4 Steps for Creating an Effective Production Hierarchy (With Examples)

A production hierarchy is a method businesses use to organize and keep track of their various products, usually in a store or warehouse setting where the bulk of inventory takes place. Categorizing products into subsets of a hierarchy can make it easier for employees to find and sell items to customers or pass them on to the next step of the production or sales processes, which the company can transfer to their website to make navigating products easier for their consumers. If you're interested in working for or starting a business that produces specialized goods and services, it can be beneficial to understand what a production hierarchy is and why it's important for a company's operations.

In this article, we explain what a production hierarchy is and the role it can play in the inventory and upkeep of a business's operations followed by a list of steps for creating your own production hierarchy at your job or business and a real-world example.

What is a production hierarchy?

A production or product hierarchy is a structure that classifies a company's goods and services based on its essential components. Every product or service has a relation to another, which is why each item in a production hierarchy is influential to the rest.

Businesses use production hierarchies to organize their items in a manner that makes it easier to keep track of them throughout the production and sales processes. Production hierarchies also make keeping inventory a more streamlined process, by automatically assigning categories to each product, which can make them easier to find and keep data on.

A typical production hierarchy starts off with the fundamental parts that make products necessary, or the need, followed by the product's family, class, line, type and eventually the item itself.

For example, a pharmaceutical company may organize its pain medication from the bottom-up as: health care - medication - pain management - ibuprofen - ibuprofen liquid gels - ibuprofen fast-acting liquid gels. With each step upward in the hierarchy, the company has a more specified description of what the product is and its position in the production process.

Related: A Definitive Guide to Product Hierarchy (With Benefits)

How to create an effective production hierarchy

Here are four steps you can follow to guide you as you create your own effective production hierarchy:

1. Determine the need for your product

The first step when creating an effective production hierarchy is to determine the need for your product in the eyes of the public. You may want to ask yourself: who needs this product, and why? Consider which groups could benefit from the product and how it could specifically impact their lives for the better.

For example, if you work for a clothing manufacturer launching a new line of running sneakers, the need of the product may be to provide comfort and dexterity for runners or active people in general. With these classifications, you've identified who needs the product and why.

Related: Your Guide To Functional Structure for Business: Advantages and Disadvantages

2. Identify the product's family and class

Once you've determined what the need of your product is, the next step is to identify what family and class that item or service belongs to. Every good or service can attribute itself to a family and class depending on its need, with some products belonging to broader groups than others.

For example, a tech supply company creating a production hierarchy for their new 3D printer may find that the family of the item is computer hardware while its class is printers and scanners. Both categories in the structure are general enough that the 3D printer falls directly beneath them.

3. Choose your categories

After you've finished identifying the need, family and class of your product, the next step in the process of creating a production hierarchy is to choose the categories you're going to organize the items into. Try creating some key categories that you feel best highlight the features of your items and maintain a simple structure to avoid confusion if you reference the hierarchy in the future.

For example, if you work for a car manufacturer, your categories may include certain types of cars, like sedans and trucks, with categories further up in the hierarchy being more specific to their energy efficiency.

Related: Bill of Materials: Definition, What To Include and Example

4. Organize your categories

The next step in creating your production hierarchy is to organize the categories you outlined in the previous step. Once you've determined the titles for your groups, try organizing them into a pyramid-like structure so that you can ensure your model accurately follows the hierarchical style of the method, with every category having a direct link to the one above it.

For example, in a production hierarchy for a cosmetics company, categories like foundation, concealer and blush may all fall under the broader "skin" category. The company can transfer this structure to the dropdown tabs on their website to make navigating their products even easier for their customers.

Related: 11 Types of Organization Structure and Design

Production hierarchy example

It can be easier to understand how production hierarchies work by analyzing examples of how companies use them in the real world. Here's an example of how a cosmetics company uses a production hierarchy to streamline its processes and improve customer service:

Related: Everything You Need To Know About Product Organization

Example

A makeup company called ShineBeauty wants to create a production hierarchy for their new line of Bombshell Glitter eyeshadows to make it easier for employees to find and organize items in the warehouse and for customers to more easily navigate their website. They begin by determining the need for their product, which they identify as aesthetics, followed by its family (cosmetics) and class (beauty). Once they've outlined these groups, they move on to determining the rest of their hierarchy's categories. Their final production hierarchy is as follows:

Aesthetics - cosmetics - beauty - make-up - eye shadow - glitter eye shadow - Bombshell Glitter eyeshadows