Manufacturing: definition, types, examples and use as an indicator (2023)

What is Manufacturing?

The term manufacture refers to the processing ofraw materialor parts into finished goods through the use of tools, human labor, machinery and chemical processing.

Manufacturing allows companies to sell finished products at a pricehigher costthan the value of the raw materials used. High-volume manufacturing allows goods to be mass-produced using assembly-line processes and advanced technologies such ascore assets. Efficient manufacturing techniques allow manufacturers to take advantage of thiseconomies of scale, producing more units at a lower cost.

The central theses

  • Manufacturing is the process of converting raw materials or parts into finished goods through the use of tools, human labor, machinery, and chemical processing.
  • Most products were handcrafted using human labor and simple tools before the industrial revolution.
  • The Industrial Revolution led to mass production, assembly lines, and the use of mechanization to produce larger quantities of goods at lower costs.
  • Financial analysts examine the ISM Manufacturing Report each month as a potential leading indicator of the health of the economy and the possible direction of the stock market.
  • Manufacturing can be defined and classified under different types, processes or techniques.

understand manufacturing

Manufacturing is an integral and large part of theBusiness. It includes the processing and refining of raw materials such as ore, timber and food into end products such as metal goods, furniture and processed food.

Converting those raw materials into something more useful addsWert. This added value increases the price of the finished products and makes manufacturing a very profitable part of the business chain. Some people specialize in the skills needed to create goods, while others provide the funds businesses need to purchase the tools and materials.

As described above,efficiencyin production can lead to higherproductivityand cost savings. Manufacturers can achieve this if they are able to:

  • Reduce redundancies
  • Improve the quality of work
  • Update equipment and procedures
  • Set yourself realistic goals
  • streamline recording,supply chain, and distribution channels

About the production is often reported by theconference boardand is well studied by economists.

types of manufacture

How products are made has changed over time. Humans have historically made goods from raw materials. And in certain cases they still do. Handcrafting involves using basic tools through more traditional processes. This form of manufacture is often associated with decorative arts, textile production, leatherwork, carpentry and some metalwork.

Handmade goods are labor intensive and take a lot of time. Depending on the supplier and the type of goods, they can sometimes achieve a high price. For example, unique handmade fashion items can be sold at a higher price compared to mass-produced items. However, there are instances where people making goods using these techniques can be exploited, particularly wherelabor lawsare lax and demand for jobs is high.

Larger companies use mechanization tomass productionArticles on a much larger scale. This process involves the use of machinery, which means manual manipulation of materials is not essential. Very littlehuman capitalis needed in the production process, although highly skilled people may be required to operate the machines and ensure they are working properly.

Additive manufacturing

This type of manufacture is commonly referred to as3d printing. Stacked layers are used to create shapes and patterns in a three-dimensional process using a special device such as a 3D printer.

Advanced manufacturing

This method involves new forms of technology to improve the production process. Businesses can add even more value to the raw materials they use to better serve their own needstarget markets. Newer technologies are also helping bring new products to market faster while increasing output.


This is common in manufacturingIndustry. Companies enter into partnerships and business relationships with other companiesoutsourcecertain manufacturing processes. For example, an automobile company may hire a third party to manufacture parts that it uses on its assembly lines to make cars.

3D printing has been around since the 1980s.

(Video) Manufacturing: Definition, Types, Examples, and Use as Indicator

types of manufacturing techniques

Lagerware (MTS)

The traditional production technique is make-to-stock, the manufacture of a standard product is based onforecastRequirement. A company estimates how many units will be sold in a given period of time and then plans in advance to produce that many goods. Goods are often held as inventory, which leads to the release and wide distribution of the goods.

Before releasing a product, a company must have sufficient information to understand how many goods it needs to produce. This includes using historical data of similar commodities, understanding macroeconomic conditions, and considering customer expectations for specific product characteristics.

The advantage of MTS is that companies can often benefit from the economics. Because a company sets a manufacturing goal, it can plan in advance how much raw materials, labor, or equipment it will need, and can often create the most robust manufacturing schedules. On the other hand, failing to meet expectations leaves a company with unusable products, excess inventory, and fixed but unutilized fixed costs.

Make-to-Order (MTO)

opposite of MTS,made-to-orderManufacturing involves working directly with a customer to understand their needs and desired product specifications. Production usually only begins after a signed contract orletter of intent. In addition, manufacturers may create lightweight prototypes, but are often reluctant to begin manufacturing until full product specifications have been delivered.

MTO is most commonly found in industries that produce specialized products for a very specific purpose. Aerospace, construction, or technology (to a lesser extent) are examples of industries where manufacturers often do not produce goods until a government agency has approved purchase of the aircraft or a lessee has signed a long-term lease.

On the one hand, MTO manufacturers can often charge a premium for their products since the goods may not be readily available in a marketplace. This applies in particular to highly specified goods. In addition, MTO manufacturers often only make a good when a sale is pending; Therefore, it often never carries inventory. As a disadvantage, MTO manufacturing is often associated with uneven product demand, which can result in slower business cycles.

Assemble (MTA)

The third type of manufacturing technique is a make-to-assemble process. Companies try to get a head start by starting to produce components. Then, when customers start placing orders, the companies assemble previously manufactured components.

Because the company has partially completed the manufacturing process, goods can often be delivered to customers faster than with MTO processes. However, the company still runs the risk of being stuck with a backlog of forecast demand that doesn't materialize. Additionally, the organization risks losing the benefits of MTO and MTS by trying to balance each process type.

types of manufacturing processes

Finally, manufacturing can be divided into different production processes. Each method results in a uniquely different end product.

Discrete Manufacturing

Discrete manufacturing is aptly named because each product manufactured can be specifically identified. The manufacturing process uses aparts listto track what raw materials or components go into each specific unit. In discrete manufacturing processes, units are often manufactured on a production line, where assembly line workers follow a production schedule and record material usage.

process manufacturing

There are two main types of process manufacturing. First, batch process manufacturing involves the manufacture of a product based on a specific standard using a recipe or formula. Batch process manufacturing is commonly used in thefood and beverage industryto produce easily replicable goods of a given quantity (e.g. a given jar of teriyaki sauce).

Alternatively, continuous process manufacturing involves consistent, ongoing operations that often produce a commodity around the click over a long period of time. Then manufacturing is halted for a period of time before resuming. Continuous process manufacturing is heavily used in the oil and gas industry when drilling for natural resources.

Mixed mode manufacturing

Some goods may require a combination of discrete and manufacturing processes. This is often the case with goods that are manufactured in a batch process before these standardized goods are converted into more specific individual packaging. Process manufacturing is used in the first phase of product creation, while the unique features of the delivery method (including any customization) are added in the second half.

contract manufacturing

An even more specific type of manufacturing process, goods can be manufactured through contract manufacturing. This process is most commonly used when a batch needs to be processed, but the batch is different from a company's normal product. For this specialized, customized commodity, a company must often perform unique set-up and process steps, including converting existing equipment into a more usable structure.

Repeated manufacturing

As a potential subset of other manufacturing processes, batch manufacturing often breaks down long manufacturing processes into smaller pieces. Each part is often referred to as dedicatedassembly lineor manufacturing cell, is intended to manufacture only its specific part of the unit. Then the units are continuously transported to the next subsequent dedicated assembly line. All work on the material takes place within the production line, as temporary storage areas are often not used.

In 2021, an estimated 12.1 million Americans will work in manufacturing.

(Video) Manufacturing: Definition, Types, Examples, and Use as Indicator

History of Modern Manufacturing

Before that, handmade products dominated the marketIndustrial Revolution. This period initiated the industrial process in which raw materials were processed in large quantities into finished products. The development of steam engines and newer technologies allowed companies to use machines in the manufacturing process. This reduced the need for human capital while increasing the sheer volume of goods that could be produced.

mass production andassembly lineManufacturing allowed companies to produce parts that could be used interchangeably and allowed finished products to be easily manufactured by reducing the need to customize parts.Ford popularized mass production techniques in the early 20th century.

Computers and precision electronic devices have since enabled companies to advance high-tech manufacturing methods. Companies using these methods usually have a higher price, but also require more specialized and higher manpowercapital investment.

The skills required to operate machines and design manufacturing processes have changed drastically over time. Many low-skill manufacturing jobs have relocateddeveloped in developing countriesbecause labor tends to be cheaper in developing countries. As such, high-end products that require precision and expert manufacturing are typically manufactured in developed economies.

Measurement of manufacturing in the economy

economistsand government statisticians use various metrics when assessing the role of manufacturing in the economy. For example, manufacturing value added (MVA) is an indicator that compares an economy's output with its overall size. Thismetricis expressed as a percentagegross domestic product(BIP).

ThatInstitute for Procurement Management(ISM) surveys manufacturing companies to estimate employment, inventories and new orders. The ISM publishes the ISM Manufacturing Report each month to summarize its findings. financial analystsAnd researchers are eagerly awaiting this report as they see it as a potential leading indicator of the health of the economy, as well as a sign of where that is happeningstock marketcan go.

$2.2 trillion

Manufacturing has always been an important contributor to the United States economy. It is estimated that manufacturing accounted for 10.8% of US GDP in 2020. That equated to just over $2.2 trillion.

steps of manufacture

These seven sequential steps include not only the physical production of a good, but also the stages before and after the production of a physical good.

Step 1: Development of the idea

Before anytangiblewell done, manufacturing begins with concept development and product vision growth. This product vision defines what the product is, who the target audience is, what the need for the good is, and what competitors there are. Many of these types of questions can define the good and help refine what qualities go into the actual product.

Step 2: Conduct market research

Although many believe that manufacturing only involves the physical aspect of making a good, the manufacturing process still involves researching the potential product to find ways to make it better. This includes understanding what raw materials can be used, what equipment is needed, the conditions under which the commodity must be manufactured, and how the commodity differs from competing commodities.

Step 3: Design the product

With the research considerations in hand, it's time to design the product. This should always be done considering what the customer needs and uses. This should also account for any crafting limitations discovered during the research phase. This includes understanding the costs that go into that product design so you can predict what your product profitability will be. At this stage, the manufacturing process is most ingrainedResearch and Development.

Step 4: Completion and Prototype

Now that the design phase is complete, it's time to make final decisions about what the product will look like. This includes the selection of the raw materials to be used or the definition of the manufacturing process. These decisions are implemented by creating a first prototype. That means designing a smaller test product that reflects the actual production product.

Step 5: Prototype Test

Once the prototype is ready, it's time to test it. This includes analyzing the actual resources that went into the merchandise to better understand how much the actual product will cost and what it costsprofit marginwill be. This also includes finding weak points or inefficiencies in the manufacturing process. This is often the final stage before mass production begins; Although changes may be made in the future, now is the time for major changes without major impact to the product or manufacturing process.

Step 6: Making the Good

Enough time, testing and research has been done; it is now time to do good. The company acquires the machinery and equipment required for comprehensive processes to manufacture the goods. The company also invests in the full amount of labor, storage,insurance, and other costs associated with a full production line.

(Video) Manufacturing: Definition, Types, Examples, and Use as Indicator

Companies can choose to continually improve their processes; Rather than returning to the prototype stage, they often review and implement minor changes during the actual manufacturing step.

Step 7: Monitor the process

In order to continuously improve, the company must continually evaluate how the process is going and whether expectations are being met. The company must analyze what the cost of the good is and compare this against each othersalePrices. The company must also assess product demand and scale up (or down) based on consumer preferences.

Manufacturing vs. Production

Although sometimes referred to as the same thing, there are subtle differences between the manufacturing process and the production process. In manufacturing, a company often has to request raw materials from third parties orexternal providersprocessed into finished goods. For production, the company often owns these raw materials.

The definition includes different processes in each case. Production is broader and includes manufacturing because production simply takes input and provides an output. Manufacturing, a more specific type of production, is the act of taking a raw material and turning it into a tangible end product.

The manufacturing process ends with a tangible good. Alternatively, production can end with a tangible or intangible good. Consider the theatrical example aptly named. A show or theater production literally ends up being public entertainment consumed by the general public.

Because the manufacturing process relies heavily on raw materials, the manufacturing process often relies on heavy machinery or equipment. It also relies on setup time and labor to set up the process. Depending on the output, machines can be dispensed with during production.


  • Often requires obtaining a raw material

  • Output are physical, tangible goods

  • Machines and labor are essential to the process

  • Is a more specific type of process


  • Often includes previous ownership of the inputs to the process

  • Output can be tangible or intangible

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  • Machines may or may not be required

  • Is a less specific type of process

Manufacturing example

Known for its efficient manufacturing process, Toyota Motor Corporation has always been a well-known and successful manufacturer. The company uses a lean manufacturing system to produce customer vehicle orders as quickly and efficiently as possible.In late 2021, Toyota announced that it was raising its long-term guidance for battery electric vehicle sales, targeting 3.5 million units sold in 2030 (up from the previous plan of 2.0 million).

The company's manufacturing process is based on two core concepts:

  1. Jidoka:If there is a production problem, the plant will stop immediately to avoid future defective products.
  2. Just in time:Each process produces only what is essential to the current process. This includes getting just enough material without carrying excessive amounts of reserves.

At Jidoka, engineers design and build systems by hand to fully understand the manufacturing process. Then they carefully simplify the operation and transition to using machines. The goal is that the manufacturing process utilizes repetitive processes that make the manufacturing process simpler and less expensive.

As part of Just-in-Time, Toyota strives to eliminate "waste, inconsistencies and unreasonable demands on the production line".When an order is received, the production instructions must go to the production line immediately. The production line must have the required materials and parts. Any defects are quickly remedied by replacing similar parts.

Was ist Lean Manufacturing?

Lean manufacturing is a form of production that can be used by manufacturers who want to reduce production system time to increase their efficiency. Implementing a lean manufacturing approach means that a company wants to increase productivity while eliminating as much waste as possible. This could mean a reduction in operational costs and lead times.

How do you calculate manufacturing overhead?

Manufacturing overhead is the total indirect costs associated with manufacturing. This includes all expenses such as employee wages, depreciation of assets, rents, leases and utilities. Costs such as materials are not included.
To calculate your manufacturing overhead, take your monthly overhead and divide that total by your monthly sales. You can multiply the result by 100 to get the total monthly overhead percentage.

What is the purpose of manufacture?

Manufacturing is the process of transforming a raw material into a finished, tangible product. Manufacturing is about making a process efficient as certain resources are converted into another resource, often for the purpose of selling to a customer.

What are the manufacturing steps?

The manufacturing process often begins with an information gathering phase where engineers and management learn about a process. Prototypes are often created and evaluated. Then specific designs are implemented and commercial production begins. As goods are manufactured, they are inspected, shipped, and delivered to the next user of the finished goods.

Why is manufacturing important?

Crafting is vital to most, if not all, of the commodities around you. Without a formal process for turning raw materials into more complex goods, we would be without electronics, gadgets, transportation and many facets of life that make our days more efficient, safer and more productive. Manufacturing is the backbone of the objects we interact with, rely on, enjoy and consume.

The final result

Humans have traditionally turned raw materials into finished goods for as long as we can remember. This process of converting raw materials into finished goods is called manufacturing. Companies can still process these materials by human hands. But they also now have the ability to buy machinery to mass produce on a much larger scale. Technology has supported the way we make our goods and is constantly evolving. The advent of 3D printing makes it easier for individuals to create finished goods themselves without ever having to leave their homes.


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