Manufacturing
Manufacturing is the creation of a finished product by the use of raw materials and parts with human labor, tools, machines, and chemical processing.
The cost of raw materials is much lower than the cost of the finished product. Large-scale enterprises manufacture mass-produced goods using conveyorized processes and advanced technology. These are their main assets to produce more units at a lower cost.
Understanding Manufacturing
Production is a basic and integral part of the economy. It is the creation of finished products (metal products, furniture, and processed food) by processing raw materials (ore, wood, and foodstuffs).
Added value increases the value of the finished product. It comes from the processing of raw materials to produce a finished product, so manufacturing is the most profitable part of the business process. Some people have money to invest in materials, tools, raw materials, and the production of goods. Other people develop the skills to produce these goods.
Efficient production reduces costs and increases productivity. Producers can achieve efficiency as follows:
- To minimize redundancies;
- To make the quality of work better;
- To renew equipment and operating procedures;
- To set achievable goals;
- To organize receiving, shipping chains, and distribution lines.
Types of Manufacturing
Over time, there have been different ways of manufacturing products. Initially goods were made from raw materials, some are still made from raw materials. In the more traditional processes of manual production, tools are used. Typically, manual production includes decorative arts, textile production, burnishing, carpentry, and some types of metalworking.
It takes a lot of time for handmade items. Such products are very time-consuming and quite expensive. Although, it depends on the manufacturer and the type of product. For example, custom handmade items are much more expensive than mass-produced items. Also, exploitation of human labor is possible in such spheres, in the case of high demand for jobs and lax labor laws.
Large enterprises of mass production use mechanization. This makes it possible to increase the volume of goods production. Mechanized production involves machines, which reduces the need for manual labor, but there is still a need for qualified and trained personnel to manage and ensure smooth operation.
Production is divided into several categories. Some of them are:
Additive manufacturing. Usually, it's 3D printing. This is layering material on top of each other to create a shape and design in three dimensions. There are 3D printers for this process. 3D printing has become applicable in production since the 1980s.
Advanced manufacturing. It uses new technologies to improve processes and volumes of production. It also brings new products to market faster. Manufacturers can even increase the value of raw materials to focus on their target markets.
Contract manufacturing. This is a partnership between companies that share production processes between each other or outsource them to other firms. For example, an appliance company may hire a third organization to manufacture certain parts (e.g., rubber or plastic). These parts will be used in assembly on the production line.
History of modern Manufacturing
The Industrial Revolution had squeezed handmade products out of the market. It launched the process of industrialization through the development of steam engines and new technologies. Companies began to use machines in the production process. This increased the volume of production as raw materials were processed faster and the need for human labor decreased.
Parts began to be produced in large quantities and were therefore interchangeable. This was facilitated by mass production and assembly line production. This simplified the manufacturing of products and reduced the need for customized products.
Mass production methods became popular thanks to Ford in the 20th century.
Mass production developed along with technology. Companies began to use computers and high-precision electronic equipment. This has given rise to high-tech production methods that require more trained personnel and greater monetary investment. Often, this is translated into a higher price for the product.
High-end products require precision, trained personnel, and skilled production. Such products nowadays are usually produced in advanced economies, because the knowledge, skills, and abilities required to operate machines and design production processes are inherent in highly skilled jobs. Low-skilled manufacturing jobs are not performed in developed countries, but in developing countries, because labor in developing countries tends to be cheaper.
Technology has made production more efficient and workers more productive. While the volume and quantity of manufactured goods have increased, the number of needed workers has decreased.
Measuring Manufacturing in the economy
To estimate the contribution of manufacturing to a country's economy, economists and statisticians use manufacturing value added (MVA) ratios, which are expressed as a percentage of gross domestic product (GDP). It shows a comparison of manufacturing output with the overall size of the economy.
The Manufacturing Report of Institute for Supply Management (ISM), released monthly, shows data from a survey of production companies on employment estimates, inventories, and new orders.
This report is very informative for financial analysts and researchers. They can use it to assess the economic condition and understand the direction of the stock market moves.
