BBI2O1 - Business UNIT 2 Notes
➤ UNIT 2: Functions of a Business
》CHAPTER 5: Production
➢ Factors of Production
Production
Production happens when an individual, business, or an organization makes a product,
provides a service, or generates an idea or concept.
Six Factors of Production
● Natural Resources
● Raw Materials
● Labour
● Capital
● Information
● Management
Natural Resources
The six types of natural resources that primary industries supply us with are:
● Agriculture
● Fishing and Trapping
● Mining
● Water
● Fuel and Energy
● Logging and Forestry
Primary industries that take something out of the Earth or the sea can be referred to as
extractive industries.
Raw Materials
Raw materials are any goods used in the manufacturing of other goods.
,Two Main Types of Raw Materials
Ingredients
Raw materials that are combined or converted and become a part of the finished
product. PANTS - Zipper, Fabric, Thread, Rivets
Supplies
Raw materials that do not become a part of the finished product, but are used in the
product creation process. PANTS - Air filters for ventilation systems, Paper for invoices,
Sewing machine oil
Labour
Labour includes all of the physical and mental (cognitive) work needed to produce
goods and services. Labour is expensive so most businesses seek ways to save on labour costs.
Businesses now automate and consolidate to save on labour costs. Automation means
that many tasks are performed by more than one person using machines. Consolidation occurs
when many small manufacturing sites close down and are centralized into one large site.
Outsourcing
Outsourcing, the hiring of another company to perform tasks for any company, is
another cost saving business option.
Capital
Capital is the money invested in business and is often referred to as monetary capital.
Liquid Capital
Capital can be transformed into other items to run the business such as a new truck.
This type of capital is called liquid.
Non-Liquid Capital
Some capital such as buildings or equipment are non-liquid. It is part of the business
operations, and cannot be converted into liquid capital easily. These items are called capital
goods.
, Intellectual Property
Intellectual property, the ideas or the talent of a business’ workforce, is a non-tangible
form of capital.
Information
To produce goods and services in a competitive global market, businesses require more
information about:
● New Technology
● Customers
● Competition
● Political Conditions
● Sources of Supply
Accurate and usable information reduces a business’ risk and can enhance its profitability.
Management
Management consists of the people who run the business and control or direct the
factors of production (natural resources, raw materials, labour, capital, information, and so
on). Management also allocates company resources and makes decisions that affect the
day-to-day and long-term operations of the business.
In larger companies, higher-level managers and/or the board to directors make
decisions regarding profit distribution. In a smaller business, a single business manager or
owner may make all of the business decisions.
➢ The Production Process
Purchasing, grading, processing, and quality control are the four stages of the
production process.
Purchasing
Within a business, someone is responsible for purchasing the raw materials needed to
produce the product or service. Purchasing may be the responsibility of a purchasing
department, purchasing agent, buyer, or owner.
Some considerations when making purchasing decisions include:
➤ UNIT 2: Functions of a Business
》CHAPTER 5: Production
➢ Factors of Production
Production
Production happens when an individual, business, or an organization makes a product,
provides a service, or generates an idea or concept.
Six Factors of Production
● Natural Resources
● Raw Materials
● Labour
● Capital
● Information
● Management
Natural Resources
The six types of natural resources that primary industries supply us with are:
● Agriculture
● Fishing and Trapping
● Mining
● Water
● Fuel and Energy
● Logging and Forestry
Primary industries that take something out of the Earth or the sea can be referred to as
extractive industries.
Raw Materials
Raw materials are any goods used in the manufacturing of other goods.
,Two Main Types of Raw Materials
Ingredients
Raw materials that are combined or converted and become a part of the finished
product. PANTS - Zipper, Fabric, Thread, Rivets
Supplies
Raw materials that do not become a part of the finished product, but are used in the
product creation process. PANTS - Air filters for ventilation systems, Paper for invoices,
Sewing machine oil
Labour
Labour includes all of the physical and mental (cognitive) work needed to produce
goods and services. Labour is expensive so most businesses seek ways to save on labour costs.
Businesses now automate and consolidate to save on labour costs. Automation means
that many tasks are performed by more than one person using machines. Consolidation occurs
when many small manufacturing sites close down and are centralized into one large site.
Outsourcing
Outsourcing, the hiring of another company to perform tasks for any company, is
another cost saving business option.
Capital
Capital is the money invested in business and is often referred to as monetary capital.
Liquid Capital
Capital can be transformed into other items to run the business such as a new truck.
This type of capital is called liquid.
Non-Liquid Capital
Some capital such as buildings or equipment are non-liquid. It is part of the business
operations, and cannot be converted into liquid capital easily. These items are called capital
goods.
, Intellectual Property
Intellectual property, the ideas or the talent of a business’ workforce, is a non-tangible
form of capital.
Information
To produce goods and services in a competitive global market, businesses require more
information about:
● New Technology
● Customers
● Competition
● Political Conditions
● Sources of Supply
Accurate and usable information reduces a business’ risk and can enhance its profitability.
Management
Management consists of the people who run the business and control or direct the
factors of production (natural resources, raw materials, labour, capital, information, and so
on). Management also allocates company resources and makes decisions that affect the
day-to-day and long-term operations of the business.
In larger companies, higher-level managers and/or the board to directors make
decisions regarding profit distribution. In a smaller business, a single business manager or
owner may make all of the business decisions.
➢ The Production Process
Purchasing, grading, processing, and quality control are the four stages of the
production process.
Purchasing
Within a business, someone is responsible for purchasing the raw materials needed to
produce the product or service. Purchasing may be the responsibility of a purchasing
department, purchasing agent, buyer, or owner.
Some considerations when making purchasing decisions include:
