UNIT 5. Production Cost vs Quality

Reading: Offshore Manufacturing vs. Domestic Manufacturing

Grammar: Gerund

Video: Reducing Costs and Improving Quality in Pharma Production

Career Skills: Production Costs vs Volume and Quality

Dilemma: Reducing Production Costs




Production Cost is a cost incurred by a business when manufacturing a good or producing a service. Production costs combine raw material and labor. To figure out the cost of production per unit, the cost of production is divided by the number of units produced. A company that knows how much it will cost to produce an item, or produce a service, will have a clearer picture of how to better price the item or service and what will be the total cost to the company.





1. Discuss the questions with a partner.


1. How do enterprises decide what to produce and how much to produce?

2. How do enterprises determine production costs?

3. What determines the price?

4. What factors influence a profit?


2a. A company's total manufacturing cost is the amount of money spent to manufacture products in a given period. Understanding the total manufacturing cost is crucial because it can be compared to total revenue and ultimately used to determine your business' profitability. If you are to calculate total manufacturing costs what data would you need to do that?


2b. Read the information below to check if you were right. The calculations are broken into steps and mixed up. Match the column A with the column B and place them in the right order. Explain your decision.


Step 1

a) Calculate the total cost of labor directly related to manufacturing. This should include not only the salaries of all workers employed in manufacturing, but also any benefits they receive.

Step 2

b) Add your totals. This figure represents your total manufacturing costs for the period.

Step 3

c) Determine the total cost of manufacturing overhead. This includes the salaries and benefits of any workers who are not directly involved in manufacturing, but whose labor is nonetheless necessary to the manufacturing process (for instance, supervisors, janitors and in-house quality inspectors); any materials used to maintain or repair the manufacturing equipment or building; any utilities that keep the manufacturing facility operational; taxes and insurance.

Step 4

d) Determine the total cost of materials directly used for manufacturing. This includes all of the raw materials that actually go into the finished product.




1. You are going to read a text about one way of reducing production cost. Before you read, check that you understand these important words. Match the words to the definitions.


1. offshore


a) A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

2. to provide

b) someone whose business is to supply a particular service or commodity 

3. outsourcing

c) manufacturing in a country where labor and/or raw materials are cheaper, for export and/or eventual import into the manufacturer's home country

4. labor costs

d) the economy of a nation as a whole that is an economic unit

5. raw materials

e) to give something wanted or needed to

6. nationseconomy

f) The cost of wages paid to workers during an accounting period on daily, weekly, monthly, or job basis, plus payroll and related taxes and benefits

7. supplier

g) base price

8. initial price

h) A cost incurred by a business when manufacturing a good or producing a service

9. production costs

i) The activity of buying or selling goods and services in all the countries of the world, or the value of the goods and services sold

10. global marketplace

j) A material or substance used in the primary production or manufacturing of a good


Offshore Manufacturing vs. Domestic Manufacturing


From factories moving operations overseas to technical support in India, outsourcing is a part of everyday business life for many companies.

Perhaps the most obvious advantage of offshore manufacturing is the lower overall cost of production. It’s common knowledge that labor costs are lower offshore, and raw materials can often be acquired at better prices, as well. These materials are of the same high quality that domestic suppliers provide, but cost less because the manufacturer’s location is closer to the source of the material.

When it costs less to manufacture a product, it can be sold for less while still generating profit for the company selling it. Offering a quality product at lower cost—whether lower than your own initial price or lower than similar, competing products—generally leads to more sales and more satisfied customers.

Ultimately, this can help improve the economy of both the country your company is based in and the country where your contract manufacturing is done. By reducing production costs, your business can pass the saving on to customers; the money consumers save on these products can potentially be spent elsewhere, thereby helping your local economy grow. The influx of capital from offshore manufacturing can help other nations’ economies, giving them a much-needed boost in the challenging global marketplace.


1. Answer the questions.


1. What is the purpose of offshore manufacturing?

2. Who benefits from the outsourcing? Why?

3. Are there any negative effects? What are they?

4. Are there any other methods that can reduce production cost?




Make a report on how to reduce materials cost. You can choose 2 or 3 aspects from the list below and focus on them.


1. Substitute Lower Cost Materials Where Possible

2. Reduce Waste

3. Eliminate Unnecessary Product Features

4. Leverage Suppliers

5. Buy Need, Not Potential

6. Trade Time for Discounts

7. Buy Bargains

8. Transform Buyers Into Suppliers

9. Barter Finished Goods for Raw Materials

10. Provide Warehouse and Distribution Services

11. Offer Quick Payment for Lower Prices

12. Enter Into Cooperative Purchase Agreements to Gain Buying Muscle

13. Negotiate Long-Term Supply Agreements


Video: Reducing costs and improving quality in pharma production

You are going to watch Jan Verelst, SIPAT Business Development Manager, Siemens, talking  about the business benefits of implementing PAT with SIPAT.


1. Before you watch pay attention to these notes explaining the terms that are used in the video:


PAT (Process Analytical Technology) is a system for designing, analyzing and controlling manufacturing processes based on timely measurements (e.g. during processing) of critical quality and performance attributes of raw materials, in-process materials and processes with the goal of ensuring final product quality.
SIPAT is the software solution of Siemens to support PAT implementation


2. Now watch the video and fill in the missing information into the script.


Pharmaceutical and _____  ______ industry make an exceptional contribution to the health and well-being of people all over the world. At the same time development and production of _____  is quite costly in terms of energy, ____ and material waste. One major challenge in pharma is to eliminate all _____ costs. And one important key to achieve this is to improve process  ____ . An efficient process means: ____ your process performance to improve process understanding; ensuring that your operations are fully ____ with the regulations; optimally utilizing all your process and ____ equipments, and establishing quality by ____ principles into your production environments, so you can release your products in ____ time.










3. Answer the questions.


- What is the use of implementing PAT?

- How can SIPAT improve your process understanding?

-What are the SIPAT business benefits according to Jan Verelst? Give them a brief characteristic.

- an important lever in achieving the business goals

- reduces the risks of non-compliant  releases

- to develop a new manufacturing process

- can be set practically out of the box


Grammar: Gerund


1. Work individually. Study the information below.


A gerund is a form of a verb that is used in place of a noun or a pronoun. It has the same form as the present participle (simple form + ing). A gerund can be active or passive, simple or perfect (the simple gerund refers to the present or future, the perfect gerund shows that the action of the gerund happened before the action of the verb).


Tense \ Voice





being read


having read

having been read




1. Gerunds can be the subject (Swimming is my favourite sport), the object of a preposition (The student is good at speaking) or the object of a verb (Helen enjoys reading).

2. Like nouns, we can use gerunds with adjectives (including articles and other determiners): pointless questioning, a settling of debts, the making of Titanic, his drinking of alcohol.

But when we use a gerund with an article, it does not usually take a direct object: a settling of debts (not a settling debts), Making "Titanic" was expensive. The making of "Titanic" was expensive.

3. If we want to use a verb after a preposition, it must be a gerund: I will call you after arriving at the office. Please have a drink before leaving. I am looking forward to meeting you. Do you object to working late? Tara always dreams about going on holiday.

4. We use gerund form after certain verbs:

admit, appreciate, avoid, consider, delay, deny, discuss, dislike, enjoy, escape, excuse, fancy, finish, forgive, go (for activities), give up, can't help, imagine, involve, keep (= continue), mention, mind, miss, postpone, practise, prevent, recollect, report, resent, resist, risk, can't stand, suggest, understand, etc.

5. We use gerund form after expressions such as: be busy, it’s no use, it’s (no) good,  it’s (not) worth, there is no point (in), have trouble, etc.

6. Some verbs can be followed by the gerund form or the infinitive form without a big change in meaning:

begin, continue, hate, intend, like, love, prefer, propose, start:

I like to play tennis. I like playing tennis. It started to rain. It started raining.

7. Some other verbs are followed by both of them, but the meaning changes.

Notes: You could replace all the above gerunds with "real" nouns: I will call you after my arrival at the office. Please have a drink before your departure. I am looking forward to our lunch. Do you object to this job? Tara always dreams about holidays.


2. Complete the sentences with the gerund form of the verbs in box.


Скругленный прямоугольник: go         play         eat         be         make         smoke                                                                                    sing    cook    dance    swim    get    make

1. He is good at ______.

2. She is crazy about ______.

3. I don't like ______ cards.

4. They are afraid of ______ in the sea.

5. ______  fruits and vegetables is good for your health.

6. You should give up ______.

7. Sam dreams of ______ an actor.

8. ______ fun of other people is not polite.

9. He is interested in ______ friends.

10. My mother is afraid of ______ by plane.

11. She insists on ______ the dinner herself.

12. ______  a good job is not easy.


3. Read the sentences.  Make a gerund or gerund phrase from the first sentence.  Put that gerund in the second sentence.  The gerund replaces it, this, that, these, and those in the second sentence.  The first one has been done for you.


1. I watch airplanes take off.  It is very relaxing.

Watching airplanes take off is very relaxing.

2. Jack got hit by the ball.  That sent Jack to the hospital.

3. You should brush your teeth twice daily.  This is what all dentists recommend.

4. Franklin was warned about drinking and driving. It forced him to be much more careful on the highway.

5. She wants to be a journalist.  It is her dream.

6. You have to take the TOEFL.  It is the only way to get into that college.


4. Fill each of the gaps with suitable words. The first one has been done for you.


1. I can't help ______ worried about the situation in the Middle East.

I can’t help feeling worried about the situation in the Middle East.

2. I think most people prefer ______ in comfortable cars to going on foot.

3. She loves ______ in the ocean.

4. After  ______ my homework I usually go for a walk.

5. Don't keep on ______ like that; you will wake up the baby.

6. I enjoy ______ in the afternoon after ______ my homework.

7. I hate ______ examinations for fear of ______ them.


5. Form perfect gerund from verbs in brackets. The first one has been done for you.


1. I don’t remember (to meet) having met her before.

2. He mentioned (to hear) __________ it in the day’s news.

3. I don’t remember (to discuss) ________ the matter.

4. He admitted (to commit) ________ that crime.


6. Choose the correct answer.


1. Stop ______ me how to run my life.

a) tell         b) telling      c) to tell

2. ‘I can’t decide what ______to the party.’

‘Why don’t you wear your black dress?’

a) wear      b) wearing      c) to wear

3. We were hungry and I suggested ______ to go to a Chinese restaurant.

a) go         b) going          c) to go

4. ‘Did you go to the disco last night?’

‘No my mom made me ______ for the exam instead.’

a) study    b) studying     c) to study

5. I want to buy a car as I hate ______ for the bus every day.

a) wait      b) waiting       c) to wait

6. ‘Why did you go to the library?’

______ some books to read.

a) get       b) getting        c) to get

7. ______ Robert that he had lost his job was the most difficult thing that I've had to do as a manager.

a) tell       b) telling          c) to tell

8. ‘Shall we go to a café this evening?’

‘I’d rather ______ at home. I’m very tired.’

a) stay     b) staying        c) to stay

9. We used ______ to the south every summer.

a) go       b) going           c) to go

10. There is no point in ______ for the sky.

a) reach   b) reaching      c) to reach

11. We can't think of ______ a new house as we haven’t sold the old one.

a) buy      b) buying          c) to buy


7. Study the difference in the meaning of the verbs given in the table below.



+ Infinitive

+ Gerund


= forget what one has to do

I forgot to set my alarm.

= forget what one has done / what has happened                                           

I’ll never forget meeting him for the first time.


= remember what one has to do

Did you remember  to lock the door when you left?

= remember what one has done / remember what has happened            

I remember locking the door when I left.


= make an effort; attempt to do smth difficult

I'll try to finish my report by tomorrow morning.

= make an experience / do smth to see what will happen                                   

If you want to lose weight, try exercising and eating healthy food.


= be sorry for what one is going to say                                                 

We regret to tell you the meeting is cancelled.

= be sorry for what has happened
I don't regret resigning from that position.


= make a break/pause in order to do smth                                  

I was preparing for my exam at home, and I stopped to watch my favourite TV program.

= stop what one is doing / what one does

He stopped drinking spirits last year.

go on

= change; move on to do smth new                                     

After university, he went on to study political science.  

= continue what one has been doing                                            

I want to go on studying here.


8. What are these people saying? Complete their sentences using a verb from the box in the correct form.


Скругленный прямоугольник: panic     promise     do      pull       see     examine      play        inform


People think that elephants never forget

______ anything. The truth’s much simpler.

Sorry! I regret ______ so hard. 


I remember ______ this face before,

but I’ve forgotten the name.

Now let’s go on ______ you. Relax the

doctor will begin your hearing test in just a moment.


I will never forget ______ in the rock band

when I was young.

I regret ______ you that we can’t

accept you for employment.

Career Skills: Production costs vs volume and quality

Process Task: Imagine that you are manufacturing managers. You wants to reduce production costs but at the same time increase volume, and improve quality. Discuss how all three can be accomplished simultaneously. Choose your roles from the boxes below.

Choose the best option and support your idea with arguments.


Student A

Student C

You are a Coordinator. Rule the process of negotiations. Ask the members about their ideas. Point out the priorities. Eliminate differences.

You support the idea of decreasing labor costs. You convince everybody to take this option.

Student B

Student D

You believe that using cheaper raw materials would save the day.

You disagree to use cheaper raw materials and insist on alternative ways.


Dilemma: Reducing Production Costs


Comment on such statements as:

- Manufacturing managers try to do three basic things: increase volume, reduce costs and improve quality. With the right technology, all three can be accomplished simultaneously.

- An effective strategy for reducing production costs is to redesign the product.

- When a company trains its employees to be aware of how to reduce costs and informs them of progress, production workers become partners in cost reduction.



Word list

base price

базисная цена


компенсационные выплаты


имеющий решающее значение



economic unit

хозяйственная единица




техническое средство

finished product

готовый продукт

global marketplace

мировой рынок

in-house quality inspector

штатный контролер качества

initial price

исходная цена







labor costs

расходы на оплату труда

lower cost materials

более дешевые материалы

manufacturing overhead

производственные накладные расходы


национальная экономика


государство или территория, предоставляющие льготный налоговый режим, отсутствие валютных ограничений и не предусматривающее раскрытие и предоставление информации при проведении финансовых операций


привлечение сторонних ресурсов


платежная ведомость

production cost

затраты на производство



raw materials










to calculate


to eliminate


to leverage

увеличение дохода или стоимости без увеличения капиталовложений

to negotiate

вести переговоры

to provide


to receive


to reduce


to substitute


to trade

вести торговлю

to transfer

переводить бизнес, транспортировать

total manufacturing cost

общая стоимость производства

total revenue

общая выручка


заработная плата