PRODUCTION

Production is the process that takes place when resources, such as raw (natural, not yet processed)
materials, human labour and energy are converted into goods or services that satisfy the needs and
wants of consumers.

Needs are defined as the goods and services that we require and need to live. They include the need
for food, water, clothing, and shelter.

Wants are goods or services that we do not need to live, but we still want them. For example, we all
need suitable clothing but we do not necessarily need designer clothing.

The Chain Of Production

Primary sector industries are concerned with getting or growing raw materials. For example fruit,
vegetable and cereal crops are farmed, animals are reared, trees are grown and felled (cut down),
iron and coal are mined from the ground and oil is drilled and piped from under the sea. These are
sometimes known as 'extractive production' industries.

Secondary sector industries will purchase the raw materials grown or extracted by primary
industries. Then, using manufacturing and assembly processes, they will convert raw materials into
parts or finished goods. For example, they may convert oils into plastics and then the plastics into
toys. The construction industries are concerned with building roads and other transport networks.
They also produce buildings for use as schools, hospitals, factories, shops, offices and homes.

Tertiary sector activities provide the services that support the distribution of raw materials, parts
and finished goods between organisations. There are commercial services and personal services.
Commercial (or indirect) services support the activities carried out in the primary and secondary
sectors of production to help the product reach the consumer. Personal (or direct) services provide a
service directly to a consumer. Commercial services include money to pay for the production and
distribution of goods and services; communications to help arrange production and distribution;
advertising to tell consumers about the products; transport and warehouses to store the products
and insurance to protect against loss and damage. Personal services include health and beauty care;
education; legal and financial advice and live entertainment.

Added value - the extra value given to products and services as a result of production or
manufacturing processes, transport or storage.

Specialisation - when individuals, organisations or whole economies concentrate on making a

Division of labour - the selection and placing of workers within an organisation according to their
experience and skills. They can carry out their duties quickly, accurately and efficiently, making sure
that the organisation provides high-quality products or services.

Specialisation can take many forms. These include specialisation by:

Region - The supply of services, goods, raw materials etc. will come from a particular region of a
country. For example, in most countries there are regions associated with tourism, usually found on
coastlands or in regions of great natural beauty. Another example would be the north-eastern region
of Thailand, which is one of the country's largest silk production areas.

Town - A town or city within a country can become linked with a particular industry. For example,
Bang Tapang Noi in north-east Thailand is one of the main centres of silk production where,
traditionally, female family members make silk by hand (in order to increase their families' small
incomes as rice farmers).

Firms - A firm or organisation may split itself up into specialised units. For example, Cadbury
Schweppes Plc now has a number of divisions to deal with its many drinks and sweets that are
consumed internationally.

Factories - An organisation may focus each of its factories on a particular product type. For example,
Heinz, the global US food manufacturer, has factories that specialise in manufacturing ketchups and
sauces, and also factories specialising in manufacturing frozen meals, soups and children's meals.

Individual - An individual can specialise in providing one type of service or product. For example, this
could be an accountant who specialises in providing financial and tax consultancy services to private
individuals.

Commerce

Commerce or commercial activity is the means by which raw materials and finished goods are
distributed to those people or organisations who have a need for them and the money to pay for
them. Commerce includes trade and the various 'aids to trade'.

Trade - the process of buying and selling to make a profit.

Home trade - the whole range of activities involved in buying, selling and distributing goods within a
specific country.

International trade (also known as foreign trade) - the range of activities concerned with the
importing and exporting of materials, goods and products between countries.

Aids to trade
The commercial services that support trade are referred to as aids to trade or 'indirect services' as
they exist to help trade to take place.

Banking and finance - Banks and other financial organisations make it possible for traders to obtain
finance (maybe in the form of loans, mortgages or overdrafts) so that they can purchase raw
materials, equipment, land and/or buildings that are necessary if they are to produce goods or
provide services. Without necessary finance it is impossible for trading between organisations to
take place. Finance is therefore essential for any company. Money can be borrowed for many
different purposes and for different lengths of time.

Communications - Good communications are extremely important for trading. Traders need to be in
constant contact with each other to provide information, agree terms of trade, arrange delivery
details and deal with after-sales issues. Today there is a much wider variety of efficient
communication methods available to traders than in the past.

Advertising - The number of products and services sold by traders is strongly linked to how well they
have been advertised and promoted to their consumers, Some organisations will design their own
advertising campaigns by employing specialist marketing staff. However, many businesses do not
have the necessary specialists and will use professional advertising agencies. Advertising has to
create the desire for products or services. This desire or demand encourages materials and products
through the production chain until products and services are readily available to consumers.

Transport - This is a complicated part of the trading process. Transport and distribution services are
about getting the right materials and products to the right place at the right time using the best
forms of transport, whether by land, air or sea. Late delivery of materials or goods could lead to lost
production time or lost sales.

Warehousing - Materials and goods delivered to the consumer or organisations that need them
have to be stored until they can be used or developed. Some products, ice-cream for example, are
wanted at particular times of year and may need to be stockpiled until they are in demand.

Insurance - There is a great deal of movement of material and goods in the production chain, so
there is always a risk that they may be damaged, destroyed or stolen. Most businesses will insure
their materials or goods against such a loss by. using insurance brokers. This means that if the goods
are damaged, stolen or destroyed, the business will receive compensation. There are few businesses
that would send goods or materials by air or sea without insuring them first.

When we discussed the chain of production earlier in the unit it became clear that organisations and
their consumers are highly dependent upon each other. Organisations rely on their consumers to
pay for the products they manufacture in order to make their income and profits. Consumers rely on
organisations to supply them with the products they require. Organisations and their consumers are
'mutually dependent' because they rely on each other. This is called interdependence.