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FIRE PRODUCTION
“Without the right goods, sales are impossible."
- Anonymous
To sell a company's good that good must
be of value to the customer. To provide value, the
product must satisfy the customer wants and
must be carved based on customers needs.
Producing these quality goods entails proper
management of the resources in order to come
up with the expected outputs of the customers
and that's the time that customers will continue
patronizing your products.
Objectives:
At the end of the lesson, the students should be
able to:
• Define production
• Identify the different factors and
resources in production
• Explained why selection of business
location is very critical in the success of
the business
Discussion
According to Peter Drucker, "Quality in a
product or service is not what the supplier puts
in. It is what the customer gets out and is willing
to pay for. Customers pay only for what is of use
to them and gives them value. Nothing else
constitutes quality." When entrepreneurs begin
producing products or providing services, they
quickly learn how much their products or
services depend on the quality of the
components and services they Purchase from
their suppliers. Sometimes, businessmen, in the
attempt to attain the demands of the customers
in terms of quality, sacrifices quality. Quality and
quantity are two ends of a balance beam that
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needs to be balanced to ensure continuity of
customer demand thus ensuring stable
profitability of the business products.
This issue is a concern of the production
aspect of the business. What really is production?
PRODUCTION
Production refers to the process of
making goods and services to satisfy humans'
needs and wants to maximize profits. It is the
action of making or manufacturing from
components or raw materials, or the process of
being manufactured.
Production is also defined as the process
done by workers combining various inputs in
order to make something for consumption.
Factors of Production (Production Variables)
Improving productivity. can be achieved
in 2 ways: (1) by reducing inputs while output
remains constant, or (2) by increasing output
while input remain constant. These inputs are as
follows:
• Capital. This refers to the stock of goods
made by the people to help them in the
production of goods and services.
• Entrepreneurship. This is spearheaded
by the entrepreneur who coordinates all
the factors of production to produce
goods and services. Without this factor,
other resources will be useless.
• Land. This refers to the resources found
on land or sea. Generally, this is
consisted of the raw materials.
• Labor. This is defined as any kind of work
that exerts the mind or body that has the
sole purpose of receiving rewards.
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Production Resources
a) Financial Resources. These are the funds
for the venture's purpose. Insufficient
funds will create an interference in
production.
b) Human Resources. These are the most
important resources among other
resources because these are the people
who strategize and administer the
business activities.
c) Informational Resources. Accurate and
comprehensive data is vital to the
success of the business. The
entrepreneur must know every factor
that may affect his/her business so that
s/he will know what and how to do things
to keep his or her business in the table.
d) Material Resources. These tangible
resources are used for production.
Four Phases of Production
After the different production resources
are determined, the next step would be to
perform the necessary steps in creating the
products of the
business. The following are the basic phases that
a production of goods usually undergoes:
1) Operation is the main step in production
where the raw material is turned into
something useful.
2) Assembly is the step where producers
put all parts together to form a final
product.
3) Finishing is the phase where producers
do the final render to the product.
4) Inspection makes sure that the product
is quality-made according to specified
quality or quantity.
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Rules of Production
in producing goods and services,
knowing the needed materials and the process
on how to create the products is not enough to
ensure the success of the business. There are
certain instances when the entrepreneur thinks
that the business is earning much because of
high volume sales but profits cannot be felt by
the entrepreneur or the manager.
One aspect that must be checked
thoroughly are the Cost of Production. The
following are the indicators whether the business
should continue producing or not.
FOR LONG-RUN PERIOD
- When total revenue (TR) is GREATER
than total cost (TC), PRODUCE MORE.
- When total revenue (TR) is LESSER than
total cost (TC), STOP PRODUCING.
- When total revenue (TR)is EQUAL to
total cost (TC), MAINTAIN
PRODUCTION (BREAKEVEN). There
may be no profit, but also no loss, yet
there is a payment for the entrepreneur.
Thus, it is still good to maintain the
production.
- TOTAL REVENUE (TR) being more than
TOTAL COST (TC) means PROFIT. The
opposite is LOST.
FOR SHORT-RUN PERIOD
- When total cost (TC) is GREATER than
variable cost (VC), OPERATE
- When total cost (TC) is LESSER than
variable cost (VC), SHUT DOWN.
- Variable cost (VC) refers to the
operating expenses like salaries, cost of
raw materials, office supplies, bills for
water, telephone, or electric.
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Production Output (Product) FOUR STAGES OF PRODUCT LIFE CYCLE

Every production has an input and an The products that we see daily undergoes
expected output. Production inputs are those several phases of production and like humans,
that refer to the materials, techniques, processes, these products also have life stages. These are:
labor that are combined together in order to - Introductory Stage. This is the stage
produce the production output. This production when new products are launched into
output is referred to as product. the market. Product testing are common
Products can be classified as tangible during this stage which also includes
(good) or intangible (service). Almost all services product research and development and
are a mixture of a service and a tangible others.
product. The table below shows the differences - Growth Stage. This stage is
between goods and services. characterized when the market has
accepted the product and sales begin to
Table. Differences in the Attributes of Tangible increase.
and Intangible Products - Maturity Stage. By this stage,
consumers have already tested the
Attributes of Goods Attributes of Services product. This is time when sales of the
(Tangible Products) (Intangible Products) product will reach their peak.
Reselling a service is - Decline Stage. This stage comes sooner
Product can be resold
unusual if nothing has been done to innovate the
Product can be Often produced and product. At this time, sales will begin to
inventoried consumed immediately decline as the product reaches its
Some aspects of quality Many aspects of quality saturation point.
are measurable are difficult to measure
Selling is distinct from Selling is often art of the CONSIDERATIONS FOR PRODUCTION
production service
The service provider, not In drafting a feasibility study or a
Product is transportable the product, is business plan, there are certain considerations
transportable regarding production that must be assessed and
Site for facility is Site of facility is important be decided. These are:
important for cost for customer contact • Production strategy. This answers as to
Service is often difficult to whether the business will opt for
Often easy to automate continuous production or periodic basis.
mechanize or automate
Revenue is generated Revenue is generated o Continuous production is
primarily from the primarily from the advisable when the demand for
tangible product intangible services the product is great and regular.
This also applicable if the
products can be stocked for long
periods of time.
o Periodic basis is applicable when
the product has seasonal

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demand or. if on per-order
basis.
• Raw materials to be used. This includes
identification of the raw materials that
will be used in producing the products.
Issues like the costs of raw materials,
logistics, quality and attributes of the
raw materials should also be considered.
• Production Technology. The type of
technology that will be applied in the
production should also be considered.
This factor usually is affected by the
availability of funds in procuring
equipment that will be used.
• Process operation. This pertains to the
actual• steps involved during production.
In business plans, this is usually
illustrated using flowcharts.
• Manpower requirement. After
identifying the non-human resources
required, the next step would be
determining how many employees
should be hired by the firm to man the
equipment that will be used as well as
the manpower required in accomplishing
the different tasks in production.
• Location. As what have already been
discussed in the previous lessons
location is very critical in ensuring the
success of the business. This factor can
actually make or break the business. The
production should be somewhere it is
allowed to operate, near its suppliers
and markets so that profits will be higher
due to lower production costs.
• Plant Layout. This involves decision
making as to how the production
equipment will be organized. The plant
layout should observe ergonomic flow of
production activities. The plant layout
should also be compliant with certain
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rules or laws imposed by the
government.
• Product Quality. This factor is about the
quality of the product that an
entrepreneur wishes to sell his/her
customers.
Product Quality
Quality refers to the ability of a product,
whether tangible or intangible, to consistently
meet and exceed customer requirements or
expectations. There is no single criteria of quality
simply because customers have different
perceptions of quality. Regardless of the
meanings of quality, it still begins with careful
evaluation of what the customers want, then
translating this information into technical
specifications to which goods or services must
conform.
Return on quality (ROQ) is an approach
that evaluates the financial return of investments
in quality.
COSTS ASSOCIATED WITH QUALITY
There are 3 major costs associated with
ensuring production and delivery of quality goods
and services, these are the following:
• Appraisal costs — costs of activities
designed to uncover defects through
subsequent evaluation of the different
aspects of production. Examples are
inspections, routine equipment testing,
etc.
• Prevention costs — costs of associated
with preventing defects from occurring.
Examples: training programs, etc.
• Failure costs — costs caused by
defective parts or products or by faulty
services. Failure costs may either be:
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• Internal failures — failures discovered
during production.
• External failures — failures discovered
after delivery to the customer.
DIMENSIONS OF PRODUCT QUALITY
Quality is a subjective notion. It depends
largely on the needs and wants of the final
consumer of the product. In this regard, quality is
evaluated according to the following criteria or
dimensions:
1) Aesthetics — one that is gauged
according to what is the preferred
appearance, feel, smell, taste of the
customer
2) Conformance — one that is determined
as to how well the product conforms to
design specifications.
3) Durability — one that is determined by
length of usefulness of the product
4) Perceived Quality — one that is based
on how the customer perceive the
product to be of quality
5) Performance — one that is based on
what the customer expects the product
to be able to do
6) Reliability — one that is based on the
consistency of performance
7) Service-ability — one that is based on
availability of options in handling of
complaints or repairs
8) Special Features — one that is based on
the extra characteristics or unique
features of the product
Total Quality Management (TQM)
The concept of total quality management
is not something new. Total Quality Management
(TQM) is the process of mainstreaming quality
consciousness in the entire organization, from
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supplier to customer. It is an approach that
organizations use to properly manage and
improve their processes it that will eventually
result to increased employee satisfaction.
Basically, TQM promotes the idea of "doing it
right the first time all the time."
GOOD WORKING PRACTICES TO ACHIEVE
EFFECTIVE TQM INCLUDES:
• Continuous improvement. This is
anchored to the belief there is no perfect
organization and there are always
rooms for improvement although
perfection is still viewed as the end goal.
• Employee empowerment. This is based
on the idea that expanding the scope of
the employees job so that the added
responsibility and authority is moved to
the lowest level possible in the
organization.
• Benchmarking — selecting a proven
standard that represents the very best of
the product, service, cost, process, or
activity.
• Just-in-time (JIT) — designed to
produce or deliver good as they are
needed.
• Knowledge of TQM — everyone in the
organization must be trained in the TQM.
Global Standards
• ISO — the International Organization for
Standardization is considered the largest
developer of standards in the world. ISO
is a network of institutes of national
standards of 155 countries which meet,
confer and agree as a body to set world
standards, as necessary.
• HACCP — Hazard Analysis Critical
Control Point is an internationally
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accepted technique for preventing outputs. QA is focused on systems improvement

microbiological, chemical, and physical
contamination of food particularly during
the processing of food products.
• Halal — this refers to food that is
permissible for consumption under
Islamic Law. Aside from being nutritious
and safe, halal meat, for instance, should
come from slaughtered animals, which
has been raised in land of free pesticides,
fertilizers, or genetically modified food.
Quality Assurance (QA)
Quality Assurance (QA) refers to the
planned and systematic activities implemented
in systems to fulfill the quality requirements for a
product or service. QA establishes and maintains
set of requirements that is used to evaluate
whether a product or services meets the
specified requirements.
TWO KEY PRINCIPLES OF QA
- Fit for purpose: The product should be
used for its intended purpose
- Right the first time: Mistakes should be
minimized if not eliminated
Quality Control (QC)
Quality Control (QC) pertains to the
controlling function Of management that is
responsible in checking the quality of products
produced. It is a step performed that involves
testing finished products to Uncover defects well
as reporting the results of the quality test to the
management. The management will then decide
whether to allow or deny product release.
QC should not be confused with QA,
since the latter is focused on the production
process while QC is focused on the finished
to reduce or eliminate defects caused by faulty
production processes while QC is focused on
uncovering defects present in the finished
products.
WAYS TO QUALITY CONTROL
In order to achieve quality control, the
following aspects must always be controlled by
the management:
a) Accuracy of manufacturing
information
b) Inventory of correct or approved
raw materials
c) Inspecting manufacturing
processes
d) Inspecting finished products
e) Implement measuring
instruments and test equipment
f) Applying corrective action
according to the results of the
aspects 1-5
MANAGING INVENTORY
Inventory - refers to the stocks of goods and
materials of a business.
TYPES OF INVENTORIES
In general, there are four (4) types of
inventories: raw material, work- in-process,
finished-goods and MRO inventories. However,
only the first 3 types of inventories will be
discussed since the last one pertains to
maintenance, repair and operating supplies
which are not covered under production. The
production types of inventories are:
1) Raw Material Inventory — are stockpiles
of materials for inputs of production.

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2) Work-in process inventory — are
partially completed products that
require further processing
3) Finished-goods inventory — are
completed goods for delivery to
customers
Each of the abovementioned types have
inventory costs, Inventory refers to the cost
related to storing or maintaining its inventory
over a period of time. Some. examples or types
of inventory costs are the storage cost and stock
out cost. Storage cost refers to cost of building
and facility maintenance. Meanwhile, the stock
out cost refers to the running out of an inventory
which could mean no products to sell.
PRODUCTION PLAN
Production Planning/Scheduling refers
to the process of arranging, controlling and
optimizing work and workloads in a production in
a production process or manufacturing process.
It is used to allocate plan and machinery process,
plan human resources, plan production
processes and purchase materials.
In manufacturing of products, the
purpose of scheduling is to minimize the
production time and costs, by telling a
production facility when to make, with which
staff, and on which equipment. Production
scheduling aims to maximize the efficiency of the
operation and reduce costs.
PROGRAM EVALUATION AND REVIEW
TECHNIQUE (PERT)
Is used to monitor and control scheduling
of activities. Under the PERT all major activities
are represented by arrows. The part the requires
the longest time from the first event to the last
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event is called the critical path. The activities
along this path should be scheduled and
controlled. A delay in just one activity causes a
delay in the completion of the whole project.
TWO CATEGORIES OF SCHEDULING
TECHNIQUE
1) Forward Scheduling - a schedule that
begins as soon as the requirements are
known. Jobs are done according to
customer order. This works 'best in
companies whose suppliers are usually
behind in meeting schedule.
2) Backward Scheduling — starts with the
due dates and final operations are
scheduled first. The other jobs follow in
reverse order. Lead times are subtracted
for each process to get start time.
Cost of Production
The following is the formula being used in
determining the production unit cost:
• Fixed Expenses — are costs that
continue even if no units are produced.
(depreciation, taxes, interests, rent
expenses etc.)
• Variable Expenses (Cost of Goods
Sold/Cost of Sales) — those that vary
with the volume of units produced.
o Direct Labor — this includes the
wages of workers whose outputs
are closely related to or
associated with the making of
the product.
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o Direct Materials — these refer to

cost of inputs or raw materials
that become part of the product.
• Overhead Costs — comprises all other
costs incurred in production but do not
become part of product.
o Use of buildings, machines,
equipment.
o Utilities such as power, water,
fuel, and among others.
o Salaries of employees who are
not directly involved in the
production process
o Transportation cost of raw
materials
o Office supplies

Summary

In order to maximize sales revenue and

profits, a business firm must continuously adjust
and adapt its products and services to the
changing requirements of customers. From time-
to- time, it may have to design and develop new
products. The process of searching ideas for new
products, screening them systematically,
converting them into tangible products and
introducing the new product in the market is
called production planning. A well thought out
production plan eliminates overspending and
inefficiencies throughout the entire production
process. Many considerations should be, and are,
taken into account before evaluating a project.
The more considerations that go into production
planning the more opportunities for cost-
savings. And the more savings the firm has, the
more profit incentives can be made possible.

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