2.3 Making operational decisions

Question 1

sales process

Answer 1

The sales process is the set of steps that a company takes to deliver its product to customers

Question 2

sales process steps

Answer 2

1. Gain Customer Interest
2. Provide a Speedy and Efficient Service
3. Engage the Customer
4. Provide Post-sales Service
5. Achieve Customer Loyalty

Question 3

sales process steps -1. Gain Customer Interest

Answer 3

A business must make a customer aware of its product through marketing activities such as
* promotional tactics such as advertising or direct mailing
* branding
* sponsorship
* sales promotions
* public relations
Customer interest may also be gained through excellent product knowledge - A salesperson needs to be able to talk confidently about product features and be capable of answering questions and making recommendations

Question 4

sales process steps -2. Provide a Speedy and Efficient Service

Answer 4

A business needs to be flexible enough to be able to take orders, produce and deliver to customers promptly

Speed and efficiency can be improved by
* delivering and installing products for customers
* allowing customers to choose a convenient delivery method
* making online platforms easy to use
* reducing queues at checkouts
* providing a range of ways for customers to contact the business

Question 5

sales process steps - 3. Engage and build relationships with the Customer

Answer 5

In some cases it is important to engage with the customer during the sales transaction

When customers order a product and need to wait for some time for it to be delivered a business should ensure that there is regular communication with the customer
* For example, estate agents speak regularly with homebuyers and sellers to provide updates and answer questions, negotiate and reassure

Customised products may also need customer approval before they are manufactured so meetings may be arranged
* For example, bridalwear retailers are likely to meet customers regular to discuss designs and make adjustments

Question 6

sales process steps - 4. Provide Post-sales Service

Answer 6

Post-sales service is support given to customers after the purchase of a product and can include
* support in using the product
* dealing with complaints and faults
* managing items that need to be returned
* providing servicing or repairs
* offering warranties or guarantees
* collecting customer feedback on the transaction

Some elements of post-sales service can be included within the product package

Question 7

sales process steps - 5. Achieve Customer Loyalty

Answer 7

Achieving customer loyalty is important to businesses as it leads to repeat sales and valuable word-of-mouth reviews

Businesses need to carefully manage the relationship with customers after the sale has taken place by
* Communicating with the customer according to their wishes
* Providing extended product support
* Maintaining a positive reputation
* Continuing to offer what the customer wants
* Using promotional tactics to encourage repeat purchases

Question 8

The importance of customer service

Answer 8

Many customers place the greatest value on the customer service they receive from a business, even more than the price they pay or the quality of the product. Customer service is one way that a business can add value to its products and services.

Question 9

Good customer service leads to:

Answer 9

satisfied and loyal customers

positive brand image and reputation

differentiated products with a competitive advantage

increased sales and repeat purchasing.

Question 10

Poor customer service leads to:

Answer 10

• poor customer satisfaction and low customer loyalty
• poor brand image
• inability to differentiate products and to charge premium prices
• falling sales and repeat purchases.

Question 11

Production

Answer 11

Production is the transformation of resources (e.g. raw materials components and processes) into finished goods or services
There are 3 methods of production:
Job production
Batch production
Flow production

Question 12

Job Production

Answer 12

Job production is when individual products are made one at a time to meet specific customer preferences. An example would be tailor-made suits, which are made specifically to each customer’s measurements and tastes.

Question 13

Job Production - pros

Answer 13

• High profit margins for bespoke products
• Employees may gain enjoyment from using their specialist skills
• Customers get exactly what they want

Question 14

Job Production - cons

Answer 14

• Highly skilled staff are required, which increases costs
• Highly skilled staff may not be available, which can make training staff very expensive

Question 15

Batch Production

Answer 15

Batch production involves making a set quantity of identical products. This quantity is known as a ‘batch’. The batch size could be ten, 10,000 or a million identical products. An example would be a bakery making a batch of 100 white bread rolls and then making a batch of 50 wholemeal bread rolls.

Question 16

Batch Production - pros

Answer 16

• Able to make a variety of sizes or flavours
• Can be partially automated
• Can produce more products than job production

Question 17

Batch Production - cons

Answer 17

• Not as flexible regarding customers’ tastes as job production
• As batch production is not fully automated, costs may be higher than in flow production

Question 18

Flow production

Answer 18

Flow production involves continuously making identical products. This allows the production process to be heavily
automated

Question 19

Flow production - pros

Answer 19

• Able to make far larger quantities
• Consistency in production means products are identical, which means customers know exactly what they are buying
• Highly automated process

Question 20

Flow production - cons

Answer 20

• In competitive markets for similar mass-produced goods, profit margins can be very low
• Customers like products that are tailored to their specific preferences
• Expensive to buy all the machinery needed for automation

Question 21

ways a business can improve productivity:

Answer 21

• Investing in up-to-date machinery – This can help workers to produce more products in the same length of time. It can also reduce the need for employees by replacing them with automated machinery.
• Providing incentives to encourage workers to work harder and faster – There are several ways this can be achieved, such as through promotion opportunities or pay incentives.
• Providing training to staff to improve their skills so they can work more efficiently.
• Encouraging staff to come up with time-saving ideas that allow them to work more efficiently – Many businesses have suggestion boxes where staff can provide ideas on how the business could operate better.

Question 22

productivity

Answer 22

Productivity is a measure of efficiency. It can be measured in products produced per worker, per day, month or year.
Being more productive enables businesses to keep their costs per unit as low as possible. This means they can price their goods or services more competitively or increase their profit margins.

Question 23

Technology

Answer 23

Technology has a big impact on businesses, in terms of both updating existing products and finding new ways of manufacturing products. Technology benefits businesses as it allows them to produce higher quantities, make products more consistent and be more cost-effective.

Question 24

Technology - costs

Answer 24

Costs - Technology costs money to purchase, but reduces the cost of producing products. For example, using machinery to complete dangerous tasks means a business no longer has to pay the higher wage costs associated with risky jobs. This both reduces costs and improves employee health.

Question 25

Technology - Productivity

Answer 25

Productivity - Using machinery to mechanise or automate parts of the production process leads to an increase in productivity. This means a business can either reduce its prices to remain competitive or increase its profit margins.

Question 26

Technology - Quality

Answer 26

Quality - Businesses need to be consistent in the quality of the products they produce. Mechanising or automating parts of production can help with this.

Question 27

Technology - Flexibility

Answer 27

Flexibility - Businesses often need to balance technology with human flexibility. Automation is good for mass production but it doesn’t work so well for products that will be personalised to meet individual customers’ preferences. For example, in the luxury car industry, customers have a wide variety of optional extras to choose from, which may need to be hand-finished.

Question 28

Procurement

Answer 28

Procurement means getting the right supplies from the right supplier. Effective stock control is important to both customers and businesses.

Question 29

Stock

Answer 29

Businesses need to manage their stock in the most effective and efficient way possible.

Stock can consist of:

raw materials waiting to be used in production
work in progress
finished stock waiting to be delivered

Question 30

Customers expectations - stock

Answer 30

Customers expect to be able to go into a store and buy the products they desire.

Without appropriate stock control, businesses can run out of stock, which loses them sales and potentially customers. However, holding too much stock can also have negative consequences:
* high storage costs, which may mean the business has to raise its prices
* increased waste, if the products are perishable, eg fruit and vegetables
* reduced income, if the business needs to sell off excess stock at a reduced price

Question 31

maximum stock level

Answer 31

The maximum stock level is the largest amount of stock a business can store on site. In the bar graph example, it is 500 items of stock.

Question 32

minimum stock level

Answer 32

The minimum stock level is also known as buffer stock. This is the lowest amount of stock a business can store on site while still being able to operate effectively. In the bar graph, the minimum stock level or buffer stock is 100 items. Buffer stock ensures a business can still operate for a short while if there are delays to deliveries or there is a large spike in demand. It also allows a business to replace any damaged stock while continuing to meet customer demand.

Question 33

Lead time

Answer 33

Lead time is how long it takes from ordering stock for it to arrive. The bar graph shows that the lead time is two weeks.

Question 34

The reorder level

Answer 34

The reorder level is the point at which a business needs to order new stock in order for it to arrive before its stock falls below the minimum level. In the bar graph, the business would reorder stock when it has 300 remaining.

Question 35

stock reorders

Answer 35

Many businesses now use computer software that automatically reorders stock when it reaches a pre-set reorder level. For example, stock levels can be automatically updated every time a product is sold to a customer, as products are scanned at the checkout using a barcode scanner.
This not only ensures accurate stock levels but also allows stock to be automatically reordered when it reaches a pre-set level.

Question 36

Just-in-time (JIT)

Answer 36

Just-in-time (JIT) is a stock control method where the business doesn’t store any raw materials. Instead, it has regular deliveries that bring only what is needed before its existing raw materials run out, so
buffer stock
is not needed.

The business orders smaller but more frequent quantities of stock that are taken straight to the production line on the factory floor. For this method of stock control to be effective, a business needs a good relationship with its suppliers. Suppliers will ideally be local to reduce both delivery costs and
lead time
.

Question 37

Advantages of JIT

Answer 37

• Removing buffer stock space (which would previously have been used for storage) means more space can be used for sales.
• Smaller but more frequent deliveries mean that the products will be fresher. A business can also have new stock delivered more frequently, eg perishable items such as fresh fruit and vegetables.
• Businesses will no longer have large amounts of capital tied up in stock that could go out of date or out of fashion. This capital can then be reinvested or spent elsewhere.
• Additionally, having less stock that could go out of date will reduce waste, saving money.
• JIT reduces production costs, allowing businesses to price their products to give a more competitive advantage.

Question 38

Disadvantages of JIT

Answer 38

It can be hard for businesses to react to unexpected changes in demand, eg a heatwave causing an increase in the demand for ice cream.
Businesses are unable to use bulk-buy discounts if they only buy in small quantities.
Customers could receive a poor service if the business misjudges the amount of stock it needs and allows products to go out of stock.

Question 39

Relationships with suppliers

Answer 39

Most businesses don’t produce a product completely. Instead, they have suppliers that supply some of their raw materials or
components.
Finding suppliers that can meet all of a business’ needs is essential for a business to remain competitive and successful.

Question 40

Relationships with suppliers - cost

Answer 40

Cost is a vital consideration. If a business can get supplies cheaply, this keeps its variable costs low, allowing it to maintain higher profit margins. Often, the more products businesses buy from suppliers, the more power they have to negotiate discounts.

Question 41

Relationships with suppliers - quality

Answer 41

Quality is essential, even when a product is marketed as a ‘budget’ or a low-cost option. For example, whether a business is making a gourmet or supermarket own-brand bar of chocolate, the quality of the raw products must be considered. Businesses need to make good-quality products that customers want to buy, but at different price points.

Question 42

Relationships with suppliers - delivery

Answer 42

Delivery is also important, as the products that are ordered have to arrive on time. For manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock. To avoid this, some businesses fine suppliers a small percentage of the value of any late deliveries. Businesses want quick delivery with minimal lead time so suppliers often set up their businesses near their customers. For example, Silicon Valley is made up of technology companies such as Apple and Facebook and their suppliers.

Question 43

Relationships with suppliers - Availability and capacity

Answer 43

Availability and capacity of suppliers to meet an unexpected increase in orders is very important. For example, during a heat wave, a local corner shop might increase the quantity of ice creams and ice lollies it orders, and it would need its suppliers to meet the demand.

Question 44

Relationships with suppliers - trust

Answer 44

Trust between the business and the supplier is needed, as many businesses buy using trade credit to allow time to sell products to customers before paying their suppliers. Businesses also need to trust their suppliers to keep designs and other information confidential.

Question 45

Quality control

Answer 45

Quality control is the process of inspecting products and services to ensure that what customers receive is of a high standard.

Question 46

ways that businesses conduct quality control

Answer 46

• Feedback can take the form of customer questionnaires, conducted either at the point of sale or electronically, to ask about the service customers received from the business.
• Factory inspectors are often used at the end of production to ensure that products are of the required standard before they reach customers. For example, car manufacturers have a list of checks that they complete before cars are sent out, eg doors must be correctly aligned, car mats must be present and there must be no visible flaws in the paint.
• A one hundred percent inspection system is often used in high-end restaurants. In this method of quality control, all food is checked by the head chef before it is given to the customer. If the chef spots any imperfections, the whole dish is cooked again before the customer receives it.

Question 47

Quality assurance

Answer 47

Quality assurance is a process of carrying out quality checks at specific stages during the production process. This ensures that faults and sub-standard products are found sooner rather than at the end of the production process.

Question 48

Quality Control Benefits

Answer 48

Quality specialists are employed to check standards

An inexpensive and simple way to check that output is fit for purpose

Question 49

Quality Control Drawbacks

Answer 49

The rejection of finished goods is a significant waste of resources

There is little focus on the cause of defects

Question 50

Quality Assurance Benefits

Answer 50

Quality issues are identified early so products may be reworked rather than rejected

The cause of defects is the focus so future quality issues may be prevented

Controlling quality throughout the production process can be expensive,
but it could ultimately reduce costs because defects do not then have to be dealt with

Question 51

Quality Assurance Drawbacks

Answer 51

Staff training and a skilled workforce is required so labour costs may be increased

Reworking may lengthen the production process

Question 52

Cost control and competitive advantage

Answer 52

Quality management is important to businesses because it helps them to produce high-quality products and services. They need to understand what their customers want, and meet customers’ needs and expectations. This is a way of gaining competitive advantage.

Quality management is also important in relation to costs. Mistakes are expensive, and quality control and quality assurance help businesses to limit additional costs and reduce
wastage by aiming to ensure that things are done correctly the first time. For example, quality management can help to:

reduce waste, eg if a car light is damaged during production, it will have to be scrapped and replaced at additional cost to the business
reduce employee costs, as replacing the car light will cost the manufacturer additional wages, because an employee must be paid to replace the light

When a business can offer higher quality and lower costs, it gains a competitive advantage over similar businesses. A good-quality product or service helps to build a strong brand image, which can allow a business to grow its market share. If a business has a product or service that gains a good reputation for being of high quality, the business can charge a premium price.