2.3 - Making Operational Decisions Flashcards
What are the two purposes of business operations?
- To produce goods
- To produce services
What is Job production?
When a firm manufactures individual, unique products. Each product is unique to its customer’s specifications.
What are the features of Job production? (4)
> Requires high skilled labour (labour cost high) and has a high-labour to capital ratio - very labour-intensive
Long time to make as each product is unique - productivity is low
High unit costs - have to buy materials in small quantities
High Prices - higher quality - higher profits
What is flow production?
Making products continuously which are identical
What are the features of Flow production? (5)
> High productivity - continuous with no stoppages
Economies of scale - bulk materials - low average of unit costs
Workers have simple tasks to do - highly capital-intensive
Need a lot of space for product storage
Mass-market products
What is Batch Production?
Where groups of items are made together. Each batch is finished before starting the next block of goods.
What are the features of Batch production? (4)
> Faster than job production - each product in batch is identical - higher productivity than job production
Buy larger quantities of raw materials - economies of scale - lower unit costs - lower prices - more competitive
Productivity is lower than flow production
More expensive than flow production - prices not as competitive as flow production
Advantages of technology in production (3)
> Quicker and more accurate than humans - higher productivity - consistent quality
Can work 24/7 - can be completely continuous
Cheaper to run machines than to pay humans
Disadvantages of technology in production (4)
> Expensive in short term but also may need regular maintenance
Staff need training, expensive and time-consuming
Staff could worried that machines could replace them, demotivates them, causing productivity to fall
Machines only suited to one task, inflexible. Difficult to change production method or product
What is Just-in-time (JIT) stock control?
Aims to keep stock levels to the bare minimum. All raw materials come in one door, made into products and go straight out another door. Computer systems are usually used to calculate stock levels and automatically order more when supplies are needed.
Advantages to JIT stock control (3)
> Reduces cost of keeping stock - less space and workers needed
Stock is less likely to go out of date - not stored for long
Helps cash flow - won’t be much delay between buying supplies and selling the product
Disadvantages of JIT stock control (2)
> Requires coordination between firm and suppliers - late deliveries or mistakes could lead to a lack of stock.
Small quantities of materials at a time - lose out on economies of scale
What are the three straight lines on a bar gate stock graph?
Highest one - Maximum level
Middle - Reorder level
Lowest one - Minimum level (Buffer Stock)
What is procurement?
Finding and buying things that a firm needs from suppliers outside of the firm.
What is Logistics?
Getting goods or services from one part of the supply chain to another.
What is the effect of an effective procurement and logistics? (3)
> Improves efficiency of the business - it will have the supplies it needs at the right time
Reduces overall costs - gets supplies for the best price and doesn’t waste money by being inefficient - reduces unit cost - can make profit
Ensures high-quality products - improves customer satisfaction - improves firm’s reputation
What 5 things should firms consider when choosing a supplier?
> Quality > Trust > Availability > Price > Delivery
Why is quality a factor when considering a supplier? (4)
The quality of supplies needs to be consistent. Customers can be very selective about quality- the internet means it’s easy for them to shop elsewhere if they’re not happy with the quality of a product. Customers will associate poor quality with the business they buy from, not their suppliers.
Why is trust a factor when considering a supplier? (3)
If a supplier lets a firm down, that firm may not be able to supply its own customers. So firms need suppliers they can trust. Suppliers need to deliver high-quality products on time, or give plenty of warning if they can’t.
Why is availability a factor when considering a supplier? (2)
If a supplier is often out of stock of items, it could affect the firm’s production process. So they need to make sure their supplier can provide stock in sufficient quantities
Why is delivery a factor when considering a supplier? (4)
Firms need to consider how much it will cost to get supplies delivered, and how quickly they want supplies to arrive. Delivery from a supplier that’s near the firm is likely to be cheaper and faster than from a supplier that’s further away. Delivery should also be reliable - if a supplier doesn’t deliver stock on time or it gets damaged along the way, the business’s production could be disrupted.
Why is price a factor when considering a supplier? (4)
Firms have to decide how much they want to pay for supplies and whether cost is their top priority. If they want to cut down the time it takes to serve customers, suppliers that offer faster delivery may rate higher than those that compete on price alone. Also, cheaper suppliers will often supply lower quality products. The firm needs to balance reduced costs with the quality of the product or service it wants to provide.
How is making high quality products beneficial? (2)
> Helps control costs - waste less for products that can’t sell or were returned - reduce cost of customer service - fewer complaints
Improve brand image - competitive advantage - charge more - more profit.
What is quality control?
Where finished products are checked by inspectors to see if they meet the set standard.
When is quality checked in quality control?
- Checking raw material
- Checks of random samples of work in progress
- Checks of random samples of finished products, if faulty it is removed
What is quality assurance?
Where quality is built into the production process. For example, all staff check all items at all stages of the production process for faults. In this way everyone takes responsibility for delivering quality. Successful quality assurance results in zero defect production.
What is the impact of quality control?
> Defects may be spotted before they have finished making the products, reducing waste
Can be expensive as whole batches can be scrapped. But the cost would be greater if they went out to customers.
What is the impact of quality assurance?
> Less likely for there to be faulty goods in the first place
Assures customers that it is high quality if a rating or certificate is given when assessed.
What might a sales process contain? (6)
- Finding potential new customers
- Approaching potential customers
- Assessing customer needs
- Presenting the product
- Closing the deal
- Follow-up
How can a firm create the best possible sales process? (5)
> Anyone involved should have excellent product knowledge
Salespeople should engage well with the customer
The firm should create a quick and efficient service
Offer post-sales service
Respond well to customer feedback
What are the benefits of a good customer service? (3)
> High levels of customer satisfaction
More likely to be loyal and make repeat purchases
May be persuaded to spend more with a certain firm
What are the dangers of a poor customer service? (2)
> Dissatisfied customers
> Poor brand image - less loyal - lower market share - lower sales
