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

Question 1

Holding stock is good for…

Answer 1

-Rise in demand
-Has a value
-Bulk buying (get discounts)
-Shows the goods available for production

Question 2

Excess stock

Answer 2

-High storage costs
-Money tied up in stock
-High security costs
-High insurance costs

Question 3

Factors influencing stock

Answer 3

-Unpredictability of demand
-Competition
-Reliability of supplier
-Rental costs for storage

Question 4

Average inventory formula

Answer 4

Beginning inventory+ ending inventory/2

Question 5

Storage of stock

Answer 5

-Centralised=stock can be held in one central area
-Decentralised=stock can be located in different areas in which they are used

Question 6

Centralised stock advantages

Answer 6

-All in one place (easier to access)
-Cheaper
-Easier to store stock

Question 7

Centralised stock disadvantages

Answer 7

-Harder to distribute
-Risk of cross contamination (food)
-More risk of damage

Question 8

Decentralised stock advantages

Answer 8

-Easier to distribute
-Where it is most likely to be needed
-Hold more stock

Question 9

Decentralised stock disadvantages

Answer 9

-More expensive
-Harder to track stock
-Multiple supplies/issues with delivery

Question 10

Why are suppliers important?

Answer 10

-Provide stock/raw materials
-Need to be consistent
-Lower prices
-Good relationship
-Quality

Question 11

Benefits of good suppliers

Answer 11

-Businesses can give better customer service (leads to better customer satisfaction and customer loyalty)
-Less production delays (consistent with buying products, achieve demand)
-Lower costs (help with profit margins, lower prices for customers)

Question 12

How can reliability of suppliers be measured?

Answer 12

-Measured in delivery dates
-Whether they’ve been on time
-Checking the quality of products are consistent

Question 13

What is meant by ‘payment terms’ with suppliers?

Answer 13

Agreement of payment between suppliers and business (Trade credit-buy now pay later)

Question 14

Mass customisation

Answer 14

• a process that allows a company to personalise certain features of a product while still keeping costs at or near mass production prices

Question 15

Mass customisation benefits

Answer 15

-Prevents resell
-USP (unique selling point)
-Customers needs
-Build brand strength+loyalty
-Low unit costs combined with personalised product = higher added value

Question 16

Mass customisation drawbacks

Answer 16

-Seasonal
-Longer to manufacturer
-Longer to deliver
-Lower profit margins
-Struggle to keep up with demand/time consuming

Question 17

What is a supplier

Answer 17

A business that provides goods and services to another business

Question 18

Supply chains

Answer 18

Complete sequence of stages involved in transforming raw materials into finished goods and getting them into the hands of customers

Question 19

Benefits of having a variety of suppliers

Answer 19

-Search for lower costs
-Less likely to have delays (may have a backup)
-More bargaining power

Question 20

Benefits of having fewer suppliers

Answer 20

-Cheaper
-Build better relationships
-Less payments to track

Question 21

Strategic suppliers

Answer 21

The business cannot succeed without maintaining an effective supplier relationship. The goods and services are crucial to the businesses success

Question 22

Commodity suppliers

Answer 22

They provide goods and services that can easily be bought elsewhere and which are not hugely important to the business

Question 23

Outsourcing

Answer 23

-Delegating one or more business processes to an external provider who the owns, manages, administers the selectd processes to an agreed standard

Question 24

Outsourcing benefits

Answer 24

-Ability to access specialists with greater capabilities and higher quality
-Reduce costs if outsourcing provider is able to provide at lower costs
-Makes operations more flexible

Question 25

Outsourcing drawbacks

Answer 25

-No guarantee that costs will be lower
-Potential loss of expertise from the business
-Supplier may fail to meet quality standards

Question 26

Offshoring

Answer 26

Work is done overseas

Question 27

Profit in absolute terms

Answer 27

The £ value of profits earned

Question 28

Profit in relative terms

Answer 28

The profit earned as a proportion of sales achieved or investment made

Question 29

Gross Profit formula

Answer 29

Sales revenue- cost of sales (Absolute terms)

Question 30

Operating profit formula

Answer 30

Gross profit-expenses (Absolute terms)

Question 31

Profit of the year/Net profit formula

Answer 31

Operating profit-interest and taxation (Absolute terms)

Question 32

Ratio analysis

Answer 32

Analysing relationships between financial data to assess the performance of a business

Question 33

Profitability ratios provide useful insights

Answer 33

-Is the business making a profit? Is profit growing?
-How efficient is the business at turning revenues into profit?
-Is the profit enough to justify investment in the business?

Question 34

Profit margins formula

Answer 34

margin (%)= type of profit/sales revenue x 100

Question 35

Possible actions to increase profits

Answer 35

-Increase quantity sold
-Increase selling price
-Reduce variable costs per unit