Everything You Need to Know About Production
Factors for Production
Production within a business is essentially all of the components of running, operating, producing, and distributing goods or services.
All of the logistics* of production that takes to run a business:
Land (rent, utilities, building)
Labor (staff needed to complete tasks)
Capital (money needed to produce goods and services)
Entrepreneurship (production stems from a business idea. A business is born from solving a problem)
Product Design and Function
Have you ever looked at a product that you purchased and wonder what went into producing it? Look around your home and look at the items you have purchased.
Someone decided on a color, a shape, and the colors that went into the item itself and its packaging, etc. Design also plays into function. Sometimes design is for aesthetic appeal and other factors of design is for the function of the item.
Purpose of packaging:
Promote a company and its image
Give an old product a new image
Preserve the product for a time period
Help customers use products better
Introduce new uses for old products
Reduce costs, increase sales, and profits
Shipping and Distribution
This is going to be a huge part of production moving forward as many businesses ditch the brick and mortar storefronts and move to online platforms. As soon as someone hits “purchase” what is the next step?
How long will it take to produce the product, package it, prepare for shipping, and have the item delivered to their door?
What happens if the item is damaged or lost?
What is the return policy?
How much does shipping actually cost and how much will you charge customers for shipping?
These are questions to answer before setting up online orders within a business’s production processes.
Supply and Demand
Supply and demand also factors into who you want to buy your product. High priced items may not need a higher output of items because their customers are fewer.
For example, Jimmy Choo shoes cost anywhere from $400 to a couple thousand dollars for a pair of shoes. Walmart shoes cost $10-30. Their profits may be similar but their output/production of their products are vastly different.
The law of demand says that at higher prices, buyers will demand less of an economic good. The law of supply says that at higher prices, sellers will supply more of an economic good. These two laws interact to determine the actual market prices and volume of goods that are traded on a market.
Financial Analysis
Gross Profit Margin: is a measure of profitability that shows the percentage of revenue that exceeds the cost of goods sold (COGS).
Cost of Goods Sold: Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good.
Production Costs
A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. A variable cost is a corporate expense that changes in proportion to production output.
When creating a budget within a business, a company must factor in variable costs as an estimate but note that the numbers may change or may not be exact. For example: if your company begins selling 3 times more what you did the year prior, your supplies cost will increase and your team might need to grow. This will cause payroll (wages) to increase.
The marginal cost of production and marginal revenue are measures used to determine how much to produce and the price per unit of a product that will maximize profits.
Production and your SBE or Spirit Box
As a Spirit Box team, think through all of the production that went into your Spirit Box machine, the products you stock, and the production processes within your team.
Fixed Costs for your SBE:
-Cost of your Spirit Box
-Annual Service Fee of $925
-Stocking enough dollar coins in your Spirit Box
-DECA dues/ICDC Costs
-Other organizational dues
Variable Costs:
-Spirit Box Products/inventory
-Packaging supplies for products
-If your team doesn’t renew their annual fee and the machine needs serviced
*Logistics: the detailed coordination of a complex operation involving many people, facilities, or supplies.