PBMF Chapter 8 Production of Goods

8

Production of

Goods

Multiple Choice

1. Division of labor is all the activities required to create a product.

• True

• False

Multiple Choice

2. Product planning decisions are based on market research and development, as well as past experience.

• True

• False

Multiple Choice

3. _________ inventory is the raw materials needed to produce a finished product

• Direct Materials

• Work in Progress

• Perpetual

• Finished Goods

Multiple Choice

4. A _________ is conducted to test new services offered by a business.

• prototype

• trade show

• business analysis

• trial run

Multiple Choice

5. What is productivity?

• A. Manufacturing goods in large quantities using standard techniques.

• B. A measure of a worker's production in a specific amount of time.

• C. Series of stages a product goes through from the beginning to end.

• D. Process of evaluating new product ideas from the customers viewpoint.

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Section 8.1

Producing Product

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Objectives

• Explain production as a function of business.
• Identify the steps in the production process.
• Discuss ways a business can improve productivity.

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Key Terms

• operations management
• conversion
• materials processing
• division of labor
• mass production
• custom manufacturing
• production process
• sourcing
• supplier
• inventory
• inventory management
• direct materials inventory

• work in process inventory
• finished goods inventory
• perpetual inventory

control system

• electronic data

interchange (EDI)

• periodic inventory control

system

• inventory shrinkage
• just-in-time (JIT)

inventory-control system

• quality control

Open Ended

How does managing the production process impact business operations?

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Producing Goods

• Operations management is the area of management

responsible for the activities necessary to produce
goods and services

• Production is a function of business

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Producing Goods

• Conversion is the process of changing and improving

resources to create goods or services

• Manufacturing creates form utility

– Materials processing is changing the form of raw

materials for another use

• Increase worker productivity

– Division of labor is the specialization of individuals

who perform specific tasks

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Producing Goods

• Mass production is the manufacturing of goods in

large quantities using standard techniques

• Custom manufacturing is converting resources to a

product that fits the specifications of a particular
customer

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Production Process

• Production process is all the activities required to

create a product
– Planning
– Purchasing
– Scheduling
– Inventory control
– Quality control

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Production Process

• Planning determines resources needed for production

– Sourcing is finding suppliers of materials needed for

the production of a product

– Supplier is a business that sells materials, supplies, or

services to an organization; vendor

• Purchasing is acquiring resources for production

– Purchasing agents are individuals responsible for

sourcing and buying materials needed for producing
goods and services

• Scheduling includes labor, materials, services, and

other items needed for business operation

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Production Process

• Inventory management is the area of management

involved in ordering goods, receiving them into stock
on arrival, and paying vendors

• Inventory is the assortment or selection of items that

a business has on hand at a particular point in time
– Direct materials inventory is raw materials needed to

produce a finished product

– Work in process inventory consists of products that

are partially completed; unfinished product

– Finished goods inventory is assortment or selection

of finished items for sale that a business has in stock

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Production Process

• Perpetual inventory-control system isa method of

counting inventory that shows the quantity on hand at
all times

• Manual perpetual inventory-control system involves

physically counting and recording items

• Computerized inventory-control system uses software

programs to track inventory
– Electronic data interchange (EDI) is the standard

transfer of electronic data for business transactions
between organizations

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Production Process

• Periodic inventory-control system is a method of

measuring inventory that involves taking a physical
count of merchandise at regular periods

• Physical inventory should be completed annually
• Inventory shrinkage is the difference between the

perpetual inventory and the physical inventory

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Production Process

• Just-in-time (JIT) inventory-control system is a

method of managing inventory that keeps a minimal
amount of raw materials on hand to meet production
needs

• Quality control is the activity of checking products as

they are produced or received to ensure the quality
meets expectations

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Improving Productivity

• Continuous process improvement (CPI) is an ongoing

effort to improve production processes to meet goals
and increase profit
– Technology makes manufacturing more efficient
– Formal training to improve business processes

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Section 8.1 Review

1. What is the difference between producers and

manufacturers?
Producers are businesses that create goods and
services. Manufacturers are producers that use raw
materials from other producers and convert them into
finished goods.

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Section 8.1 Review

2. Explain the meaning of scheduling in the production

process.
Scheduling personnel, material deliveries, shipments,
and many other items are crucial to business
operation. It ensures that businesses have enough raw
materials and labor on hand to meet the product
demand of customers. Careful scheduling is necessary
for a business to operate efficiently and prevent
material shortages or production problems. Purchasing
too much material or scheduling too many labor hours
can unnecessarily increase costs.

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Section 8.1 Review

3. List three types of inventory usually used by

manufacturers.
Manufacturers usually have three types of inventory:
direct materials, work in process, and finished goods
inventory.

4. List three primary types of inventory-control systems.

There are three primary types of inventory-control
systems: perpetual, periodic, and just-in-time.

5. Explain continuous process improvement (CPI).

Continuous process improvement (CPI) is an ongoing
effort to improve production processes to meet goals
and increase profit.

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Section 8.2

Producing Development

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Objectives

• Explain the product planning process.
• Identify the steps in new product

development.

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Key Terms

• product planning
• new product
• product life cycle
• repositioning
• repackaging
• image

• brand
• prototype
• trial run
• test marketing
• commercialization
• trade show

Open Ended

How is a new product idea developed?

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Product Planning

• Product planning is the process of deciding which

products will be most strategic for the organization to
produce
– Three strategies: new product, reposition, repackage

• New product is a product that is different in some

way from existing products

• Product life cycle is the series of stages a product

goes through from its beginning to the end

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Product Planning

• Repositioning is marketing an existing product in a

new way to create a new opinion or view of the
product in the minds of customers to increase sales

• Repackaging is using new packaging for an existing

product

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Developing New Product

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Developing New Product

• Idea generation: Product ideas come from research,

observation, feedback, and brainstorming

• Idea screening: Choose the best and most profitable

ideas

• Business analysis: Determine if the company has

necessary resources to develop and promote the new
product
– Image is the idea that people have about someone or

something

– Brand is a name, term, or design that sets a product or

business apart from its competition

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Developing New Product

• Product design: Plan details of producing product and

determine product brand
– Prototype is a working model of a new product for

testing purposes

– Trial run is testing a service on select customers to

ensure everything runs smoothly

• Test marketing:Introduce a new product to a small

portion of the target market to learn how it will sell

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Developing New Product

• Commercialization:Introduction stage of a new

product
– Trade show is a large gathering of businesses for the

purpose of displaying goods and services for sale

• Evaluation: Success of new and existing products

based on financial records and marketing data

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Section 8.2 Review

1. What three options does a business have when

choosing a product planning strategy?
As part of product strategy, a business can create new
product, reposition current product, or repackage
current product to appeal to consumers.

2. When developing new products, what four activities

usually result in product ideas?
Product ideas are usually the result of observation,
trend research, customer feedback, and brainstorming.

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Section 8.2 Review

3. What activities are part of the product design process?

During the design phase, the details of producing the
product are planned. Determining the product brand is
also part of the design phase. The name, image, logo,
slogan, and packaging of the good or service are
usually created at this stage.

4. How does a company use feedback from test

marketing?
Customer feedback within the test market helps a
business solve unexpected problems. Test marketing
may also help a company determine whether or not to
mass produce the product.

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Section 8.2 Review

5. How is the success of a product evaluated?

The success of a product is based how well it meets
the sales and other goals set for the product during the
business analysis. The evaluation process typically
involves reviewing financial records and marketing
data.