What Is Manufacturing?

Manufacturing is the processing of raw materials or parts into finished goods through the use of tools, human labor, machinery, and chemical processing. Large-scale manufacturing allows for the mass production of goods using assembly line processes and advanced technologies. Efficient manufacturing techniques enable manufacturers to take advantage of economies of scale, producing more units at a lower cost.

Manufacturing is a value-adding process allowing businesses to sell finished products at a higher cost over the value of the raw materials used.

Key Takeaways

  • Manufacturing is the process of turning raw materials or parts into finished goods through the use of tools, human labor, machinery, and chemical processing.
  • Before the Industrial Revolution, most products were handmade using human labor and basic tools.
  • The Industrial Revolution of the 19th century brought with it the advent of mass production, assembly line manufacturing, and the use of mechanization to manufacture larger quantities of goods at a lower cost.
  • Financial analysts study the ISM Manufacturing Report each month as a potential early indicator of the economy's health and where the stock market might be headed.

Understanding Manufacturing

Humans have historically sought ways to turn raw materials, such as ore, wood, and foodstuffs into finished products, such as metal goods, furniture, and processed foods. By refining and processing this raw material into something more useful, individuals and businesses have added value. This added value increased the price of finished products, rendering manufacturing a profitable endeavor. People began to specialize in the skills required to manufacture goods, while others provided funds to businesses to purchase tools and materials.

How products are manufactured has changed over time. The amount and type of labor required in manufacturing vary according to the type of product being produced. On one end of the spectrum, humans manufacture products by hand or through the use of basic tools using more traditional processes. This type of manufacturing is associated with decorative art, textile production, leatherwork, carpentry, and some metalwork. At the other end of the spectrum, manufacturers use mechanization to produce items on a more industrial scale. This type of manufacturing does not require as much manual manipulation of materials and is often associated with mass production.

History of Modern Manufacturing

The industrial process used to turn raw materials into products in high volumes emerged during the Industrial Revolution of the 19th century. Before this period, handmade products dominated the market. The development of steam engines and related technologies allowed companies to use machines in the manufacturing process. This reduced the number of workers required to produce goods, while also increasing the volume of goods that could be produced.

Mass production and assembly line manufacturing allowed companies to create parts that could be used interchangeably and allowed finished products to be made more readily by reducing the need for part customization. The Ford Motor Company popularized the use of mass-production techniques in manufacturing in the early 20th century. Computers and precision electronic equipment have since allowed companies to pioneer high-tech manufacturing methods. Products made using these methods typically carry a higher price but also require more specialized labor and higher capital investment.

The skills required to operate machines and develop the processes used in manufacturing have changed drastically over time. Many low skill manufacturing jobs have shifted from developed countries to developing countries because labor in developing countries tends to be less expensive. More skilled manufacturing, particularly of precision and high-end products, tends to be undertaken in developed economies. Technology has made manufacturing more efficient and employees more productive. Therefore, although the volume and number of goods manufactured have increased, the number of workers required has declined.

Measuring the Role Manufacturing Plays in the Economy

Economists and government statisticians use various ratios when evaluating the role manufacturing plays in the economy. Manufacturing value added (MVA), for example, is an indicator that compares manufacturing output to the size of the overall economy. It is expressed as a percentage of gross domestic product (GDP).

The Institute for Supply Management (ISM) uses surveys of manufacturing firms to estimate employment, inventories, and new orders. Each month the ISM publishes the ISM Manufacturing Report, which summarizes its findings. Financial analysts and researchers eagerly await this report as they see it as a potential early indicator of the economy's health and where the stock market might be headed.