2.3 Making Operational Decisions

Question 1

2.3.1

Answer 1

Business Operations

Question 2

Production Processes

Answer 2

• The purpose of production is to create goods and services.
• As a business grows, the owners will need to consider the most efficient way of organising production, to produce their product.

Question 3

Job Production

Answer 3

• Job production id where one individual product is made at a time by one or a group or workers.
• Examples include: tailoring, the 2012 Olympic Stadium (now called the London Stadium).

Question 4

Advantages of Job Production

Answer 4

• High quality and unique products that are tailored to meet customer needs
• Higher prices demanded
• Workers are motivated, as they are involved in all stages of production

Question 5

Disadvantages of Job Production

Answer 5

• Highly skilled workers required, needing training and careful management
• Lengthy production process and higher production costs per unit

Question 6

Batch Production

Answer 6

• Batch production is where similar items are grouped and made together (in batches), e.g. brown bread, white bread.
• Equipment can be easily altered to make different batches.
• Workers focus on one area of the production process.

Question 7

Advantages of Batch Production

Answer 7

• Variety and choice for customers
• Workers become skilled in the production area, less supervision is required
• More products made at once
• Materials required will be purchased in bulk, so business can save on costs (economies of scale, which means the greater the quantity of materials purchased, the lower the per-unit cost, creating savings for the business)

Question 8

Disadvantages of Batch Production

Answer 8

• Demotivated workers as a result of performing the same tasks
• A delay in one batch can affect the production of another batch

Question 9

Flow Production

Answer 9

• Flow production is where a large number of identical products are made on an assembly line.
• Production is automated, often with extensive machinery, technology and robotics in large factories.
• Products can be made in large numbers in a short space of time.
• Examples: cars, bottled drinks.

Question 10

Advantages of Flow Production

Answer 10

• Raw materials are purchased in bulk, so they are cheaper, saving money for the business (economies of scale)
• Goods can be produced in large quantities, unit costs are lower
• Production can be in process 24/7 without the need for breaks and holidays; quality is also improved

Question 11

Disadvantages of Flow Production

Answer 11

• Expensive to set up and buy factory, machinery and the technology required
• Difficult to adapt production lines
• Repetitive work leads to demotivated workers
• A breakdown in one of the lines, affects the entire production process

Question 12

The Impacts of Technology on Production

Answer 12

• Lower costs - in the short term, investment is high. Machinery and factory set up is expensive. In the long-term, cost savings will come from lower labour costs, improved quality so less wastage.
• Increased productivity - machines and robots work autonomously, unlike workers who need breaks, holidays and time off.
• Improved quality - computer aided design (CAD) is precise and machinery and robots reduce mistakes that can be made by human error.
• Further flexibility - computer aided manufacture (CAM) allows for adjustment in processes to make a variety of products, providing more flexibility for businesses and more choice for customers.

Question 13

2.3.2

Answer 13

Working with Suppliers

Question 14

Stock

Answer 14

• Stock constitutes the materials a business holds for use in production or sales. Stock is also referred to as inventory.
• Stock can be: raw materials waiting to be used in the production process, stocks of materials that are not completed (work in progress) and finished goods.

Question 15

Bar Gate Stock Graphs

Answer 15

• A business can manage their stocks by setting maximum, minimum and re-order levels of stock, displayed on a bar gate stock graph.
• The x-axis on the graph shows time in weeks, the y-axis shows the unit of stock.
• Maximum stock level - the largest amount of stock that the business will hold at any one time.
• Minimum stock level (buffer stock) - the lowest amount of stock that a business will hold at any one time.
• The minimum stock level allows a business to continue production if there were to be a delay in delivery or an unexpected order.
• Re-order level - the stock level where new stock will be ordered.
• Lead time - the time it takes for new stock to arrive once it has been ordered.
• Order quantity - the number of units ordered.
• The size of an order is the difference between the maximum stock level and the minimum stock level.

Question 16

Just In Time (JIT)

Answer 16

• Just in time (JIT) stock management is where businesses do not hold any stock; raw materials and components are ordered exactly when they are needed and used straight away in the production process.
• JIT requires regular deliveries, which increases costs and requires strong supplier relationships.
• Good cash-flow can be achieved as money is not tied up in stock or storage costs.
• However, economies of scale can’t be utilised as raw materials are not bought in bulk.
• Supplier difficulties or a delay in delivery halts production and this can be costly for the business.

Question 17

Efficient Procurement of Raw Materials

Answer 17

• Procurement is the act of obtaining or buying raw materials, components or services from a supplier to be used in the production of goods and services.
• Businesses need to maintain a good relationship with their suppliers. When choosing a supplier, a business will need to consider the following factors:
  ○ Quality - a business needs the best quality raw materials or services for the best price
  ○ Delivery - suppliers should be reliable, deliver on time, at short notice and with reasonable delivery costs
  ○ Availability - suppliers need to have stock or components available when a business orders
  ○ Cost - a business must negotiate prices to make cost savings and will want favourable payment terms
  ○ Trust - suppliers want to be treated fairly and paid on time. Honest communication and joint problem solving will develop the trust between a supplier and a business.

Question 18

The Impact of Logistics and Supply Decisions

Answer 18

• A business needs to ensure careful planning goes into decisions about their logistics and suppliers.
• A reliable supplier may be more expensive and increase costs for a business, however a business can rest assured that they’ll be able to meet their demand and produce good quality products for their customers. This ensures customer satisfaction and a good reputation for the business and its brand.
• Distance between factories and a supplier needs careful planning - being in close proximity to suppliers means delivery times are not too long and allows for flexibility should unexpected orders need to be made.

Question 19

2.3.3

Answer 19

Managing Quality

Question 20

Quality

Answer 20

• Quality is about meeting a minimum set of standards to satisfy customer expectations for a good or service.
• As markets become more competitive, customer demands increase.
• The rise of technology has led to customers sharing information about goods and services and leaving negative reviews (social media and review websites) if they are unhappy with their experience with a business.
• If a business can build a reputation for high quality, it can develop a competitive advantage.
• Good quality can be achieved through quality control or quality assurance.

Question 21

Quality Control

Answer 21

• Quality control is where finished products are inspected to see if they meet minimum standards.
• This approach checks for product defects rather than preventing defects from occurring.
• Quality standards are achieved before products reach customers; if a product is found to have a defect it is rectified or sold as a sub-standard product.
• This approach is costly as it could result in a large amount of wastage because the end of the production process is too late to test for quality, and quality is checked by inspectors and not by workers.

Question 22

Quality Assurance

Answer 22

• Quality assurance is where quality is part of the production process; quality is checked at every stage by workers.
• Every worker takes responsibility for quality; although time consuming, this approach should result in zero defect production.
• Workers are more motivated as they are involved in decision making.
• Quality inspectors are not required but management must train workers effectively and set up adequate systems to test quality and reduce inconsistencies.
• Customers’ needs are prioritised in the production process and businesses can assure customers that products are good quality.

Question 23

The Importance of Managing Quality

Answer 23

• If a business has effective quality management systems, they experience less wastage in defective products and the cost of production is lowered.
• If the cost of production is lower, profit margins increase.
• Good quality products meet customer expectations; happy customers make repeat purchases and recommend goods and services to friends and family, which leads to further word-of-mouth sales.
• Building quality management into the production process can be expensive. A business will weigh this up against the potential increased sales from customers and brand reputation for good quality.
• A business will need to invest the time in finding out customer expectations as they differ based on the business, e.g. customers have different expectations from a budget airline and a premium airline.
• To gain a competitive advantage, a business needs to offer better quality goods or services than competitors at a competitive price.

Question 24

2.3.4

Answer 24

The Sales Process

Question 25

The Sales Process

Answer 25

• In the sales process, product knowledge is important for a sales person as it enables the features and benefits of products to be effectively communicated to customers.
• Sales people should have the ability to match a customer’s needs to suitable products on offer by the business; the customer can then make an informed choice.
• Speed and efficiency of service are fundamental to ensuring customer needs are met; customers should be served in a timely manner and be provided with the correct items that have been requested.
• Customers may have different standards, dependent on the nature of the business, e.g. a fast food restaurant is expected to serve customers quickly, but in a restaurant a longer wait is expected.
• Customer engagement is concerned with the experiences of customers with a business or brand and the connection that is built through nurturing and managing this relationship.
• Customer engagement can be achieved through various channels of correspondence, both offline and online.
• If a business can keep customers engaged, their interest can turn into sales.
• A response to customer feedback is required to maintain good relationships with customers.
• A business needs to ensure that positive and negative customer feedback is acted on as this is effective market research.
• If a customer is unhappy with a business or leaves a bad review, this must be handled in a sensitive way to try and resolve the situation and to keep the customer’s business.
• Post-sales service is concerned with the procedures that a business has in place to support customers after the sale of a good or service. Examples include warranty or repair services.

Question 26

Customer Service

Answer 26

A business can have good or bad customer service.

Question 27

Good Customer Service

Answer 27

• Good customer service has many benefits for a business.
• Happy customers feel valued, are loyal and will repeat purchase.
• If customers are loyal to a business, it is much harder for competitors to get them to try their products.
• Satisfied customers tell others about their good experiences and this could attract more people to the business.
• Satisfied customers can help create a positive working environment and make a business a reputable employer.
• A business can gain a reputation for good customer service and this can develop into a competitive advantage.

Question 28

Bad Customer Service

Answer 28

• Poor customer service will lead to complaints and a loss of sales for a business.
• Bad customer service can have a negative impact on the reputation of a business as customers may share their negative experiences with family and friends or post bad reviews online for new potential customers to see.
• Bad reviews can have a negative impact on overall sales for a business, lowering revenue and profit.
• A loss of reputation can contribute to a business losing its position in the market, or can leave it vulnerable to being taken over by competitors.