Manufacturing operations represent the individual processes a company engages in to produce goods for sale to consumers. The three critical parts of manufacturing operations are direct materials, direct labor and manufacturing overhead, which includes all the minor costs associated with the production process. Many companies use manufacturing operations to produce goods for consumers. While steel, mining or automobiles may be the first industries that come to mind, fast food restaurants, postal service and construction companies are other businesses that have similar operations, albeit in a service-style environment.
Direct materials include all the raw items or pieces of goods needed to produce products. For example, a computer manufacturer will need a circuit board, chips, hard drive, CD-ROM and other pieces to make computers. Without these parts, the company cannot produce the goods desired by consumers. Some producers will use intermediate goods as part of their direct materials. Computer manufacturers, for example, may not produce the needed memory chips; therefore, they purchase these from a chip manufacturer.
Labor to produce goods in manufacturing operations comes from individuals employed to run machines or hand-produce products. This direct labor is typically skilled labor, meaning that the workers need some education or experience to produce goods. Manufacturers that mass produce goods can use non-skilled labor in their manufacturing operations if they have a strong assembly line system in place. This requires little forethought or planning to produce goods; workers will simply manipulate the direct materials as necessary to produce finished goods.
Manufacturing overhead is the portion of manufacturing operations that include all costs not easily attributed to the produced goods. Utilities; minor parts like screws, bolts and solder; labor for cleaning the production facilities; and quality control costs are all types of manufacturing overhead. Because the company cannot attribute the costs to specific goods, it will lump them together and apply them based on production activities or processes. Manufacturers try to keep overhead costs at a minimum, as these costs can greatly increase the cost of produced goods.
Manufacturers will often group their production activities by type. This will create a logical flow for producing goods in an orderly manner. For example, preparing raw materials will start the production process, followed by cutting the materials into the necessary shape, refining them and removing unnecessary parts. The parts then are assembled, prepared for finishing, and finally, they are completed as the end product. Other steps may be necessary, based on the type of good produced or how much the company desires to refine raw materials for producing goods.