Business Dictionary defines Manufacturing as "the process of converting raw materials, components, or parts into finished goods that meet a customer's expectations or specifications." Manufacturing commonly employs a man-machine setup with division of labor in a large scale production.
Manufacturing is a very simple business; the owner buys the raw material or component parts to manufacture a finished product. To function as a business the manufacturer needs to cover costs, meet demand and make a product to supply the market. A factory operates one of three types of manufacturing production:
- Make-To-Stock (MTS) – A factory produces goods to stock stores and showrooms. By predicting the market for their goods, the manufacturer will plan production activity in advance. If they produce too much they may need to sell surplus at a loss and in producing too little they may miss the market and not sell enough to cover costs.
- Make-To-Order (MTO) – The producer waits for orders before manufacturing stock. Inventory is easier to control and the owner does not need to rely as much on market demand. Customer waiting time is longer though and the manufacturer needs a constant stream of orders to keep the factory in production.
- Make-To-Assemble (MTA) – The factory produces component parts in anticipation of orders for assembly. By doing this, the manufacturer is ready to fulfil customer orders but if orders do not materialize, the producer will have a stock of unwanted parts.
In its earliest form, manufacturing was usually carried out by a single skilled artisan with assistants. Training was by apprenticeship. In much of the pre-industrial world, the guild system protected the privileges and trade secrets of urban artisans. In the pre-industrial world, most manufacturing occurred in rural areas, where household-based manufacturing served as a supplemental subsistence strategy to agriculture (and continues to do so in places). Entrepreneurs organized a number of manufacturing households into a single enterprise through the putting-out system. The factory system was first adopted in Britain at the beginning of the Industrial Revolution in the late 18th century and later spread around the world. The main characteristic of the factory system is the use of machinery, originally powered by water or steam and later by electricity. Increased use of economies of scale, the centralization of factories, and standardization of interchangeable parts were adopted in the American system of manufacturing in the nineteenth century. Manufacturing in the Soviet Union was based on collectivism.