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product innovationthe improvement of existing products or the development of new products. Product innovation involves considerable expense in financing the generation of ideas, product design, development and testing, and since a high proportion of new products fail to secure customer acceptance it involves a high degree of risk. See RESEARCH AND DEVELOPMENT, NEW-PRODUCT DEVELOPMENT.
The conversion process for transforming inputs such as materials, labour and capital into goods and services.
In the case of goods, production processes may be divided into three broad categories:
- process production involves the continuous production of a good in bulk often by chemical means, for example petrochemicals. Process production is used whenever raw materials in liquid or gaseous form need to be blended, heated or distilled, and the flow of these materials is facilitated by using pipelines which connect the various production stages;
- mass production involves the PRODUCTION-LINE OR ASSEMBLY-LINE production in very large numbers of goods such as motor cars or domestic appliances using PRODUCT-FOCUSED LAYOUTS. Mass production is used wherever demand for a product is sufficiently large and the product sufficiently standardized to justify laying out a specialized production line or assembly line for it in order to achieve the cost savings associated with ECONOMIES OF SCALE;
- batch production involves the manufacturing of similar goods together in batches and is used where demand is insufficient or the product cannot be standardized to enable mass production to be used. In batch production, batches of a product are subjected to a series of processes such as machining, drilling and grinding in work stations specializing in these processes, with machines generally being reset after each batch, ready to process the next batch (see PROCESS-FOCUSED LAYOUT).
In addition, a number of hybrid production systems such as CELLULAR MANUFACTURING and FLEXIBLE MANUFACTURING SYSTEMS combine various features of mass production and batch production methods, using AUTOMATION to facilitate the low-cost production of a variety of low-volume components or products. See LEAN MANUFACTURING, JUST-IN-TIME (JIT) SYSTEM.
Mass production and batch production are generally undertaken for STOCK and customer orders are met by drawing on this stock. Alternatively, the firm may manufacture to individual customer orders rather than for stock, that is, engage in jobbing production. See VALUE ADDED.