What Is Manufacturing?

What Is Manufacturing?

Let me tell you directly: manufacturing is the process of transforming raw materials into finished goods. It's about creating finished products using tools, human labor, machinery, and chemical processing. This allows businesses to sell these products at a higher price than the raw materials cost. When done on a large scale, manufacturing uses assembly lines and advanced technologies to mass-produce goods efficiently. This efficiency lets manufacturers benefit from economies of scale, meaning they produce more units at a lower cost per unit.

Understanding Manufacturing

You need to know that manufacturing is a massive part of the economy. It processes and refines raw materials like ore, wood, and foodstuffs into finished products such as metal goods, furniture, and processed foods. By converting these materials into something more useful, we add value, which raises the price of the finished products and makes manufacturing profitable in the business chain. Some people focus on the skills to make goods, while others provide the funding for tools and materials.

Efficiency in manufacturing leads to higher productivity and cost savings. Manufacturers achieve this by reducing redundancies, improving work quality, updating equipment and procedures, setting realistic goals, and streamlining intake, supply chain, and distribution channels. Keep in mind that manufacturing is often reported on by the conference board and examined by economists.

Types of Manufacturing

Over time, how we manufacture products has evolved. Historically, people made goods using raw materials, and in some cases, they still do through hand manufacturing, which uses basic tools in traditional processes. This is common in decorative art, textile production, leatherwork, carpentry, and some metalwork. Handmade goods are labor-intensive and time-consuming, but they can fetch high prices depending on the supplier and type—like one-of-a-kind fashion items versus mass-produced ones. However, workers using these methods can be exploited where labor laws are weak and job demand is high.

Larger businesses turn to mechanization for mass production on a grand scale. This uses machines, reducing the need for manual handling and human capital, though skilled operators ensure machinery runs properly.

Additive manufacturing, or 3D printing, builds layers upon each other to create three-dimensional shapes using special equipment like 3D printers. Advanced manufacturing incorporates new technologies to improve processes, adding more value to raw materials, speeding up new product launches, and boosting output. Contract manufacturing involves partnerships where companies outsource processes, such as an automotive firm hiring a third party for parts used in assembly lines. Note that 3D printing has been around since the 1980s.

Types of Manufacturing Techniques

Make-to-stock (MTS) is a traditional technique where companies manufacture standard products based on forecast demand, estimating sales and producing inventory in advance. They use historical data, macroeconomic conditions, and customer expectations to plan. The upside is capitalizing on economies of scale with robust plans for materials, labor, and equipment. The downside is ending up with unusable inventory if demand falls short.

Make-to-order (MTO) works directly with customers to meet their specifications, starting production only after a contract. It's common in aerospace, construction, or technology for specialized products. Manufacturers can charge premiums and avoid inventory, but demand can be uneven leading to slow periods.

Make-to-assemble (MTA) starts by producing component parts, then assembles them as orders come in. This allows faster delivery than MTO but risks unsold inventory if demand doesn't match forecasts, potentially losing benefits of other techniques.

Types of Manufacturing Processes

Discrete manufacturing produces identifiable units using a bill of materials to track components on a production line with schedules and material recording. Process manufacturing includes batch processes for standardized goods like food using recipes, or continuous processes for ongoing operations like oil drilling.

Mixed mode combines discrete and process methods, often starting with batch processing then customizing packages. Job shop manufacturing handles unique batches by setting up equipment specially, while repetitive manufacturing breaks processes into dedicated lines for specific parts, minimizing storage.

History of Modern Manufacturing

Before the Industrial Revolution, handmade products dominated. That era introduced industrial processes with steam engines and machines, reducing human labor needs and increasing output. Mass production and assembly lines allowed interchangeable parts, popularized by Ford in the early 20th century. Now, computers and electronics enable high-tech methods requiring specialized labor and investment. Low-skill jobs have shifted to developing countries for cheaper labor, while high-end precision work stays in developed economies. As of March 2024, about 12.95 million Americans work in manufacturing.

Measuring Manufacturing in the Economy

Economists use ratios like manufacturing value added (MVA) as a percentage of GDP to evaluate its role. The ISM surveys firms on employment, inventories, and orders, publishing a monthly report that's an early economic and stock market indicator. Manufacturing contributed over $2.85 trillion to U.S. GDP in Q3 2023, about 10.3% of output.

Steps of Manufacturing

Step 1: Develop the idea, defining the product, audience, needs, and competitors. Step 2: Perform market research to improve the product, considering materials, equipment, conditions, and differentiation. Step 3: Design the product with customer needs and manufacturing limits in mind, forecasting costs and profitability. Step 4: Finalize and prototype by choosing materials and creating a test version. Step 5: Test the prototype to analyze costs, margins, weaknesses, and make changes. Step 6: Manufacture the good with full machinery, labor, and capacity investments, allowing ongoing improvements. Step 7: Monitor the process, evaluating costs, sales, demand, and scaling accordingly.

Manufacturing vs. Production

Manufacturing and production differ subtly. Manufacturing often procures raw materials externally to process into tangible goods using essential machinery and labor—it's a specific process. Production is broader, often owning inputs and yielding tangible or intangible outputs, like entertainment, where machinery isn't always needed.

Example of Manufacturing

Toyota exemplifies efficient manufacturing with its lean system based on jidoka (stopping equipment for issues) and just-in-time (producing only what's needed without excess reserves). They build systems by hand first to understand, then simplify and automate for simplicity and cost savings, eliminating waste and inconsistencies.

What Is Lean Manufacturing?

Lean manufacturing reduces production time to boost efficiency and cut waste.

How Do You Calculate Manufacturing Overhead?

Divide monthly overhead expenses (wages, depreciation, rent, etc., excluding materials) by monthly sales, then multiply by 100 for the percentage.

What Is the Purpose of Manufacturing?

It's to convert raw materials into tangible products efficiently for sale.

What Are the Steps of Manufacturing?

They start with information gathering and prototypes, move to design and production, and end with inspection and delivery.

The Bottom Line

Humans have long turned raw materials into goods through manufacturing, using labor or now machinery for larger scales. Technology like 3D printing continues to evolve this, even allowing home production.