Production

MBA. en Ing. Serrano Rivas Yered

Underlying Principles
All production systems, when viewed at the most abstract level, might be said to be
“transformation processes”—processes that transform resources into useful goods and
services. The transformation process typically uses common resources such as labour,
capital (for machinery and equipment, materials, etc.), and space (land, buildings, etc.)
to effect a change. Economists call these resources the “factors of production” and
usually refer to them as labour, capital, and land. Production managers refer to them
as the “five M’s”: men, machines, methods, materials, and money.
When viewed as a process, a production system may be further characterized by flows
(channels of movement) in the process: both the physical flow of materials, work in
the intermediate stages of manufacture (work in process), and finished goods; and the
flow of information and the inevitable paperwork that carry and accompany the
physical flow. The physical flows are subject to the constraints of the capacity of the
production system, which also limits the system’s ability to meet output expectations.
Similarly, the capacity of the information-handling channel of the production system
may also be an important measure of a system’s output. The management of
information flows, or the planning and control of the system to achieve acceptable
outputs, is an important task of the production manager.
While the capacity of the system is the major factor in determining whether
output expectations can be met, the additional consideration of quality must also
be seen as a limiting factor. The quality of a product, measured against some
objective standard, includes appearance, performance characteristics, durability,
serviceability, and other physical characteristics; timeliness of delivery; cost;
appropriateness of documentation and supporting materials; and so on. It is an
important part of the definition of a system.
Production chain, in economics, an analytical tool used to understand the nature
of the production process (including production of both goods and services) and
its transformations.
The production process is a sequence of productive activities leading to an end
use—a chain of linked functions, in other words. Each stage adds value to the
production sequence. Hence, production chains are often called “value-added” or
“value” chains. The stages in the chain are connected through a set of
transactions. The organizational and geographical structure of the transactions
characterize the nature of production.
The concepts of the production chain and the production network are often used
interchangeably. However, at least on the analytical level, it is possible to
distinguish between production chain as a term characterizing a production
process in general, involving various activities within the production system that
may be performed by various organizations, and production network as a term
characterizing a network of relationships within and between firms.
The structure of the production chain may vary between two extremes, which can
be defined along two dimensions. The first refers to the degree of coordination or
control (tight or loose), the second to the geographical location of functions (local
or global). Thus, at one extreme, all operations of the chain may be concentrated
in a single firm in one place. There, transactions are organized hierarchically
through a firm’s organizational structure. At the other extreme, each function of
the chain may be performed by independent geographically dispersed firms. In
that case the transactions are organized through the market.
During the second half of the 20th century, technological change and the
liberalization of trade radically reorganized the production process so that
specialization in each segment became possible, and the production chain,
historically concentrated in one country, could be parceled out and distributed
around the globe. That led to increases in trade relative to domestic production
and the rise of the proportion of imported inputs in the production processes.
Thus, national economies became more dependent on trade for domestic
production. For instance, the United States was transformed from a virtually self-
sufficient economy to an import-dependent one.
The increasing ability to “slice up” the production chain increased trade between
industrialized and developing countries, reinforcing the shift toward a new
international division of labour. Whereas advanced industrial processes in the past
tended to be concentrated in developed economies, companies came to locate
segments of the production process in lower-wage countries or subcontract to
local companies in Asia or Latin America.
• To complement the information click on the following video:
https://www.youtube.com/watch?v=AyWtIwwEgS0

Bibliography: Jan Drahokoupil, encyclopedia Britannica,2019.