Production Management, Costs, Productivity and Efficiency
Production Concept
Economic point of view: A product is produced through basic processes by a company to satisfy consumer needs.
Technical perspective: The combination of elements — energy, machinery, etc. — to obtain a good.
Functional-utilitarian perspective: The process that adds value.
Production Factors
A) Production factors:
- Natural resources or land (raw materials)
- Labor
- Capital
These three together form a product.
Technology and Production Function
B) Technology: Modern or traditional.
Production function: Relationship between resources used in production and the resulting product.
Revenues and Productivity
A) Revenues from production.
Productivity is the relationship between quantity produced and quantity of production factors employed.
Total Productivity: Relationship between production value and the total cost of inputs used.
Production Efficiency
B) Efficiency of production. Concept: production efficiency — the value obtained with given production technologies. This can be assessed by:
- Technical efficiency: Achieving the same output using fewer units of production factors.
- Economic efficiency: Selecting the technology that results in the minimum cost.
Cost of the Company
Fixed and Variable Costs
Fixed and variable costs:
Fixed costs (independent of the production level) and variable costs (costs that vary with production level).
CT = CF + CV
CM = TC / Q
CMV = VC / Q
Direct and Indirect Costs
B) Direct and indirect costs:
- Direct: Associated with production and allocated to each product.
- Indirect: Productive costs that affect the process and are common to products; they cannot be assigned to a single product.
Structure of Company Costs
C) Structure of the cost of the enterprise:
Direct Costs: Primary (raw materials, labor, energy)
Indirect costs: General industrial costs; departmental marketing and administration costs (activity costs); financing costs and corporate overheads.
All together compose the company's total cost.
Threshold Performance or Break-Even
The sold production quantity from which the company begins to make profits.
Production Management
Production management consists of planning, organizing, managing and controlling production. It takes into account:
- Production capacity
- Product demand
- Design of the production system
- Economic environment
Production Planning
Production planning phases, from long to short term:
- Strategic plan
- Sales forecasting
- Master production plan
- Production schedule
- Operational production control
- Economic control of production