The key task of Production is to manufacture the products sold to the customers of a company. Production is an essential part of the supply chain and the order-to- delivery process. Production can be perceived as a transformation process: material is processed or raw materials are modified by production resources, utilizing information, in order to create products for customers. Products can be end products for consumers, investment goods for other companies, or parts and semi-finished products for other companies to be used as input. The focus of these pages is on industrial production. However, the production is a broader concept: there is also service production or even cultural production such as movies or theatre plays. In modern business usage, the term operations is often used similarly to production, but in a larger context than production; operations cover all activities needed to create and deliver products and services to the customer.
Production has typically several objectives, which can sometimes be in conflict with each other. Customers expect good delivery capability, which means both short delivery times as well as good delivery accuracy. This requires flexibility from production: the ability to adapt to fluctuations in demand volume and mix.
Further important targets for production are good quality and ability to introduce new products fast in production. These objectives should also be achieved cost-efficiently. Production should also be developed constantly in order to ensure competitive operations.
Production strategy (operations strategy)
The daily operations and choices to be made in production are guided by production strategy. Production strategy, or operations strategy, is a part of the company’s business strategy. Production strategy should support business strategy and be consistent with other functional strategies such as marketing strategy. The most important production/operations-related strategic decisions are:
- company’s position in the value chain: what do we do ourselves, what do we buy (make or buy / make or do -decision).
- decisions concerning company’s production capacity: do we add or reduce production capacity; where the production capacity is located.
- main decisions concerning the production network and the roles of a factories: do we centralize our production to obtain scale advantages or decentralize production closer to customers to maximize speed and minimize transport costs; do we allocate different roles to factories, for example, by customer segment, product type or by product life-cycle stage.
- main decisions on the production system itself: what production technologies we use, how do we improve production, what kind of control and management systems we use.
Production strategy is often seen as a synonym to operations strategy, or is considered as part of operations strategy.
Demand and manufactured products
Besides the strategic decisions described above, production is strongly influenced by two factors: demand and the produced products. The stability and predictability of the demand have on impact of the production management and control choices. By increasing visibility of demand, we can improve both customer service and efficiency of production at the same time.
The products have a big impact on the choices of production type and production technologies. R&D (research and development) plays a key role: with good manufacturability, standardization of parts and modularity of products it is possible to increase the efficiency of production considerably.