Selecting the most appropriate method of production
There is no one best method of production. The choice of production method rests on a number of variables which will change over time. The following are some factors which will influence business in its selection of production method:
- The level of demand - if there is a mass market for a product, this may justify the investment in capital to allow for flow production.
- The nature of the target market - customers may demand a high level of customisation and quality which only job production can provide. However, price sensitive markets segments may only be satisfied if the firm produces high volume, standardised products.
- The nature of the product - certain products may only be produced by one production method. Unique constructions, such as sky scrapers and sports stadiums will require job production.
- The comparative costs of labour and capital - labour is often the largest cost for firms in developed countries. Consequently, large firms will look to minimise cost by investing in automation and mass production technologies. However, businesses operating in countries where labour is relatively cheap are more likely to use labour-intensive production methods.
- The nature of the firm itself - small firms are unlikely to have the funds to invest in the capital required for mass production.
- New technologies - as technologies develop, they often become cheaper. This may allow smaller firms to acquire the capital required for batch or flow production systems.
- The goals of the business - firms seeking to maximise market growth and/or profitability, may invest in flow production, whereas firms aiming for a high quality niche may build on unique selling points, such as 'hand-made' or 'customised' requiring job production methods.
- Government policies - government often attempt to stimulate economic growth by offering grants, subsidies and tax breaks for capital investment. Some firms will be persuaded to make production more capital-intensive as a result.