Clase digital 4. Gestión de recursos y de calidad (resource and quality management)

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Gestión de recursos y de calidad (resource and quality management)

1. Fundamentación del tema

This topic is part of the Business Communication Learning Unit. It is important for the student to reflect on the importance of resource and quality management. The objective of most businesses is to generate profits, and for that they need to provide a product or service that satisfies a need or want of the customer at a profitable price that the consumer can afford. Nonetheless, a business is more than just making a product or service, as we have to find the most optimal way to do it, being more competitive and giving a better price to the customer.

2. Objetivo didáctico

Develop a reference framework on resource and quality management, identifying the difference between production and productivity, to improve the student’s English language skills on specialized accounting topics.

3. Contenido didáctico

Introducción

Welcome back, dear student! We are glad that you are here in this new lesson with us. This time we will talk about resource and quality management so you can develop a reference framework on this accounting area. If you are interested in working for a transnational company, giving professional consulting or setting up your own business, this lesson is essential for you. 

In this lesson, we will cover the following subjects:

  1. Resource management 
    1. Production – Managing resources to produce goods and services.
    2. Difference between production and productivity
    3. How to improve labor productivity
    4. Business inventories
    5. Lean manufacturing
      1. Lean manufacturing techniques: Just in time (JIT) inventory control
      2. Kaizen
    6. Main production methods
      1. Job production
      2. Batch production
      3. Flow production
      4. Choosing a production method
      5. How technology has changed production methods
    7. Importance of quality
      1. Quality assurance

Are you ready? Let’s start with this interesting lesson!

Desarrollo del tema

1. Resource management

Profit is the main objective of almost every business. Businesses can’t achieve this objective if they don’t make and sell products. Although accountants are not usually involved in the production process, it is essential that they understand it, as well as the resources that are introduced to make the output saleable product, in order to mention it in the financial information statements, i.e. how a company acts to reduce defective products and give, in each product they sell, enough quality to satisfy the customer’s need or want leaving the door open to purchase again in the near future.

1.1 Production – Managing resources to produce goods and services.

From a traditional point of view, production refers to the transformation of inputs such as land, labor, and capital into a saleable physical product; resource management means handling business resources, known as inputs. throughout the production process in order to produce finished goods, services, and components, known as outputs, which can be sold to other businesses or customers (Fisher, Houghton & Jain, 2018).

Consider the following example: a baker (labor) will take ingredients such as flour, milk, eggs and butter to his kitchen (land) and use a mixer and an oven (capital)  to make a cake (the output) which he can sell to customers or businesses. 

Image source: Fisher, Houghton & Jain (2018).

Resource management should: 

  • Use resources in the most cost-effective way possible.
  • Produce the required output to meet customer demand.
  • Meet the quality standard expected by customers.   

 Fisher (2018) 

1.2 Difference between production and productivity

It is crucial to understand the difference between production and productivity. Production involves changing inputs into outputs. Production can be measured by the number of units produced in a given period of time, i .e. the level of production. On the other hand, “Productivity is a measure of how efficiently the inputs are changed into output, which is the number of units of output produced for every unit of input”.

(Fisher, Houghton & Jain, 2018).

Productivity of labor (employees) is measured as follows: 

Image source: Fisher, Houghton & Jain (2018)

Most businesses will try to increase productivity because this tends to reduce average costs, i.e. the cost of producing each unit of output, which gives businesses the opportunity to give a better price in the market, have more sales and, consequently, better profits.

We invite you to watch the following video about productivity and its impact:

1.3 How to improve labor productivity

If you look again at the labor productivity formula, you will notice that if a business wants to improve its labor productivity, it can be done by:

  • Increasing output with the same number of employees. 
  • Keeping output at the same level but with fewer employees.

To increase total output with the same number of employees means that, on average, each employee has to produce a higher output. This means they must become more productive. Now, increasing employee productivity could be achieved by:

  •  Improving the skill level of employees.
  • Improving the motivation of employees.
  • Introducing more automation and more or better technology.
  • Improving the quality of management decisions.      

Fisher, Houghton & Jain (2018)

In all ways of improving productivity there are costs involved, such as a training program for employees or the acquisition of better technology. We have to focus on the fact that the benefits of improving productivity outweigh the costs involved. 

1.4 Business inventories

Businesses, for the most part, hold inventories of:

  • Raw materials and components: these are needed as inputs for the production process.
  • Work in progress: partially finished goods that have not yet completed the production process.
  • Finished goods: ready to be sold or sent out to customers.  

 Fisher, Houghton & Jain (2018)

Holding inventories add costs to the company, including:

  • Warehousing costs: Inventories will have to be stored, so a warehouse will have to be rented or purchased.
  • Handling costs: Inventories inventories have to be moved in and out of the warehouse.
  • Shrinkage costs: Damaged, lost or stolen inventories will have to be replaced.
  • Insurance costs: These will cover the cost of losses due to shrinkage.
  • Obsolescence: The company may not be able to sell obsolete products.
  • Opportunity cost: Working capital is “tied -up” in inventories, which could be used more profitably by the business.                             

Fisher, Houghton & Jain (2018)

Holding inventories can be costly. So, why do businesses hold them?

  • Production needs raw materials or components. If these are not available when required, the process must stop. Employees and machinery will stand idle and there will be a loss of output.
  • If the business does not have finished goods in stock, customer orders cannot be met and the business will lose sales. This could result in the loss of current and future sales, affecting both the short-term and the long-term profitability of the business.
  • Businesses often benefit when they buy inventories in large quantities because they receive a discount from the supplier. The supplier may not offer discounts for smaller quantities.     

Fisher, Houghton & Jain (2018)  

Businesses have to balance the costs of holding inventories with the costs of not holding them in order to minimize inventory costs.

You can watch the following video to learn more about the cost of holding inventories and an interesting topic such as economic order quantity (EOQ):

1.5 Lean manufacturing

We have already seen the benefits of improving productivity and how it can reduce the cost of producing each unit of output. This can serve to reduce the final price of the product and the business can give a more competitive price to the market, which is especially important for businesses operating in global markets or businesses that have a high level of competition. However, reducing costs and prices should not lead to a reduction in the quality of the business’ products, otherwise it may lose customers and its competitiveness and profitability will suffer.

Many businesses use lean manufacturing methods to improve their competitiveness. Lean manufacturing aims to produce goods or services with the minimum waste of resources.

(Fisher, Houghton & Jain, 2018).

There are plenty lean manufacturing methods and tools, including:

  • Kaizen (Continuous improvement)
  • Just-in-time (JIT)
  • 5S
  • Bottleneck analysis
  • KPIs (Key Performance indicators)
  • Poka-Yoke (Error proofing)  

Vorne (2019)

We invite you to view the following presentation we have prepared for you on lean manufacturing techniques:

Tema 4: Gestión de recursos y calidad. (Operations and quality management) – Técnicas y herramientas de manufactura esbelta Lean Production techniques 

1.6 Main production methods

The production of goods and services has traditionally used one of the following methods:

  • Job production
  • Batch production
  • Flow production
Job production

In job production, an individual item is completed before another item is started. This method is normally used for the production of single or one-off/unique items, large or small, such as a boat or a designer dress. Job production usually needs highly skilled employees and specialized equipment

(Fisher, Houghton & Jain, 2018). 

Image source: https://sp.depositphotos.com/stock-photos/mujer-cosiendo.html 
Batch production

In batch production, a group of items is completed one stage of the production process at a time, until completion (Fisher, Houghton & Jain, 2018).

Image source: Fisher, Houghton & Jain (2018) 
Flow production

Flow production process involves products moving continuously along a production line. At each stage of production, additional features are added until the product reaches its final state. This type of production is used when a large output of identical, standardized products is required to meet high consumer demand, e.g. automotive components. For this reason, flow production is also known as mass production.

(Fisher, Houghton & Jain, 2018).

Image source: Fisher, Houghton & Jain (2018)

The main features of flow production are:

  • Large quantities are produced.
  • Standardized products.
  • Employees are relatively unskilled.
  • A high degree of automation.
  • Large inventories of raw materials and work in progress.

According to Fisher, Houghton & Jain (2018), each of the production methods has benefits and limitations:

Method of productionBenefitsLimitations
Job• Unique, high-quality products are made.
• Employees are often more motivated and take pride in their work		• Uses skilled labor rather than machinery, so selling prices are usually higher.
• Production can take a long time and can be expensive, for instance, if special materials or tools are required.
• Economies of scale are not possible, often resulting in a more expensive product.
Batch• Since larger numbers are made, unit costs are lower.
• Offers the customer some variety and choice.
• Materials can be bought in bulk, so they are cheaper.		• Employees are often less motivated because the work becomes repetitive.
• Goods have to be stored until they are sold, which is expensive.
Flow• More capital intensive than job or batch production, which lowers the labor cost.
• Materials can be purchased in large quantities, so they are often cheaper due to the bulk-buying economies of scale.
• Large number of goods are produced		• Requires very large capital investment in production line technology.
• Employees are not very motivated since their work is very repetitive.
• It is not a very flexible method as production lines are difficult to change.
• If one part of the production line breaks down, the whole production process will have to stop until it is repaired.
• High levels of raw materials, work-in-progress, and finished goods inventories are held. This increases business costs.
Choosing a production method

Companies choose a production method based on a number of factors, such as:

  • The amounts they are likely to sell.
  • The product they are making.
  • The costs of production.
  • The variety of goods expected by customers.

The most appropriate production method will depend on:

  • The size of the market
  • The type of good being made.  

Fisher, Houghton & Jain (2018)

We invite you to watch the following video on modern continuous manufacturing processes:

1.7 How technology has changed production methods

Technology is always moving forward and so are production methods. These new production methods combine the advantages of traditional methods while avoiding many of their limitations. They have been influenced by developments in technology and, in particular, the development of computer-aided design (CAD), computer-aided manufacturing (CAM) and computer integrated manufacturing (CIM).

These developments save businesses money, because with them they can design a prototype of a product and test it. They do not have to build and rebuild expensive prototypes until they have produced on screen what they think is close to the final product.

New technologies have advantages and disadvantages, but the advantages are usually higher for the economy of the companies and the consumers. However, the employees of the business are less (Fisher, Houghton & Jain, 2018).

AdvantagesDisadvantages
Businesses• Reduce the costs and time take to design new products
• Increases productivity
• Reduces costs of production
• Improves quality and reduces waste		• Can be very expensive
• When technology is rapidly changing it will need to be changed often if the business is to remain competitive
• May need to spend money training employees, which increases costs
Consumers• Better quality products
• Lower prices
• Products with more features are easier to develop and produce		• Products may become out of date more quickly
• When the product develops a fault it can be expensive to repair
Employees• Technology completes simple and repetitive tasks that employees find boring
• The work is easier with the aid of technology
• A business that uses the latest technology is likely to be more successful so provides job security		• Technology often reduces the need for employees, resulting in redundancy.
• Technology could make the work less interesting.
• A smaller workforce reduces opportunities for promotion.
• The development and manufacture of new technology products provide employment opportunities

To learn more about modern methods of manufacturing, watch the following video:

To learn more about modern methods of manufacturing, read the following news article: https://www.bbc.com/news/av/22293523 

2. Importance of quality and quality assurance

We have seen different production methods and how to improve productivity, but one of the most important parts is the quality of a product, which always has to be the best possible. This should benefit both companies and customers; customers will have better products and companies will save money by making the products with less defects possible. This way, the brand will have a good reputation, which can help to launch products with an easy response from the customers, and can give the companies the opportunity to sell at a premium price, as the customer will agree with it.

Businesses use quality assurance in order to ensure that their products have high quality. This helps with branding, reaching better suppliers and customers, etc.

With this in mind, we finish this lesson. However, we invite you to keep researching these types of topics, since they are so interesting and very useful. We hope you found the lesson useful and we will see you next time.

Resumen e ideas relevantes

It is important that you keep in mind: 

  • Profit is the main objective of almost every business.
  • Resource management should: use resources in the most cost-effective way possible, produce the required output to meet consumer demand, and meet the quality standard expected by customers.  
  • Productivity is a measure of how efficiently the inputs are changed into output, which is the number of units of output produced for every unit of input.
  • Businesses, for the most part, hold inventories of raw materials and components, work in progress, and finished products.
  • Holding inventories add costs to the companies, including: warehousing, handling, shrinkage, insurance, obsolescence, and opportunity costs.
  • Lean manufacturing aims at the production of goods or services with the minimum waste of resources. 
  • There are plenty of methods and tools of lean manufacturing, including: Kaizen, just-in-time, 5s, bottleneck analysis, KPIs, Poka-Yoke, etc.
  • The production of goods and services has traditionally used one of the following methods: job, batch or flow production.
  • Technology is always moving forward and so are production methods. 
  • Quality assurance focuses on preventing poor quality.

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