BBI2O – Functions of a BusinessPRODUCTION

Factors of Production: Any good or service must first be made from raw labour and resources.

Factors of Production

1. Natural resources2. Raw materials3. Labour4. Capital5. Information6. Management

1. Natural Resources

Also known as the primary industries, they are made up of six types of natural resources:

• fuel/energy• logging/forestry• fishing/trapping• Agriculture• Mining • Water

They are often converted into the raw materials that make most other products. E.g. Mining->Iron Ore->Steel->Car parts (or electronics or ...)

2. Raw materialsAre the goods used in the manufacture of other goods. Only fishing and some agriculture natural resources make it directly to the consumer, the rest are largely refined into a raw material.

E.g. corn is a natural resource that is refined into the raw-material cornmeal which is then used in the manufacture of various food products.

3. Labour

Is the physical or mental work used to produce a good or service.

Since the advent of unions the cost of labour is very expensive (usually THE most expensive) part of production.

In cost-cutting measures, labour is usually the first thing targeted. There are usually a few different ways in which labour costs are cut.

1) Outsourcing (buying the parts from another company) or

2) Offshoring (moving part of the production of some, or all of the company to a country where labour is cheaper),

3) Consolidation (centralizing aspects of production)

Examples:

GM using various tire manufacturers for tires for their vehicles, rather than make them themselves (as opposed to Henry Ford who insisted in making all components of his machines - Robertson screw)

With NAFTA offshoring production to Mexico was commonplace as there were no tariffs for goods/services to and from there.

Consolidation of baking to a central plant in Brantford, ON make Tim Horton's baked products far more profitable.

4. Capital

Is the money invested into a business.

Liquid: cash, investment, receivables [assets to the company because it expects to see return soon]

Non-liquid: buildings, machinery, ideas (IP), talent etc...

5. Information

Is a product like most others that can be sold. For example, consultants and researchers are key in making good business decisions.

It is also a tool to be used, for example, lawyers, accountants and other skilled professionals can make money for a company though the use of information.

6. ManagementAre people who make decisions on factors of production. Most often, they decide things like where to buy, and at what cost, who to hire, who to partner with to gain a competitive edge.

Management oversees all elements of production to ensure the company is profitable.

Production Process

With a partner outline the production process to create a bag of potato chips. Be sure to include the following stages:

• Purchasing• Processing• Quality Control• Grading

Production Worksheets F & G