Production refers to the process of creating a product for consumption. Production can refer to the creation of anything, from computers to food.
How quickly a product is produced determines its relevance. If no one is waiting for your product, then it does not matter how long it takes to make it. It must be made with enough time for distribution and marketing, however.
With ever-shortening consumer cycles, production has become increasingly challenging. Today’s consumers are more aware of what they want and how they want it than ever before. This makes their expectations very high.
Production periods can be very short, which means that there is very little time between the start of production and the completion of production. This time that elapses between the start of production and the completion of production is known as turnaround time.
Importance of time value of money
As production takes time, it is important to consider the time value of money when deciding how much to spend on production. If you are investing in production, you want to make sure you are getting your money’s worth!
It is important to keep track of the elapsed time between starting production and completing production so that you can plan for the marketing and sales phase.
If there is a long gap between producing the product and putting it on sale, buyers may forget about it or find something else they like instead.
Having a shorter wait time between production and sales can also increase profits, as people will not forget about the product or find similar alternatives.
During the production phase, it is important to keep an eye on costs and keep managing finances to ensure that enough money is being saved for production.
Examples of time between production and consumption
The time between production and consumption can be measured in several different ways. These include the time that elapses between the start of production and the product’s completion, the time that elapses between completion and sale, and the time that elapses between sale and consumption.
The first of these is known as ‘lead time’, while the second is known as ‘marketing time’. The difference between these two times is what happens in between sale and consumption.
For example, if a shoe manufacturer started producing shoes at 9am, then by 6pm they would be finished. However, they would not be sold until some point after this, meaning there is a period of time where they are sitting around unused. This is marketing time – they are ready to be sold, but they are waiting on something before that can happen.
Causes of time between production and consumption
There are a few reasons that time between production and consumption occurs. Some of these reasons are positive, while others are negative.
Some people may be motivated to wait for the product due to the advertising done by the company. They may see a commercial or an ad and feel convinced to buy the product when it comes out.
Companies may also advertise their products as being worth the wait due to new features or improvements over past models. This may convince people to buy it immediately, instead of waiting for it to go on sale.
Negative reasons include production problems that take longer than expected to fix. Sometimes issues are found after releasing the product that need to be fixed, taking time away from using it. These can both lead to increased time between production and consumption.
Waiting can be a hard thing to do, but maybe we should give ourselves a little credit for our patience.
Ways to reduce the time between production and consumption
As mentioned earlier, the time between production and consumption can be reduced in a number of ways.
You can work more quickly and efficiently, which is something that you can control. You can invest in better tools and equipment to make your production process faster as well.
Businesses can also invest in better machinery and higher-quality materials to produce their products in a faster manner. They can also hire more workers to increase the productivity of the factory itself.
Some things are out of your control, however. Consumers may not buy your product as quickly as you produce it, causing a buildup that must be dealt with.
Other companies may start producing similar products, causing a surplus on the market that must be cleared out before consumption can resume at normal levels. These are some of the factors that play into the length of time between production and consumption.
Time value of money
The time that elapses between the start of production and the product’s completion is known as time value of money. This concept refers to the fact that current dollars are worth more than future dollars due to inflation and other factors.
In other words, money that you have now is worth more than money you will have in the future, because if you held onto that money, it would be worth something – perhaps even more than what you paid for it.
This is because money in the future will likely have less value due to inflation. For example, one dollar today may be worth 0.75 cents in a year due to inflation – your investment would lose 25% of its value.
Having this knowledge can help you decide whether or not to take a job or accept a payment plan. If you are able to figure out how much this is going to be worth when you receive it, then you can decide if it is better to take it now or wait until later to receive more of it.
Examples of the time value of money
There are many examples of the time value of money, and most of them can be found in everyday life. Some of these examples include renting vs. buying a home, going to college for a degree, and working at a job for several years to earn a raise.
Renting a home instead of buying means that you forgo the cost of buying the home, but you also give up the potential value that the home may gain over time.
By going to college for a degree, you are investing several years of your life and money to gain something that will likely boost your earning potential in the future.
Working at a job for several years before receiving a raise is also an example of the time value of money- you are investing time at your current job in hopes of gaining something later on.
Causes of the time value of money
The time value of money is caused by the following three things: inflation, investment opportunities, and the optimal allocation of resources.
Inflation is a decrease in the value of currency over time. As currency becomes less valuable, it takes more of it to purchase the same things. This is because everything costs more in the future than it does now.
Investment opportunities are how you can use your money to make more money. If you have one dollar, then you only have one opportunity to make more money off of it. But, if you invest that dollar in something that grows in value, then you have created an opportunity to gain another dollar.
The optimal allocation of resources is how much time and effort a person or organization should spend on different tasks. If someone was baking a cake, they would not need to bake the cake for two weeks – they would just need to finish baking it.
Ways to reduce the time value of money
As mentioned before, the value of money can be reduced by increasing the rate at which money comes in and goes out. There are several ways to do this that are well-proven.
Invest in efficient production methods that save time. Invest in new technology that speeds up production while maintaining quality. Reduce the number of people involved in the process, or hire more workers to increase productivity.
Lower the cost of production by finding cheaper sources of materials and supplies, and using less of them. Find lower cost markets for products to sell them at a good profit, even if it takes longer to produce and sell them.
Increase productivity by educating and motivating workers. Check in on how they’re doing and how they can do better to increase productivity.
