify the above methods into two based on the production system’s dependence on capital and labor. Both are:
- Labor-intensive production, such as job production
- Capital-intensive production, such as flow production
Both methods affect quality, differentiation, production costs, and production volume. So which one is more suitable? It depends on aspects such as target market size, technology trends, resource availability, relative and substitution costs, product diversity, and company goals and strategies.
Labor-intensive production relies more on labor. Thus, labor costs contribute more significantly to production costs than capital costs.
Production may also use special machines and tools. But, overall, it requires human creativity and effort to come up with a product.
Capital-intensive production allows companies to offer personalized products. The company customizes products according to demand, relying on the skills and knowledge of workers. Other advantages are:
- Lower capital costs because the company does not invest much in machinery and equipment
- More motivated workers, by encouraging them to use their own initiative to solve problems
- Perfect for providing personalized service where individual customers have different requirements
- Potential to lower costs when local labor is cheaper
- Low initial costs because the company does not invest much in expensive capital goods
- Relatively easy to vary the workforce, for example, through part-time or temporary contracts
But, labor-intensive production may have more problems with human resource management. Humans are more challenging to control than capital goods such as equipment and machinery. Other limitations are:
- Cannot generate output on a large scale quickly
- Limited economies of scale due to low automation and low production volumes
- Vulnerable to industrial action or employee absenteeism
- Requires training costs to make workers skilled, especially when different jobs are necessary for other products
- Low standardization and non-uniform product quality due to differences in workers’ skills and experience
- Requires more rest and days off for workers than machines, leading to loss of production
- Defects or poor quality due to relying on different hands to make the product
Capital-intensive production relies more on capital goods than labor. So, capital costs have a higher proportion than labor costs to total costs.
Companies require significant initial capital investments for machinery, plant, and equipment. It is usually found to produce standardized products whose demand is substantial enough to justify the capital investment. Because the product is relatively homogeneous, the company generates low-profit margins.
Companies try to achieve economies of scale as quickly as possible to increase profits to lower unit costs. Therefore, companies need more demand to achieve it, usually through mass promotion.
Capital-intensive production could be:
- Mechanized production is when the production process requires machines and humans. Work will be done by machine. However, to operate and control them, companies employ workers.
- Automated production is when the production process is carried out by machines or robots and mainly controlled by computers. Thus, human input is limited in this production.
Relying more on capital goods means fewer wages and employee compensation, such as insurance benefits. In addition, capital-intensive production also offers several other advantages, such as:
- Quality is maintained through product standardization and relying on machines to produce uniform output.
- Unlike humans, machines can work continuously, producing 24 hours daily.
- Production can occur faster by relying on machines rather than humans, for example, through automation.
- Hazardous or high-precision tasks can be performed by machines to reduce workplace errors or accidents.
- Companies can produce output on a mass scale assisted by machines and robots.
- Economies of scale are higher because production is carried out at high volumes.
- Labor productivity is higher by replacing repetitive and tedious work with machines.
- Skill levels may be lower, resulting in less cost for training and easier to recruit employees.
However, producing various products is usually more difficult when relying on capital-intensive rather than labor-intensive production. Thus, the company may not produce a unique product and only one because it is not commercially viable. Other drawbacks are:
- Companies struggle to provide personal and customized services.
- Initial setup costs are high because the company has to buy expensive capital goods.
- Damage to one or two machines and equipment can disrupt production.
- Damage to production machinery and equipment can be costly to repair and may force companies to buy new ones.
- Employees are demotivated by operating machines and doing the same tasks repeatedly.
Factors to consider when having labor-intensive vs. capital-intensive production
The choice to use labor-intensive or capital-intensive methods depends on several factors, including:
Available finance. Costs are significant for capital-intensive production. The company must purchase machinery and related equipment as initial costs. The high cost also comes from routine maintenance costs. In addition, because technology changes rapidly, companies must adapt to be competitive, requiring them to budget large capital expenditures. For this reason, some businesses, such as small businesses, do not adopt this method.
Quantity. Capital-intensive methods are needed if the company has to produce identical goods on a large scale. Conversely, the labor-intensive process will be more suitable if orders are varied and unique to each customer.
Technology. Labor-intensive methods are an option if the technology needed to produce goods is unavailable. In addition, technological advances have made some parts of the labor-intensive production process possible to be mechanized.
Competitive strategy. Differentiation strategies rely on uniqueness; therefore, capital-intensive methods may be more suitable. In contrast, a cost leadership strategy requires a firm to achieve a lower cost structure by producing on a large scale.
Target market. Serving niche markets may be more labor-intensive than capital-intensive. Meanwhile, the mass market requires production at high volumes with standardized output to serve as many customers as possible.