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AQA A-level Business > 3.4 Decision making to improve operational performance > Flashcards

3.4 Decision making to improve operational performance Flashcards

1
Q

Operational objectives - LOW UNIT COSTS

A

Low unit costs –> business can offer lower prices which demonstrates a competitive advantages

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2
Q

Operational objectives - QUALITY

A

Quality operation has resources and systems in order to achieve quality targets consistently

The better the quality –> the more competitive the business will be –> so customers will keep on using it

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3
Q

Operational Objectives - ADDED VALUE

A

An increase in value that a business creates by undertaking the production process. Can be done through:

Strong brand - good reputation and quality

Customer service - attentive personal service, high quality

Product features - new developments e.g. new software update

Offering convenience - e.g. customers will pay more for next day delivery

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4
Q

Calculations of operations data - LABOUR PRODUCTIVITY

A

Measures output per employee

Labour productivity = total output / number of employees

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5
Q

Calculations of operations data - UNIT COSTS (average costs)

A

Measures cost per unit

Unit costs = total costs / total output

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6
Q

Calculations of operations of data - CAPACITY UTILISATION

A

CAPACITY UTILISATION - measures existing output as a % of the maximum possible output

capacity utilisation = existing output / maximum possible output x 100

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7
Q

Importance of capacity

A

Useful measure of productive efficiency –> (measures whether there are unused or idle resources in the business)

High capacity utilisation reduced unit costs –> competitiveness

HOWEVER, high capacity utilisation can have negative impacts:
- negative effect on quality –> production is rushed
- employees suffer –> lots of workload + stress, de-motivating
- loss of sales –> unable to meet sudden increases in demand

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8
Q

Importance of efficiency and labour productivity

A

Efficiency is measured by the inputs used to generate outputs

A more efficient business will produce lower unit costs than competitors –> so business can either make a higher profit per unit sold (if unit costs stays the same price as a competitor) or the business can offer customers a lower price than competitors –> still making a good profit

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9
Q

Improving efficiency through using capacity efficiently

A

Low capacity utilisation = inefficiency, SO a manager could:
- improve marketing to boost sales e.g. through promotion
- reducing its capacity / downsizing

If the demand is high for the existing capacity, a business will:
- outsource to other producers that may do things differently
- find a way to reduce demand in the short-term –> price increase

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10
Q

Improving efficiency through increasing labour productivity

A

Another way to increase efficiency is through is to improve labour productivity and this can be done by:

Investment in more training – e.g. on-the-job training
Improve motivation
More or better capital equipment
Better quality raw materials –> reduces wasted & rejected products

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11
Q

Difficulties of increasing efficiency and labour productivity

A

Increasing labour productivity may lead to a decrease in quality –> leads to customer dissatisfaction & sales may fall

If demand for product doesn’t increase by productivity does –> fewer employees will be required –> this means higher levels of productivity may lead to staff being made redundant so employees may resist labour productivity as they want to keep their jobs

Employees may demand higher pay for higher productivity –> if pay rise is too high it may offset any efficiency gains from higher productivity so business won’t have benefitted.

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12
Q

Lean production

A

Occurs when managers reduce waste and therefore operations become more efficient

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13
Q

Being lean aims to reduce waste by…

A

Improving quality –> reduces the number of products that might need to be reworked, thrown away or fixed

Reducing amount of inventory held –> reduces costs of protecting and storing products –> reduces risk of stock going out of date or not being sold

Just in Time production leads to as close as zero stock being held

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14
Q

Advantages of lean production

A

Improved product quality

Sustainability –> less waste

Increased profitability - because greater efficiency –> less waste –> reduced unit costs –> better quality –> profitability

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15
Q

Disadvantages of lean production

A

Businesses can be more vulnerable if they use JIT –> a disruption to JIT will lead to a halt in operations

Investment in training for employees to keep increase their skills, engagement and the quality of their work

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16
Q

Just in Time

A

Ordering in the exact amount of supplies only when they are needed

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17
Q

Benefits of JIT

A

Lower stock holding –> reduction in storage space –> saves money on rent & insurance costs

Less likely of stock becoming obsolete, or out of date

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18
Q

Drawbacks of JIT

A

Little room for mistakes as minimal stock is kept for re-working faulty products

If there is a disruption to suppliers –> leads to a halt in production

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19
Q

Optimal mix of resources - LABOUR INTENSIVE

A

Labour intensive production relies on physical work from employees

E.g. - hairdressing, coal mining etc.

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20
Q

Advantages of labour intensive

A

Customised products are easier to make

Less expensive machinery costs

Humans can use their own initiative and problem solve

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21
Q

Disadvantages of labour intensive

A

Quality of products can vary due to expertise / skill of the worker

Skilled workers take time and money to train

Skilled workers will be paid more than unskilled workers

22
Q

Optimal mix of resources - CAPITAL INTENSIVE

A

Capital intensive production relies mainly on machinery

E.g. - car manufacturing

23
Q

Advantages of capital intensive

A

Less employee wages and costs

Quality can be standardised, the same every time

Machines can work continuously, 24/7

24
Q

Disadvantages of capital intensive

A

More difficult to customise orders

Breakdowns in production can be costly

Initial set up costs of machinery are high

25
Q

Impact of technology on operational efficiency

A

More flexible when meeting customer needs –> technology can track customer behaviour more effectively e.g. providing personalised products

Reduces costs because there are less errors with technology

HOWEVER…
New technology is expensive

More money spent on training employees on how use it

Technology may make some employees redundant

26
Q

Importance of Quality

A

Quality is measured by the extent to which an operation meets its customer requirements –> customers want ‘value for money’

Quality is important for a businesses success as good quality ensures:
- Customer loyalty –> & recommend product to others

  • Strong brand reputation for quality
  • Value for money –> allows premium price & more price inelastic
  • Fewer returns and replacements lead to reduced costs
27
Q

Methods of improving quality

A

Using market research to meet customer needs
Careful selection of suppliers
Training employees to make sure their work is acceptable
Investment in technology

28
Q

Quality Assurance

A

An approach that aims to achieve quality by organising every process to get the product ‘right first time’ –> prevent mistakes –> ‘zero defect’ approach.

29
Q

Advantages of Quality Assurance

A

Less wastage so costs are reduced & re-working of faulty products at every stage too

Helps improve employee motivation as they have more ownership and recognition for their work

With all staff responsible for quality, this can help the firm gain marketing advantages arising from its consistent level of quality

30
Q

Disadvantages of Quality Assurance

A

Can be very costly due to regular checks being made so often

Regular checks can slow down production –> lower productivity

31
Q

Quality Control

A

Checks the quality of completed products for faults at every stage

32
Q

Advantages of Quality Control

A

Inspection prevents faulty products reaching the customer

Inspectors may be better placed to find widespread problems across an organisation.

33
Q

Disadvantages of Quality Control

A

Individuals aren’t encouraged to take responsibility for the quality of their own work.

Rejected product is expensive for a firm as it has incurred the full costs of production but can’t be sold as the manufacturer does not want its name associated with substandard product

If defect levels are very high, the company’s profitability will suffer unless steps are taken to tackle the root causes of the failures.

34
Q

Benefits of improving quality

A

Managers can feel comfortable that they can meet set targets –> allows the business to be competitive

Improved quality helps brand image, leads to customer satisfaction & loyalty –> perhaps leading to good word-of-mouth

35
Q

Difficulties of improving quality

A

Employees may:
- see improving quality as extra work and don’t understand why they should work more if they aren’t being paid more
- may believe the business is already doing well enough therefore resist it and may even see it as a criticism

Business may:
- have to invest in training
- possibly change suppliers
- have to develop a culture where quality assurance & control is consistently implemented

36
Q

Consequences of poor quality

A

Poor quality is a course of competitive disadvantage

Loss customers –> may spread negative reviews

Cost of replacements, refunds & reworking a product

Damages brand reputation

37
Q

Ways & value of improving FLEXIBILITY

A

Mass customisation - producing on a large scale while still enabling individual customer preferences to be met

Greater flexibility may lead to more customer satisfaction BUT will be more expensive to produce many different versions of a product

38
Q

Managing supply to match demand - OUTSOURCING

A

Outsource - when a business uses an outside supplier

Outsourcing production to other businesses to meet high level orders

39
Q

Managing supply to match demand - TEMPS & PART-TIME EMPLOYEES

A

Employing a flexible workforce through temps and part-time

Flexible contracts –> managers are able to move staff to when they are needed and increase hours to meet any sudden demands

Managers may also use temps & part-time so they can increase or decrease the work-force as required

40
Q

Managing supply to match demand - TEMPS & PART-TIME EMPLOYEES

A

Employing a flexible workforce through temps and part-time

Flexible contracts –> managers are able to move staff to when they are needed and increase hours to meet any sudden demands

Managers may also use temps & part-time so they can increase or decrease the work-force as required

41
Q

Managing supply to match demand - PRODUCING TO ORDER

A

Occurs when a business only produces when the actual order is placed rather than producing items and hoping they will sell

This reduces any risk of being left with unsold stock but requires a flexible production process

42
Q

Influences on amount of inventory held

A

Need to satisfy demand –> e.g. seasonal demand & failure to have goods available for sale is very costly

Need to manage working capital –> holding stock ties up cash in working capital & opportunity cost (money invested in inventory could have been used for something else)

Risk of stock losing value –> longer the stocks are held the more risk of it becoming obsolete or out of date

43
Q

Inventory Control - STOCK CONTROL CHART

A

Overall aim of stock control charts is to maintain stock so that the total costs of holding stock is minimised

44
Q

Stock control charts - LEAD TIME

A

Amount of time between placing the order and receiving the stock

Measured in days, weeks or months

Determines when an order has to be placed in order to arrive on time to prevent stock falling below the buffer (safety) stock level

45
Q

Stock control charts - RE-ORDER LEVELS

A

Acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed

Depends on buffer inventory, the rate at which materials are used up and the lead time too

46
Q

Stock control charts - RE-ORDER QUANTITIES

A

The amount a manager orders of a particular item

Depends on factors such as cost, and ease of storage

47
Q

Stock control charts - BUFFER LEVEL (safety level)

A

Minimum amount of stock a business wants to hold

Buffer inventory is held to ensure production can continue in an emergency and that customers can continue to be supplied

Amount of buffer inventory depends on how difficult & expensive it is to store

48
Q

Factors affecting when & how much stock to re-order

A

Lead time from suppliers –> Higher lead times may require a higher re-order level

Implications of running out (stock-outs) –> If stock-outs are very damaging, then have a high re-order level & quantity

Demand for the product –> Higher demand normally means higher re-order levels

49
Q

Influence on choice of suppliers

A

Costs of materials and quality –> managers want value for money

Dependability –> managers want supplies to arrive as & when they are ordered to arrive, BUT this may increase costs

Ethical considerations –> businesses are held responsible for the behaviour of their suppliers

50
Q

Supply Chain

A

Refers to all the providers of resources at different stages of operations process

51
Q

Effective management of supply chain

A

Effective management ensures:

Right suppliers arrive on time

Fair price is paid for the items

Products are produced ethically

52
Q

Value of Outsourcing - ADVANTAGES

A

Enables the business to make use of specialist skills and services –> leads to a better quality of work provided more efficiently

Can increase the capacity of the business

AQA A-level Business (10 decks)

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