Question

1. Per the book what are the definitions of the following?

Throughput

Inventory

Operational expense

2. The business is known for its increased production through the use of robots. What did we really learn about the robot's correlation to increased production?

Answer 1

1. Throughput :

Throughput is the number of units that pass through a process during a period of time. This general definition can be refined into the following two variations, which are:

• Operational perspective. Throughput is the number of units that can be produced by a production process within a certain period of time. For example, if 800 units can be produced during an eight-hour shift, then the production process generates throughput of 100 units per hour.

• Financial perspective. Throughput is the revenues generated by a production process, minus all completely variable expenses incurred by that process. In most cases, the only completely variable expenses are direct materials and sales commissions. Given the small number of variable expenses, throughput tends to be quite high, except for those situations in which prices are set only slightly higher than variable expenses.

For operations, throughput can be increased by enhancing the productivity of the bottleneck operation that is constraining production. For example, an additional machine can be purchased, or overtime can be authorized in order to run a machine for an extra shift. The key point is to focus attention on the productivity of the bottleneck operation. If other operations are improved, the overall throughput of the system will not increase, since the bottleneck operation has not been enhanced. This means that the key focus of investment in the production area should be on the bottleneck, not other operations.

For financial analysis, throughput can be increased by altering the mix of products being produced, to increase the priority on those products that have the highest throughput per minute of time required at the constrained resource. If a product has a smaller amount of throughput per minute, it can instead be routed to a third party for processing, rather than interfering with the bottleneck operation. As long as some positive throughput is gained by outsourcing, the result is an increased overall level of the throughput for the company as a whole.

Inventory:  Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders. Inventory is the array of finished goods or goods used in production held by a company. Inventory is classified as a current asset on a company's balance sheet, and it serves as a buffer between manufacturing and order fulfillment. When an inventory item is sold, its carrying cost transfers to the cost of goods sold (COGS) category on the income statement.

Operational Expenses:  An  operational expense, o is an ongoing cost for running a product, business, or system. Operating expenses are the expenses that are incurred in the entity for its normal operational purposes and activities which normally including both cost of products or services and, sales & administrative expenses. Operating expenses are generally defined when we want to identify and assess the entity’s operating profits.

Operating expenses include:

• accounting expenses
• license fees
• maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care
• advertising
• office expenses
• supplies
• attorney fees and legal fees
• utilities, such as telephone
• insurance
• property management, including a resident manager
• property taxes
• travel and vehicle expenses

2. The use of robotics will increase productivity and has the potential to bring more manufacturing production work back to developed countries. As productivity increases, labor is likely to receive a significant share of the benefits.Robots are key tools for boosting productivity. To date, most robot adoption has occurred in manufacturing, wherein they perform a wide variety of manual tasks more efficiently and consistently than humans. But with continued innovation, robot use is spreading to other sectors, from agriculture to logistics to hospitality. Robots are getting cheaper, more flexible, and more autonomous, in part by incorporating artificial intelligence. Some robots substitute for human workers; others—collaborative robots, or “cobots,” which work alongside workers—complement them. As this trend continues, robot adoption will likely be a key determinant of productivity growth and will potentially reshape global supply chains.

As robots and other autonomous systems continue to improve in functionality and decline in costs going forward, their likely impact on productivity will be even more significant. At least six technologies look like candidates to comprise the next innovation wave: the Internet of Things, advanced robotics, blockchain, new materials, autonomous devices, and artificial intelligence. Perhaps artificial intelligence and robotics are the most important. Artificial intelligence has many functions, including but not limited to learning, understanding, reasoning, and interaction.10 And easy-to-program, dexterous, and relatively affordable robots could enable automation of a range of functions in agriculture, manufacturing, and services.

There is a stronger economic case for adopting robots in higher-wage economies than in lower-wage economies because investments in robots are often justified by how much they save in labor costs. This is why the Boston Consulting Group (BCG) estimated labor cost savings from robotics are considerably lower for developing nations.So, the more germane question is: Where do nations stand in robot adoption when taking wage levels into account?  To assess this, the estimated time of payback (in months) from installing a robot must be calculated.

Government policies also appear to play a key role. Some of the leading countries have established national strategies to support robotics innovation and adoption. In 2014, Japan established a goal to realize a “new industrial revolution driven by robots,” while South Korea enacted its Intelligent Robot Development and Promotion Act.26 Japan has also established public-private robotics research and development (R&D) partnerships, which one study found were highly effective in spurring robot development. In contrast, the United States lacks a national robotics strategy. Some of the leaders, particularly South Korea, Taiwan, and Japan, also have robust public programs to help manufacturers—particularly small and medium-sized enterprises—adopt advanced technologies, and some nations have proactive tax policies to provide incentives for advanced technology adoption, including robotics.In Singapore, for example, firms can expense in the first year all investments in computers and prescribed automation equipment, robots, and energy-efficiency equipment. South Korea provides an investment tax credit for new equipment, while Japan and Slovenia provide accelerated depreciation on new equipment.In contrast, some nations, such as the United States and United Kingdom, have less generous tax treatment of capital expenditures and exhibit lower levels of capital expenditures by manufacturers.