Pioneer in The Development of the Assembly Line

Photo: courtesy Ford Motor Company.

Modern production methods took a giant leap forward in 1913 when Henry Ford introduced the use of the assembly line in the production of automobiles. In those days, automobiles were built in much the same way as a house. That is, workers simply picked a spot on the factory floor, and assembled the car from the bottom up.

As business grew, Ford began manufacturing many of the component parts formerly purchased from suppliers. Typi­cally, the components were put together by one worker who performed all the operations necessary to assemble them. The method was quite costly, and so only the wealthy could afford to buy automobiles in those days.

This did not please Henry Ford who wanted to bring the price of automobiles down to the point where most fami­lies could afford them. The key to achieving this goal, in Ford's view, was through the improvement of labor produc­tivity. He needed to find a way to 1) limit the number of operations performed by each worker, 2) bring the work to the worker rather than the other way around, and 3) perform each operation in the most efficient sequence he could find.

He found what he was seeking in his new creation: the assembly line.

Ford's first line, introduced in April 1913, was used to assemble generators. Working in the old way, one worker had been able to put together 25 to 30 generators in a 9-hour day. This translated to something around 20 minutes per assembly.

The new line broke the operation into 29 steps performed by individual workers on parts that were brought to them by the steadily moving assembly line. The new process reduced assembly time to an average of 13 minutes per generator. One year later, additional experimentation divided production into 84 operations and reduced assembly time to 5 minutes per generator.

Assembly line methods brought the price of automobiles within the reach of millions of American families. As a result, automobile registrations jumped from 944,000 in 1912 to 2.5 million in 1915 and 20 million by 1925.

Henry Ford was not an economist, but his innovative production strategies had a revolutionary impact on American industry and living standards. As automobiles, appliances, and other labor saving goods of the new indus­trial age became less expensive and more affordable for the average family, it was clear that the assembly lines of a Michigan factory had changed American households as dramatically as its factories.

What is marketing?

A jeans factory in Durham, North Carolina, produces a partic­ular brand of designer jeans for men and women. These jeans can be purchased in stores throughout the United States from Portland, Oregon, to Miami, Florida. What happens from the time the jeans are produced in North Carolina to the time a shopper in Portland or Miami decides to buy the jeans?

To an economist, everything that takes place between produc­tion and consumption falls into the category of marketing.

A market is where buyers and sellers come together.Marketing,then, includes the activities that bring the buyer and seller together. It is more than product advertising. Marketing includes buying and selling, transporting and storing, product planning, market research, product support, customer service, financing, insuring and other activities.

Businesses market their goods and services to people they think will buy them. To accomplish this goal businesses assign different marketing jobs to different parts of their work force. A major corporation may have hundreds of people testing new product ideas. Others will be assigned to develop and perfect packaging designs. Still others will work on promoting and advertising the products.

The Major Marketing Functions

Product, Price, Promotion And Place: The Four P's Of Marketing

Were you a cloth baby or a paper baby?

Before the 1970's, virtually all infants were covered in cloth diapers. Some time in the 1960's, however, the firm of Procter & Gamble decided to investigate the possibility of producing and selling paper diapers.

As a first step, the company conducted surveys to determine if parents liked the idea of disposable diapers. They did.

The next step was to find a way to manufacture a paper diaper that could profitably be sold at a price consumers would be willing to pay.

You probably know the end of this tale. P&G developed a dispos­able paper diaper. Pampers and competing brands were so successful that most parents today prefer them to cloth diapers.

Disposable diapers stand as a classic example of the successful application of what is now described as the total marketing concept. The total marketing concept involves four steps, or, as they are often called, the four P's of marketing — product, price, promotion and place.

Product. The place to begin is with the product itself. A busi­ness must determine what kind of product potential customers want. Companies employ very complex market research tech­niques to find out. Surveys by phone, mail, or personal inter­view can reveal exactly what's on the consumer's mind. The product warranty card that you return after a purchase provides marketing information too.

You might be wondering how asking a few people what their preferences are determines what others want as well. Sophisti­cated research mathematics applied to a sample of consumers can typify the rest of the consumers. If we can find out what a few want, we can assume that the others in the group or popu­lation will want the same things. Deciding who should be in the sample is the problem. Researchers have very detailed formulas for constructing marketing samples.

The questions asked by researchers will depend on the partic­ular purpose to be served. For example, a long-range concern for a company might be to find out what new products consumers will want in five or ten years.

Price. Another major part of marketing is price. Companies have to decide on a product price that will cover all costs and also return a profit. Included in costs are suchfixed expensesas rent and insurance.Variable expenses must be anticipated too. Those include the costs of material and commissions. These costs are used to compute abreak-even point—the point at which income from sales equals fixed and variable expenses. On one side of this point, the company will have a net loss and on the other side, a net profit.

These are major, practical concerns of any company. It's what every company must do. Let's consider other factors involved in determining price.

Assuming the company has competition, its product must be priced in a range near competing products. If the item is priced at $7 when other, similar products are priced at $5 or less, what is likely to happen? As a consumer, would you buy the product? Probably not. Companies must be careful, then, not to overprice their product. If competitors' prices are less than theirs, either the competition is on to something — they. have special information allowing them to produce and market for less — or the company is inefficient.

Promotion. So far we have talked about "product" and "price." Promotion is a key part of marketing because it is the way busi­nesses get their messages to consumers.

We said earlier that businesses would prefer to have a steady demand for their products. They would also like to see steady growth rather than sudden surges in business. One function of promotion is to maintain a steady and growing demand. Promotions through advertising in the media, direct mailings or through personal contact are a few of the ways producers make their products known to consumers. If consumers don't know about a product, they won't buy it.

Some critics of American advertising say that money used to inform and promote sales is wasted money that could be used for other purposes. Advertisers counter by saying that through market research businesses discover what American consumers want. Through advertising, businesses tell people what products are available. Advertising even gives them reasons to buy. Do you have an opinion?

Place. The final part of marketing, the fourth "P," is place. For a product to be useful, it has to be in place when and where it is needed. That should seem obvious. To sell products, businesses must anticipate "when"' and "where" consumers will buy them. A hot dog at a baseball game on a sunny afternoon is an example of excellent product placement. A lemonade stand in the winter is not. Hot dogs have less value after the game, and lemonade has more value in the summer.

Summary

Societies obtain goods and services either by producing them themselves or by trading what they produce for what they want. It follows that if living standards are to be improved, ways must be found to increase production.

There are two ways to increase production: use the economy's resources to the fullest; increase the economy's ability to produce with its available resources.

Productivity, the measure of how efficiently we use our available resources to produce, is directly affected by the quality of our labor force, our technology, and the effectiveness with which management uses our resources.

Large firms often achieve greater productivity than small firms because of economies of scale. Because of these economies, unit costs are reduced to levels that smaller firms could not match. Unit costs are made up of both fixed and variable costs. Fixed costs per unit will always decrease as output increases. Variable costs per unit will decline at first, but as output increases still further, they will increase due to the law of diminishing returns.

Productivity gains are important to both individual firms and the nation as a whole. When productivity is improving, workers can receive salary increases without reducing the profit margins of their companies. Although most people agree that productivity gains would be a good thing for our country, they do not agree on the best ways to achieve them.

Marketing directs the flow of goods and services from producers to consumers. The principal elements of marketing are summarized in the "four P's" — product, price, promotion and place.