A manufacturing business is the creation or production of goods either with the help of machines, labour, equipment, tools and or a chemical or biological process or formulation. It is any company that uses raw materials or components to create finished goods. The products made can be distributed either directly to end users and customers or it could be sold to other manufactures to produce more complex products or to wholesalers who distribute the goods to retailers.
The manufacturing process is not a static process, there is constant development, either internally or externally. Internal development will focus on efforts to improve the process, increase productivity and efficiencies and to reduce scrap and to reduce wastage in order to obtain the most cost-effective process, with the best quality and the lowest product unit cost. External development will focus on new machines and machine learnings, other production aids or techniques.
Manufacturing plays an essential role in driving economic growth in South Africa. The manufacturing industry involves modern technology and infrastructure, which makes it an important sector of the economy, including older factories that still deliver a valuable contribution to the economy. Many entrepreneurs start with a small manufacturing operation and then grow, as demand increases. According to trading economic, Manufacturing production in South Africa rose by 1.4% from a year earlier in August of 2022, the second straight month of increases, against market expectations of a 2% drop. The largest positive contributions came from the manufacture of motor vehicles, parts and accessories and other transport equipment (21.2% vs 12.3% in July) which is a positive outlook for the manufacturing environment.
Manufacturing terms
Manufacturing and processing industries have their own set of terms. Whether you are new within the field or have been around for a while and require a refresher, below are the meanings of the some of the more common manufacturing terms used.
Direct materials are those primary raw materials that are purchased either locally or imported which are made into finished products. Direct materials are goods that are produced via a machine/s or labour process or both and then assembly and physically become the finished product at the end of the manufacturing process. In other words, the goods or tangible pieces or components that are directly identified with the finished product, which forms a cost element on its own.
Direct Labour is the cost of all essential labour physically used in the manufacturing of a product and contributes to the physical transformation of a product, which could either be machine operators or employees directly involved in the physically transformation of the raw material of which the cost incurred forms parts of a cost element of its own.
Manufacturing overheads refers to all the other costs used for the continuation of the manufacturing process, which cannot be directly attributed to a particular unit, but it is incurred in the production process, for example, the factory rental or bond costs of an owned building, insurance, depreciation of equipment, etc. It will also include costs incurred for indirect material costs, which does not form part of the end product, all of which forms part of a separate cost element to direct material and labour
Bill of material (BOM) is a comprehensive list of raw materials, components, assemblies, sub-assemblies, parts, or any other process and the quantities needed for each of these items, which is required to manufacture the finished product or a semi-finished product which is later consumed to produce a final or a larger product. It is the recipe with all the “ingredients” that is required to make a single unit and the cost thereof.
Productivity refers to the physical relationship or as the ratio between the quantity produced (output of goods and services) and the quantity of resources used in the course of production (input). Productivity increases when the same quantity of inputs delivers more outputs, or when you get the same output quantity using fewer inputs. Management can compare the productivity ratio over periods and by noting the trend, can set a standard to evaluate productivity.
Efficiency refers to finding ways to produce goods faster, using the least consumption of resources, it thus takes into account much more than just input and output by numbers, as it focuses on the bigger picture and considers every aspect of your manufacturing process. Efficiency is usually expressed as a percentage, where a 100% represents maximum efficiency and is the point where you produce goods at the lowest cost.
The difference between productivity and efficiency is that productivity is the quantity of work produced, where efficiency refers to the resources used to produce the work, however, improved productivity comes at the expense of efficiency and improved efficiency can reduce productivity. The more raw materials, time or labour is required to do the work, the less efficient the production process will be.
Yield in manufacturing is used to measure the performance of the process, it is the percentage of products that passes through the quality compliance control, which are not defective or damaged and are ready for selling.
There are many other manufacturing terms, however the manufacturing process is the pivot around which any manufacturing company turns and it is imperative to have a good, sound understanding of the different terms used in manufacturing.
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