3.4.5 Making operational decisions to improve performance: managing inventory and supply chains.

Question 1

Define flexibility.

Answer 1

The ability of an organisation to change its operations in some way.

Question 2

Outline the main types of flexibility.

Answer 2

Volume flexibility.

Deliver flexibility.

Mix flexibility.

Question 3

Outline how to achieve product flexibility.

Answer 3

Designing production lines that can be quickly altered to change the end product.

Question 4

Outline how to achieve volume flexibility.

Answer 4

By maintaining high levels of spare capacity but this is expensive as it represents unused resources.

Question 5

Outline how to achieve deliver flexibility.

Answer 5

Having a flexible workforce, particularly in terms of working hours etc.

Question 6

Outline how to achieve mix flexibility.

Answer 6

Adaptable production lines. Sophisticated database.

Flexible workforce.

Question 7

Define mass customisation.

Answer 7

Offering individually tailored goods or services to customers on a large scale.

Question 8

Outline the four types of mass customisation (MC).

Answer 8

Collaborative customisation - working with customers.

Adaptive customisation - allowing customers to adapt products.

Transparent customisation - unique products provided but not identified as MC.

Cosmetic customisation - standardised products are marketed to different customers in different ways.

Question 9

Outline the factors requires for Mass Customisation.

Answer 9

A market valuing variety and individuality.

Quick response to market changes.

Ability to provide customisation.

Scope for mass efficiency/economies of scale.

Question 10

Outline the benefits of mass customisation.

Answer 10

Cost reductions.

Higher revenue.

Customer loyalty.

Competitive advantage.

Understanding of customers wants.

Greater protection for market changes.

Workforce motivation.

Higher profits.

Question 11

Outline the difficulties of Mass Customisation.

Answer 11

Sophisticated and expensive management of information systems.

IT expenses, capital equipment and staff training.

Problems with rejected product.

Unsuitable supply chains.

Question 12

What is the value of improving flexibility.

Answer 12

Most advantageous when production can be modified cost effectively and customers are prepared to pay a higher price.

Question 13

Define speed of response.

Answer 13

Time taken for a customer choice to be fulfilled.

Question 14

Define dependability.

Answer 14

In this context, whether a business in “on time” when providing a good/service.

Question 15

How are speed of response and dependability improved?

Answer 15

Effective and up-to-date technology.

Flexible workforce.

Targets for meeting customer requirements.

Integrating system allowing for customer order information from all business areas.

Close relationships with suppliers and distributors etc.

Question 16

Outline the value of improving speed of response and dependability.

Answer 16

Customer loyalty.

Higher prices.

Reduce costs.

Question 17

Outline how to manage supply to demand.

Answer 17

Managing demand.

Question 18

Outline managing demand.

Answer 18

The marketing mix.

Firms may suffer from capacity shortage - set higher prices to reduce demand and maximise sale revenue.

Question 19

Outline managing supply.

Answer 19

Producing to order.
Use of temporary and part time employees.
Outsourcing.

Question 20

Define producing to order.

Answer 20

Business only manufactures a product once an order has been received.

Question 21

Outline the benefits of Producing to order.

Answer 21

Meeting customers exact specification.

Reduces inventory holding costs.

Charge higher prices.

Easier production planning .

Targeting markets.

Question 22

Outline the disadvantages of producing to order.

Answer 22

Fluctuations in production levels over time.

Higher costs.

Inability to take advantage of sudden interest in a product.

Uncertainty about production levels can make it difficult to plan.

Question 23

Outline the factors to consider on deciding whether to produce to order.

Answer 23

Value to a customer of built to order product.

Willingness of customers to wait for the product.

Nature of the product relative to the costs of BTO.

Cost of holding inventory.

Cost of stockouts.

Question 24

Define stockouts.

Answer 24

A business has no stock or inventory with which to meet a customers request.

Question 25

Define a temporary worker.-

Answer 25

People who’s employment is subject to a time limit.

Question 26

Define part time workers.

Answer 26

Permanent employees who work a limited number of hours.

Question 27

Outline the advantages of employing temporary and part time workers.

Answer 27

Reduce unnecessary costs.

Builds flexibility - meet demand quicker.

Lead to more motivation.

Availability leads to larger pool of candidates.

Retain valuable employees.

Question 28

Define outsourcing.

Answer 28

The transfer of activities, which were previously conducted in house to a third party, outside of the business.

Question 29

Define subcontracting.

Answer 29

When another business takes an assigned task (or part of) from a business under a contract.

Question 30

Outline the advantages of outsourcing.

Answer 30

React to changes in demand quicker.

Outsources may be more specialised - efficient - in a line of activity.

Lets a firm focus on its core business.

Non standard order can be given - no disruption to normal production - still benefit.

Question 31

Outline the disadvantages of outsourcing.

Answer 31

Quality of service is no longer in their direct control.

Excessive amounts erodes operation bases and ability to initiate research and make changes.

Cost should be evaluated.

May require providing confidential information to suppliers.

Question 32

Outline the factors influencing decisions to outsource.

Answer 32

Available capacity.

Expertise.

Quality considerations.

Nature of demand.

Cost.

Level of risk.

Impact on profit.

Question 33

Define offshoring.

Answer 33

Used to describe outsourcing/subcontracting when the activity being transferred takes place in a different country to the contracting company.

Question 34

Outline the different forms of inventories.

Answer 34

Raw materials.

Work in progress.

Finished goods.

Question 35

Define inventories.

Answer 35

Items that the firms need to produce for, or supply to, customers.

Question 36

Define inventory control.

Answer 36

Management of levels of raw materials, work in progress, and finished goods in order to reduce storage costs while still meeting the customers demands.

Question 37

Outline the advantages of high inventory levels.

Answer 37

Demands met quickly.

No loss of good will.

Increase in demand can be met quickly.

Production lines are not halted.

Benefit from bulk buying and longer production runs.

Question 38

Outline the advantages of low inventory levels.

Answer 38

Reduced warehousing costs.

Low opportunity costs.

Perishable products less likely to deteriorate.

Less probable cash flow problems.

Question 39

Define an inventory control chart.

Answer 39

A diagram used to register levels of stock over a period of time.

Question 40

Define a buffer inventory level.

Answer 40

The minimum level of inventory targeted by a business.

Question 41

What a re the factors that the re-order level and quantity depend on?

Answer 41

The suppliers lead time.

Demand for the product.

Consequences of running out of inventory.

Question 42

Define the re-order level.

Answer 42

The inventory level at which an order is placed for new inventory.

Question 43

Define lead time.

Answer 43

The time taken for a customer request to be fulfilled. In case the of inventory control, the lead time is how long the supplier takes to deliver an order has been places.

Question 44

Define the re-order quantity.

Answer 44

The actual number of products purchased from the supplier in a particular order.

Question 45

What inventory level do firms usually have?

Answer 45

The maximum inventory level.

Question 46

Define inventory wastage.

Answer 46

A measure of the loss of inventory within a business.

Question 47

What are the main causes of inventory wastage?

Answer 47

Raw material wasted during storage and production.

Defects in production.

Pilferage of theft.

Damage to inventories during storage or production.

Obsolescence.

Question 48

Define inventory rotation.

Answer 48

Using old inventory before new inventory to make sure that inventory wastage is kept to a minimum.

Question 49

Outline the ways of improving the efficiency of inventory control.

Answer 49

Just in time inventory control.

Question 50

What are the implications of inventory control?

Answer 50

Cost of raw materials are likely to be higher.

Problems may be experienced in getting raw materials on time.

Cost of storage and insurance fall as inventories are delivered directly to the production line or placed on shelves.

Less likely of inventory perishing or becoming obsolete.

less cluttered production areas.

Question 51

Define the term supplier.

Answer 51

An organisation that provides a business with the materials it needs in order to carry out its business activities.

Question 52

Outline the factors to consider when choosing a suppliier.

Answer 52

Prices.

Payment terms.

Quality.

Capacity.

Reliability.

Flexibility.

Question 53

Outline how low prices benefit the business.

Answer 53

Reduce the final selling price of its own product - competitive advantage.

Keep final selling price but enjoy the benefit of higher added value.

Question 54

Why can low prices be a red flag?

Answer 54

May be a sign of deficiencies in the other factors relevant to the choice of supplier.

Question 55

What is another factor to consider when looking at suppliers prices?

Answer 55

The financial position of the supplier - ensure there are no cash flow problems.

Question 56

What is the current practice in business concerning supplier payment terms? Why?

Answer 56

Credit.

The cash flow cycle - no delay between the purchase of the materials and receipt of revenue from sale. No cash flow problems for the buyer.

Suppliers may be encouraged to offer payment terms in order to obtain business.

Question 57

Outline the significance of quality when concerning suppliers.

Answer 57

The significance of quality depends on the product. An economy brand that is sold on the basis of its low price, quality will be relevantly unimportant. However, if promoting based on quality, it must meet high standards.