Introduction
When developing a plan for the management of production and costs associated with a particular product, such as the Neutrogena Light Therapy Acne Spot Treatment, it is important to determine which factors of production will be involved in the manufacturing of the product, what the fixed and variable costs will be, what factors influence the producer’s choice of inputs, and what production decisions should be made based on the analysis. This paper will provide an overview of these aspects and give recommendations on the optimal production practices Johnson & Johnson can implement with regards to its new skincare product.
Key Factors of Production
The factors of production are the collection of inputs a company uses to manufacture an output (a service or a good). Such inputs are the resources that manufacturers need to generate an economic profit through the production of goods and services. They are divided into four categories, including capital, labor, land, and entrepreneurship (Vitez, 2017). The first key input necessary for the production of the Neutrogena spot treatment is the land on which the manufacturing plant will be located. The land is not only limited to the physical property, but also includes resources such as water, natural gas, coal, and crude oil, all of which are essential components of the manufacturing process.
The second key input involved in the manufacturing of the product is the capital, which is a collection of tools (equipment, buildings, machines, etc.) that the company will use for production. For example, the Neutrogena factory needs processing equipment, assembly line equipment, and conveyors, along with other machinery to manufacture the Light Therapy Acne Spot Treatment. While labor is a vital resource for the production of the skincare product, it is entrepreneurship that combines all aspects of manufacturing a product for earning a profit. In the case of Neutrogena, an entrepreneur is someone who brings together the resources, capital, and the workforce to develop a cohesive production strategy for manufacturing the Acne Spot Treatment. A specific example of an entrepreneur is the innovator that came up with the idea of using the combination of blue and red lights to reduce the appearance of skin breakouts without burning the subject (Neutrogena, n.d.).
Fixed and Variable Costs
Variable costs usually refer to inventory costs because they are often associated with production units and accounts of recorded inventory, such as the cost of goods sold to customers (Wilkinson, 2013). On the other hand, fixed costs do not fluctuate with the volumes of production. Instead, they include manufacturing overhead costs and indirect costs. In the case of Neutrogena’s production of their Acne Spot Treatment, fixed costs include the payment of rent for the warehouses or manufacturing plants (if any of them are rented), or the machinery which is used in production. Fixed costs also include salaries for the company’s executives, expenses on interests, insurance, and depreciation expenses. Variable costs that the company is expected to pay include direct material and labor costs (Wilkinson, 2013).
Factors Impacting the Choice of Inputs
When choosing the inputs that go into the production of the Neutrogena Acne Spot Treatment, it is essential to take into account the factors that may influence the choice. The first factor refers to the supply of raw materials from an outside source (Benge, 2017). This factor is important because complications in the operation of the supplier can delay or limit the regular production schedule of the Acne Spot Treatment. Such complications may involve system glitches, transportation problems, or weather problems. If suppliers are not forthcoming about the issues they experience, the manufacturing process may be significantly delayed (Benge, 2017). Therefore, a smooth supply chain and a well-developed and managed inventory are factors that impact the choice of inputs by the company.
The second factor that has an impact on the choice of inputs is the need for special parts. Because the Acne Spot treatment is a unique product that uses the combination of red and blue lights to treat the skin, the manufacturing process requires the company to produce special parts to assemble the product. Any unforeseen changes in the “made-to-order” parts can influence the production of the commodity, especially when they are delivered from offsite (Benge, 2017). Factory overhead is the third factor that needs to be considered when choosing inputs for the production process. Because the company significantly depends on having the appropriate equipment to manufacture the product, even short-term shutdowns (of power, water, etc.) can influence the process overall. Additionally, if the manufacturing process is poorly managed or the management style does not align well with the process, it is highly likely that factories will generate excess overhead.
Finally, it is important to talk about people as the fourth factor that affects the choice of inputs. The workforce that is directly involved in the process of manufacturing can affect it in a variety of ways. For instance, sick leaves and vacations of key employees should be discussed ahead of time to prevent any adverse outcomes for the production. Another example is human error, which is an intangible factor affecting the process of manufacturing a product.
Production Decisions
Based on the analysis above, Johnson & Johnson has some decisions to make when it comes to optimizing its manufacturing process to achieve the best possible outcome. It has been discovered that outsourcing of some parts presents challenges such as overhead costs and delays. For this reason, it is recommended that the company should bring the manufacturing of the “special parts” to in-house facilities to prevent any disruption in the supply and delivery. In-house production will allow the company to become more flexible and react to the market quickly. For example, if the product gained exposure in American media, which would lead to a rise in demand, manufacturing in-house would address the spike in popularity more efficiently.
The second recommendation for optimizing the production of the Neutrogena Light Therapy Acne Spot Treatment is involving more human capital in the quality control department and replacing workers with automized equipment during the production itself. This would allow the company not to avoid firing workers by training them to be quality control specialists who monitor the automated processes. Human error, in this case, would be reduced significantly, leading to the overall optimization of the production. If the machinery made a mistake while assembling the product and there were not enough quality control personnel, the possibility is high that the product would come out faulty from the manufacturing plant.
In conclusion, production and costs are essential to consider for the maximization of the profits. It was recommended that Johnson & Johnson should assess the risks and benefits of their inputs and make changes in their production practices, including in-house manufacturing of special parts and focusing the efforts of the workforce on quality control through automating the assembly line.
References
Benge, V. (2017). What factors can affect the manufacturing process? Web.
Neutrogena. (2017). Light therapy acne spot treatment. Web.
Vitez, O. (2017). Economic definition of the four factors of production. Web.
Wilkinson, J. (2013). Variable vs fixed costs. Web.