 Process of creating the products and services

that a firm sells to its market.

 It involves processing and assembling materials

using simple tools, machinery and equipment.

 It is utility.

 Requires a set of inputs to yield a set of

outputs.
1. Operation
2. Assembly
3. Finishing
4. Inspection
 Represents the main steps in a
process , method or procedure
where the raw material is
changed into something useful.
Example : fresh fruits when
processed or cooked, are
transformed into fruit preserves.
 Putting parts together to form
a final product. Shoes are
produced by putting together
the leather , inner and outer
soles, and the accessories.
Not all production, however,
has assembly stage.
 May mean painting,
vanishing, polishing,
trimming, cleaning, glazing,
etc. A pair of shoes is
finished by polishing it a
shiny gloss.
Makes sure that the
operation has been
carried out correctly as
to specified quality and
quantity of the product.
their
job is to create
new products or
innovate existing
products.
 Should see to it that resources or inputs
are efficiently utilized to produce outputs
at the right price, quality and quantity
desired by the consumer or buyer.

 His objectives:
 He should be to ensure optimum utilization
of resources, to reduce the cost f
production, and to improve productivity.
 He should plan, organize, coordinate, control, direct
and evaluate the production activities in the plant.

 He should likewise decide on the different

technological alternatives to be used in the production
system such as:

◦ Level of production technology

◦ Raw material inputs
◦ Machinery and equipment
◦ Methods
◦ Layout
◦ Type of production system
◦ Plant location
1. Land
2. Labor
3. Capital
4. Entrepreneurial
Activity
 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, doctors, etc.
 Pertains to machines, equipment, buildings and other
physical resources which are used in the production of
goods and services. This is an economics 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 the enterprise. Without such ability, the
other productive resources tend to be efficient.
Material resources
Financial resources
Human resources
Information resources
 Represent the payments for the
factors of production.
 These affect the ability and
willingness of entrepreneurs to
produce.
 When production costs are high,
prices go up. This decreases the
purchasing power of the
consumers.
 Thisresults to lower
quantity demanded for
goods and services. In
other words, there is a
decreased in sales which is
not favorable to producers
or sellers.
 Producers must choose productive resources
which are abundant in supply, because these are
much cheaper than scarce resources.
 Cheaper inputs mean lower costs of production in
terms of profits, lower costs of production favor the
producers.
 In the rural areas, there are many raw materials
that can be used for the creation of products.

 Their use should be maximized not only to

produce goods, but also to create jobs for the rural
poor.
 The total costs of production is the sum total of
expenses in producing a product or service.

 It is also equivalent to the sum of fixed cost and variable

cost.
 The former remains constant regardless of the volume
of the production.

 Rents are fixed cost while expenses on raw materials

are variable cost.

 If there is no production, there is no variable cost, but

there is fixed cost.

 Total costs divided by the number of goods produced

equals average cost or unit cost.
 TR = Total Revenue (income)
 TC = Total Cost (expense)
 When TR is greater than TC, produce
more.
 When TR is less than TC. Stop
producing.
 When TR is equal to TC, maintain
production.
 The above rules apply in a long–run period. TR being more than
TC means profit. The opposite is business loss. When TR=TC
it is breakeven. This means no profit, no loss. But there is
payment for the entrepreneur. Thus, it is still good to maintain
production.

 Here is an illustration of the components of TC :

 FACTORS PAYMENTS
 Land Rent
 Labor Wage
 Capital Interest
 Entrepreneur Normal profit
 TOTAL FACTORS TOTAL COSTS OF
PRODUCTION
 So, the entrepreneur still enjoys a financial
reward in the form of normal profit. When TR is
above TC, there is pure profit. Such profit is the
difference between market price and cost of
production.

 Under the short-run period, the rules of

production are:

 When TR is greater than TC, operate.

 When TR is less than VC, shut down
 Refers to the operating expenses like salaries, cost of
raw materials, office supplies and bills like water ,
telephone and electric.
 If TR is more than VC, it is still good to continue
business, assuming TR is less than TC.
 The fixed cost (FC) which is part of TC can be
recovered in the long run period of business
operations. For instance , the case of SM Mega Mall.
The fixed costs amount to hundreds of million pesos
representing the expenses on the land, building,
machines and other expensive equipment like
escalators. Such huge expenses cannot be recovered
in a few years time. However, it the TR of SM is more
than its VC, the enterprise is already lucky.
 Technology refers to the process of
transforming resources into goods and
services. Clearly , big enterprises are
capable of using high technology which
requires modern machines and less
number of workers. However, in our
country such technology is not relevant
considering our depressed socio-
economic conditions.
 Based on the book Small is Beautiful by
Schumacker , less developed countries
like the Philippines should adopt “
intermediate technology” This technology
is between primitive technology and
modern technology.
 It is more efficient than primitive
technology and cheaper than modern
technology. Intermediate technology
requires local labor and material, and
simple management.
 Our country has an abundant supply
of idle labor and raw materials.
Entrepreneurs can utilize such cheap
resources for the production of goods
and services. Such business venture
can reduce the problems of
unemployment, and can contribute to
the economic development of our
country, especially the rural areas
where most of the poor live.
The quality needed
The quantity demanded
Availability of supply.
Production requirements.
Price
Quality
Reliability
 Raw Materials Inventory
1.

 2. Work in Process
Inventory
 3. Finished Goods
Inventory
 Raw Materials Inventory .
These are stockpiles of
materials for inputs of
production.
 Work-in Process Inventory.
These are partially completed
products that require further
processing.
 These are completed good for delivery to
customers.
 Each the said inventory has a storage cost and a
stock out cost. The latter refers to the cost of
running out of an inventory. For finished products,
the stock-out cost is loss of sales. There are no
products to sell. To minimize such costs, there
must be an inventory control. Computers are
useful in inventory control. Small businessmen
can avail of micro-computers or personal
computers to keep track of inventories.
Process of ensuring
the delivery of
materials at the right
place and right time.
Process of ensuring that
goods and services are
produces in accordance
with their designs and
specifications.
the efficient creation of
goods and services.
it is measured by the
number of products
produces.
refers to management
programs to select,
develop, produce and
market the firm’s
products or services.
 Will satisfy the requirements of
an effective product planning
for small firms.
 Are developed from a variety
of concepts. Creativity and a
knack for identifying customer
wants are helpful.
 Generating ideas (internal or
external sources)
 Identifying capability of the
organization to carry out the
idea
 Identifying customer and
market requirements(market
research)
 Specifying functional ( how
product will work) and product (
how product will be made)
specifications
 Reviewing design
 Testing the market
 Introducing to the market
 Evaluation
 Refers to “the designation of
the key benefits the product is
to provide, the psychological
positioning of these benefits
versus competitive products
and the fulfillment of the
promises by physical features.
Machine downtime
No material or lack of
materials
No manpower or lack of
manpower
Misprocessed products
 1. Global Focus
 2. Just in Time Performance
 3. Supply Chain Partnering
 4. Rapid Product
Development
 5. Mass Customization
 6. Empowered Employees
 The rapid decline in communication and
transportation costs has transformed
markets from a local or national focus to
one with a global focus.
 At the same time, resources in the form of
materials , talent, and labor have also
become global.
 Innovations are everywhere continually
generating new ideas, parts, and finished
goods rapidly.
 Substantialfinancial resources
lead to inventory and inventory
impedes response to the
dynamic changes in the market
place.
 Modern operations are
targeting lower inventories- from
raw materials to finished goods.
 Shorter product life cycles, as
well as rapid changes in material
and process technology, require
greater participation by suppliers.
 In this process, the technique is
to build long term partnerships
with important players in the
supply chain.
 Fast international communication
of news, entertainment and
lifestyles is dramatically cutting
away the life span of products.
 You will need to respond with
faster design technology and
more effective design
management.
 Once you consider the world as the
marketplace, then the individual
differences become quite obvious.
You need to have not only
standardized products but also
production processes that are flexible
enough to cater to individual whims of
consumers.
 The goal is to create products that
satisfy individual needs.
 The information driven workplace
have combined to require greater
competence at the workplace.
 From job specialization, the
trends is moving towards
teamwork and lean production
with more decision making
delegated the individual worker.