4.5 Making operational decisions to improve decisions: managing inventory and supply chains

Question 1

Inventory

Answer 1

The stock a business holds in the form of raw materials, components and work in progress.

Question 2

Flexibility

Answer 2

Refers to the ability of a business to meet a customer’s requirements whether in terms of numbers ordered or of variations in specification.

Question 3

Mass customisation

Answer 3

The production of custom-tailored goods or services to meet customer’s diverse and changing needs.

Question 4

Speed of responsibility

Answer 4

Speed of response refers to how quickly a business fulfils an order.

Question 5

Dependability

Answer 5

Refers not the punctuality or whether the business fulfils the order on time.

Question 6

Ways to manage demand

Answer 6

• The marketing mix can be used

Increase demand by:
- Increase marketing
- Price reductions
- Sales promotions

Reduce demand by:
- Reducing promotion
- Increasing price

Question 7

Ways to manage supply

Answer 7

• Flexible workforce: part-time workers, zero-hour contracts
• Increasing capacity: to satisfy growing demand
• Producing to order
• Outsourcing

Question 8

Influences on the amount of inventory held

Answer 8

• Nature of the product: e.g. if they are perishable
• Nature of production
• Nature of demand: seasonal products
• Opportunity cost

Question 9

Key features of an inventory control chart

Answer 9

• Buffer level of inventory: minimum amount of inventory held (used for emergencies)
• Reorder level: level of inventory at which a new order is placed
• Lead time: time between an order being made and its arrival in the business
• Maximum stock level: highest amount of inventory a business is able to hold
• Reorder quantity: amount ordered

Question 10

Influences on the choice of suppliers

Answer 10

• Dependability of the supplier
• Flexibility of the supplier
• If the supplier can produce at a consistent quality level
• Whether the prices charged and payment terms are competitive
• Socially responsible/ ethical behaviour by the supplier

Question 11

Benefits of outsourcing

Answer 11

• Enables a business to respond quicker to any increase in demand
• Provides greater dependability for customers
• Business will save on costs - no need to invest in increasing capacity

Question 12

Drawbacks of outsourcing

Answer 12

• Maintaining the standard level of quality
• May be more costly than producing in house
• Transportation and distribution costs