MODULE 8

PRODUCTION OF GOODS AND SERVICES

Learning Objectives:
 Define marketing and marketing management
 Explain the responsibilities of the marketing manager that is included in
production and pricing
 Discuss the importance of marketing in an enterprise

Before you start the actual production, it will be best for you to have a clear idea of
who the buyers for your product or service will be. Ask yourself: “Who will buy my
products and services?” In other words, “Who is the market for my products and
services?”

This topic is about the most important function of business, which is the production.
We can say that production is the process of creating or bringing into being the
products and services, which the firm delivers and sells to its market. The efficient
utilization of inputs (raw materials, components, labor, capital, energy, or power) to
produce output (goods and services) at the least cost is the work of the production
management. Production management sees to it that resources are effectively
utilized to create the product in the right quantity, of the desired quality, and at the
right price.

WHAT IS PRODUCTION?

Production may be defined as the processing and/or assembling raw materials by

workers using machinery and equipment to produce a product or provide service.

Production is the creation of goods and services. Or, it is the creation of utility.
Utility means satisfaction. Goods and services are produced to satisfy human wants
or needs.

It requires a set of inputs to yield a set of outputs.

These outputs may include materials, manpower, machinery, methods,

management, money, and moment (or time).

The raw material inputs are converted into finished products ready for market,
through successive stages of operation, assembly, finishing, and inspection. The
operations may be machining, cutting, plating, boiling, gluing, chemical reactions,
weaving, and sewing.

 OPERATION represents the main step in a process, method, or procedure

where the raw material is changed into something else. For example, when
yarn is processed, either through weaving or knitting, it becomes a piece of
fabric or cloth. Fresh fruit, when squeezed or pressed, is transformed into fruit
juice.
 ASSEMBLY is putting parts together to form a final product. A radio set is
formed by putting together coils, resistors, transistors, and other parts. Not
 all production, however, has an assembly stage. There is no assembly when
the product is simple such as steel bars, flour, or cotton yarn.
 FINISHING may mean painting, varnishing, polishing, trimming, cleaning,
and glazing, among others. A piece of furniture is finished by spray-painting
it, for example. Marble products, on the other hand, are said to be finished
when they are sanded or polished.
 INSPECTION makes sure that the operation has been carried out correctly as
to quality and quantity. Inspection, at its simplest, may be done through any
of the five senses – seeing, touching, hearing, smelling, tasting. It may,
however, be a more sophisticated activity, when using tester, gauges, and
other measuring instruments.

Factors of Production

In economics, the major factors of production are land, labor, capital, and
entrepreneurial ability. The following are their definitions:

LAND – includes natural resources such as forests, mountains, and bodies of water
like rivers, lakes, and seas.
LABOR – refers to both physical and mental efforts like the works of farmers,
fishermen, workers, clerks, lawyers, teachers, and doctors, among others.
CAPITAL – pertains to machines, equipment, buildings, and other physical
resources, which are used in the production of goods and services. This is an
economic definition. In other concepts, capital refers to seed money which is utilized
for starting a business.
ENTREPRENEURIAL ABILITY – coordinates the other factors of production such as
land, labor, and capital. It is the spirit of enterprise. Without such ability, the other
productive resources tend to be inefficient.

How to Develop and Improve Product Quality

You can achieve quality and control by focusing your attention on the following
areas:
1. Control manufacturing information. You should see to it that your
production workers are given complete, easy-to-understand, clear, and
simple instructions on the process of production. You should provide them
with clear drawings or diagrams. Any changes in policies or procedures
should be clearly communicated to them. You can do this through simple
management directives.
2. Control purchases and storage of raw materials. You should obtain the
correct materials of defined quality from suppliers, and see to it that these
are appropriately stored to prevent spoiling or deterioration. Check and
inspect raw materials delivered to you by your supplier to verify whether
these conform to your quality requirements. It is best to maintain good
relationship and communication with suppliers.
3. Control manufacturing process. Prevent the fabrication of defective
products by instituting inspection points or simple routine checks on
 important processes or steps, through adequate planning, good machine
maintenance, and proper motivation of production employees.
4. Control finished products. Verify be means of adequate tests and criteria
to check whether the finished product meets the quality standard or not. Use
information feedback from the final inspection to maintain production
process. Use simple sampling plans.
5. Control measuring instruments and test equipment. Schedule periodic
calibrations and adjustments or maintenance of test and process equipment
for adequate control.
6. Control corrective action. Use information from control areas 1-5 to ensure
that deficiencies affecting quality are promptly and systematically detected
and corrected.

The Importance of Marketing

There is one thing that entrepreneurs must embrace on a lifetime when he or she
engages in a business. This is the concept of marketing.

Marketing is an activity that the entrepreneur will be involved in for as long as the
business exists. Marketing is more than just advertising the fact that the
entrepreneur is in the business of producing or providing something. It involves
everything the entrepreneur does to obtain and keep a customer. From conducting
market research, developing customer profile, and positioning organizational
identity in the market, to selecting marketing strategies, to determining location,
and how phones are to be answered and customer complaints are to be handled.

Marketing Concept and Philosophy

The foundation of contemporary marketing management and entrepreneurial

success evolves around the aspect of marketing concept. The marketing concept is
a customer-oriented philosophy that is implemented and integrated throughout the
business, to serve customer better than competitors and achieve specific goals.

The marketing concept is made up of three components.

1. The customer needs and wants – the entrepreneur develops an
organization-oriented marketing strategy to accomplish its goals. The
principal task of marketing function, after all, is not so much to be skillful in
making the customers do what suits the interests of the business, but to be
skillful in conceiving, and then, making the business do what suits the
interests of the customers.
2. The organizational integration – whether an entrepreneur owns a start-up
company of 3 staff, he or she hurdles to integrate a customer focus as a
philosophy for all the people in the company. Virtually, all the people in the
company directly and indirectly affect how customers perceived the firm.
This early-stage philosophy then provides the foundation for developing
customer-oriented guidelines as the company grows.
3. The goal achievement – marketing is oriented towards sales volume as a
success measure, but it is essential to strive not just for the sales, but also
for the effective marketing that contributes to profitable sales.
Marketing management and entrepreneurship has something in common and this is
more than just selling, advertising, or promoting the product or service. It involves a
complex system involving taking the risk, as an entrepreneur should be, and
bearing with analyzing and providing measures to the various components and
segments that makes up the market.

Channel of Distribution

Channel of distribution refers to the marketing institutions and interrelationships

responsible for the physical flow of goods and services from the producer or
manufacturer to consumers or industrial users. Middlemen or agents are involved in
the movement of goods and services from the producer/manufacturer, and the
more discounts and incentives are needed, this means diminishing factor to an
entrepreneur’s profit.

The entrepreneur can use any of the following modalities whoever is appropriate for
his business:

a. Direct marketing. This refers to a system of marketing by which an

organization communicates directly with costumers to generate a response
and/or transactions.
b. Wholesalers. This is where the producers or manufacturers generally
dispose or sell their products, who in turn, sells the same to the retailers or
end-users.
c. Agents. If a wholesaler is necessary, the entrepreneur must determine how
to reach them. The individual entrepreneur may find it impossible to contact
and service the wholesalers without additional help. In many cases,
manufacturer’s representatives contact the wholesaling companies and are
paid commissions on their sales.