2.3 - Making Operational Decisions

Question 1

What are the two purposes of business operations?

Answer 1

• To produce goods

- To produce services

Question 2

What is Job production?

Answer 2

When a firm manufactures individual, unique products. Each product is unique to its customer’s specifications.

Question 3

What are the features of Job production? (4)

Answer 3

> 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

Question 4

What is flow production?

Answer 4

Making products continuously which are identical

Question 5

What are the features of Flow production? (5)

Answer 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

Question 6

What is Batch Production?

Answer 6

Where groups of items are made together. Each batch is finished before starting the next block of goods.

Question 7

What are the features of Batch production? (4)

Answer 7

> 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

Question 8

Advantages of technology in production (3)

Answer 8

> 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

Question 9

Disadvantages of technology in production (4)

Answer 9

> 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

Question 10

What is Just-in-time (JIT) stock control?

Answer 10

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.

Question 11

Advantages to JIT stock control (3)

Answer 11

> 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

Question 12

Disadvantages of JIT stock control (2)

Answer 12

> 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

Question 13

What are the three straight lines on a bar gate stock graph?

Answer 13

Highest one - Maximum level
Middle - Reorder level
Lowest one - Minimum level (Buffer Stock)

Question 14

What is procurement?

Answer 14

Finding and buying things that a firm needs from suppliers outside of the firm.

Question 15

What is Logistics?

Answer 15

Getting goods or services from one part of the supply chain to another.

Question 16

What is the effect of an effective procurement and logistics? (3)

Answer 16

> 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

Question 17

What 5 things should firms consider when choosing a supplier?

Answer 17

> Quality
> Trust 
> Availability
> Price
> Delivery

Question 18

Why is quality a factor when considering a supplier? (4)

Answer 18

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.

Question 19

Why is trust a factor when considering a supplier? (3)

Answer 19

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.

Question 20

Why is availability a factor when considering a supplier? (2)

Answer 20

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

Question 21

Why is delivery a factor when considering a supplier? (4)

Answer 21

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.

Question 22

Why is price a factor when considering a supplier? (4)

Answer 22

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.

Question 23

How is making high quality products beneficial? (2)

Answer 23

> 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.

Question 24

What is quality control?

Answer 24

Where finished products are checked by inspectors to see if they meet the set standard.

Question 25

When is quality checked in quality control?

Answer 25

1. Checking raw material
2. Checks of random samples of work in progress
3. Checks of random samples of finished products, if faulty it is removed

Question 26

What is quality assurance?

Answer 26

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.

Question 27

What is the impact of quality control?

Answer 27

> 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.

Question 28

What is the impact of quality assurance?

Answer 28

> 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.

Question 29

What might a sales process contain? (6)

Answer 29

1. Finding potential new customers
2. Approaching potential customers
3. Assessing customer needs
4. Presenting the product
5. Closing the deal
6. Follow-up

Question 30

How can a firm create the best possible sales process? (5)

Answer 30

> 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

Question 31

What are the benefits of a good customer service? (3)

Answer 31

> High levels of customer satisfaction
More likely to be loyal and make repeat purchases
May be persuaded to spend more with a certain firm

Question 32

What are the dangers of a poor customer service? (2)

Answer 32

> Dissatisfied customers

> Poor brand image - less loyal - lower market share - lower sales