5.6

Question 1

what is a supply chain?

Answer 1

Asupply chainis a system of organisations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
Supply chainactivities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer
Supply chains include all of the companies that participate in the design, assembly, and delivery of products for buyers like you.
Retailers, manufacturers, transportation companies, and distributors are some of the key players.

Question 1

In terms of operations, two flows need to be managed, what are they?

Answer 1

The flow from raw materials to the finished product (bought by the consumer); via the different stages of manufacturing.
The flow of information from consumer to supplier

Question 2

what are the implications of the two flows in a prduction chain?

Answer 2

Therefore, supply chain has two dimensions:
Logistics (i.e. trucks transporting raw materials to the factory)
Information and communication (i.e. spreadsheets or database used by administrative staff in the company)

Question 3

how can we demonstrate a supply chain?

Answer 3

Supply chains are often represented by networks of flowcharts that are often complex to “look at” but helpful with the process.
This charts will help the organization identify who is blocking “the chain” (i.e. the supplier of the supplier). That will ultimately have an effect of the customer (who will be waiting for the product)

Question 4

When considering a supply chainprocess, stock control becomes very important, what is this?

Answer 4

Stock refers to the materials and goods required to allow for the production and supply of products to the customer . The terms JIT (just-in-time) and JIC (just-in-case) are both methods of stock control that have different approaches.

Question 5

what is JIT stock controle?

Answer 5

JIT (just-in-time) - A stock control method that aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produced to order.

Question 6

what is JIC stock controle?

Answer 6

JIC (just-in-case) - Holding high stock levels ‘just in case’ there is a production problem or an unexpected upsurge in demand.

Question 7

Compare the JIT (just-in-time) and JIC (just-in-case) stock control systems?

Answer 7

JIT (just-in-time) - requires that no buffer stocks are held, components arrive just as they are needed on the production line and finished goods are delivered to customers as soon as they are completed.

JIC (just-in-case) – The traditional view of holding high stock levels, especially of raw materials and finished goods, to meet unexpected situations such as; failure of supplying on time, production problems or increased consumer demand.

Question 8

what are some limitations to the JIT stock controle method?

Answer 8

If the costs resulting from production being stopped when supplies do not arrive exceeds the costs of holding buffer stocks.
Rising global inflation makes holding stocks of raw materials more beneficial as it may be cheaper to buy a large quantity now than smaller quantities in the future when prices have risen.
Higher oil prices will make frequent and small deliveries of materials and components more expensive.

Question 9

what are some limits to the JIC stock controle method?

Answer 9

High storage costs.
Risk of goods being damaged or becoming out-dated.
Space used to store stock cannot be used for productive purposes.

Question 10

give two more comparisons between JIT and JIC that you may eed to use in an exam?

Answer 10

JTI creats more space for alternative production planes while JIC means that all stock is stroed ready to use. There is not divivary issue and no waitng time for customers.

JIT creates a closer realtionship with supplies (they may need to run JIT too) whole JIC has the advantage that supploes will not charge a perimium price.

Question 11

what are the three forms of stock (inventory)?

Answer 11

Raw materials and components - These will have been purchased from outside suppliers. They will be held in stock until they are used in the production process.
Work in progress - At any one time the production process will be converting raw materials and components into finished goods, and these are ‘work in progress’. For some firms, such as construction businesses, this will be the main form of stocks held. Batch production tends to have high work-in-progress levels.
Finished goods - Having been through the complete production process goods may then be held in stock until sold anddispatchedto the customer

Question 12

what are the costs of holding too much stock?

Answer 12

Opportunity cost - Working capital tied up in stocks could be put to another best alternative use. The capital might be used to pay off loans, buy new equipment or pay off suppliers, or could be left in the bank to earn interest.
Storage costs - Stocks have to be held in secure warehouses. They often require special conditions, such as refrigeration. Staff will be needed to guard and transport the stocks which should be insured against fire or theft.

Question 13

what are the costs of holding too little stock?

Answer 13

Lost sales - If a firm is unable to supply customers ‘from stock’, then sales could be lost to firms that hold higher stock levels and areperceivedas being more reliable as a result. This might leadto future lost orders too.
Special orders could be expensive - If an urgent order is given to a supplier to deliver additional stock due to shortages, then extra costs are quite likely to be incurred in the administration and processing of the order and in special delivery charges.

Question 14

ho can we find the economic order quantity?

Answer 14

the costs of holding stock and the cost of not holding it (stock out) can be combined in a diagram to determine the total cost of stock and ultimately the Economic Order Quantity (EOQ).

Question 15

what is the economic order quantity? (EOQ)

Answer 15

Economic Order Quantity (EOQ) refers to the optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs (minimum point of the total cost).
The EOQ goes in line with the concept of Buffer stocks, which is the minimum stocks that should be held to ensure that production could still take place should a delay in delivery occur or production rates increase.

Question 16

there are 7 elements of stock control that will help us understand and interpret the stock control diagram, what are they?

Answer 16

The initial order – the first amount of the stock delivered (i.e. beginning of the year, month week)

The usage pattern – how much stock is used over a given period of time (shown by a line with negative slope)
The maximum level of stock – the maximum amount of stock held at any one time.

The minimum level of stock (buffer stock) – the amount of stock kept back as a reserve. The stock should never go lower than this level or else production of the final good might not be possible

The reorder level – when stock has to be reorder (measured in time!) this should be higher than the minimum stock level

The reorder quantity – the amount of stock that is ordered which is basically the difference between the maximum stock level and the minimum stock level.

The lead time – the amount of time it takes between ordering and receiving new stock

Question 17

Watch a vedio on how to analyse the economic order qualitity.

Answer 17

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Question 18

All in all, we need to take several factor into account to determine the theypof sdtocking mthod we will use?

Answer 18

The market – basically take into account the current market situation
The final product – what type of product is it? Difficult easy to produce?
The stock – perishable, not perishable, storage, etc.
The infrastructure – is there a place to stock? Weather condition, natural disasters; how do they affect the stock?
The finance – are there enough resources to buy now? In bulk? Etc.
The Human Resources – implications for workers, how will it affect them?

Question 19

what is capacity utlisation rate?

Answer 19

Capacity utilisation – refers the proportion of maximum output capacity currently being achieved. In other words, is the extent to which a business uses its production capacity.
This is measured as the relationship between actual output, which is currently being produced,and potentialoutput, what could be produced at full capacity.

Question 20

how do you calculate the capacity utilization rate?

Answer 20

Actual output
———————- x 100
productive capcity

Question 21

So many firms attempt to maintain a very high level of capacity utilisation to keep some spare capacity for unforeseen eventualities. However, there are some limitations of operating at full capacity for a long period of time, what are they?

Answer 21

Staff may feel under pressure due to the workload and this could raise stress levels. Operations managers cannot afford to make any production scheduling mistakes, as there is no slack time to make up for lost output.
Regular customers who wish to increase their orders will have to be turned away or kept waiting for long periods. This could encourage them to use other suppliers with the danger that they might be lost as long-term clients.
Machinery will be working flat out and there may be insufficient time for maintenance and preventative repairs, and this could lead to increased unreliability in the future.

Question 22

what is defect?

Answer 22

The termdefectrefers to output that is faulty or had a problem during the production process (i.e. stains, discolorations, scratches, etc.). Defected output often has to be re-produced, which wastes time, resources, and money.

Question 23

what is the defect rate?

Answer 23

Thedefect ratemeasures the percentage of output (units) that fail to meet the quality standards.

Question 24

how do you calculate the defect rate?

Answer 24

Number of decective units
————————————– x 100
total imput

Question 25

how do you inteprate the defect rate?

Answer 25

Of course, the lower the defect rate the better. And since the defect rate is an indicator of quality; quality controls , quality assurance and total quality control play a big role on keeping this defect rate close to zero.

Question 26

what is the productivity rate?

Answer 26

Productivity rate measures the efficiency of production; that is how well a firm is using its resources in the process of producing its goods or services. It is calculated by the ratio of output to input in production and refers to the added value of the business

Question 27

what is the formula for the productivity rate?

Answer 27

Total output
—————— x 100
total input

Question 28

how do you inteperate the productivity rate?

Answer 28

This measure of production is also more readily applied to physical or tangible products and is usually associates the TQM. As we have seen in different production methods, the higher the productivity rate the lower the quality of the products. Therefore, a business has to determine the productivity rate where quality loss is not costing the business

Question 29

what is labour productivity?

Answer 29

Labour Productivity measures the efficiency of a worker. Basically, how much output a worker produced per hour or how many sales the worker made in an hour.

Question 30

how do you calculate labour productivity?

Answer 30

Calculated by the following formula, expressed in units per hour:

total output/
total hours worked

Question 31

what is capital productivity?

Answer 31

Capital Productivity measures the efficiency of the company’s capital. Basically, how well capital (i.e. machinery) is used to provide output. Hence, a high capital productivity indicates that a business is making good use of its resources. We first need to stablish the working capital that comes from the Statement of Financial Position (Balance sheet).

Question 32

what is the formula for working capital?

Answer 32

Current assest - current liabilities

Question 33

what is the formula for wokring capital productivity?

Answer 33

sales revenue /
working capital

Question 34

what is oporating leverage?

Answer 34

Operating leverage, also known as theDegree of Operating Leverage(DOL), measures how a firm’s operating income is affected by its fixed costs, variable costs, and output (all this financial data comes from the Break-even analysis).

Question 35

whta do we need oporating leverage?

Answer 35

The ratio helps managers to determine whether the firms has too manyFixed Costs – FC (such as rent or mortgage payments) or too many Variable Costs - VC (cost of sales related to making and/or selling the products).
Operating leverage can be used to measure the impact of an increase in sales revenue on the operating profit of the business, as this will depend on the firm’s fixed and variable costs.

Question 36

how do you interpate operating leverage?

Answer 36

A company that heavily relies on Fixed Costs is exposed to greater risks. This is evident when sales decline, potentially due to an economic recession, as these fixed expenses persistently demand payment. Conversely, when sales revenues rise, the company’s fixed costs remain constant, thereby potentially increasing operating profit significantly.
However, if the business incurs substantial Variable Costs, the risk diminishes. This is because a decrease in sales revenue corresponds to a reduction in the firm’s cost of sales, given that Variable Costs are directly tied to production or output levels. Therefore, operating leverage highlights the necessity of managing Fixed Costs . Therefore, the operating leverage ratio enables businesses to determine the influence of various expense types on their operating profit.

Question 37

what is the formula for total contribution, you need to know this so you can work out oporating leverage?

Answer 37

Q x (p-AVC)

Question 38

what is the formula for operting leverage?

Answer 38

Total contibution
/
total contibution - Fixed costs

Question 39

One important business decision is whether to manufacture a product or purchasing it from an external supplier (buy or make), how wuld ou go about figuring out which one?

Answer 39

A key factor in business decisions is costs since it may be cheaper for a business to buy a product made elsewhere by specialists, rather than making it directly.
The “buy” decision should go ahead if the business does not have the expertise, equipment or productive capacity to efficiently manufacture a product. As with outsourcing, non-core functions can be contracted to outside suppliers. If the firm is financially better off by making the product then the “make” decision is pursued

Question 40

When deciding whether to make or buy, 4 key variables must be known, what are they?

Answer 40

Q = the expected sales volume or quantity
FC = the fixed costs associated with making the product (tools, equipment, machinery)
AVC = the average variable costof making the product (wages & material). Remember that: 𝑨𝑽𝑪 = 𝑉𝐶/𝑄 hence: 𝑽𝑪 = 𝐴𝑉𝐶*Q
P = price per unit charged by the supplier

Question 41

what is the formula for the CTB?

Answer 41

P x Q

Question 42

what is the formula for the CTM?

Answer 42

FC + VC

Remeber VC can come from AVC x Q

Question 43

what can you conclude from you CTM and CTB calcualtions?

Answer 43

If CTM > CTB then it is more financially desirable to buy
If CTB > CTM it makes for financial sense to make

Question 44

Calculating the costs only gives us quantitative information; which is obviously limited. For a firm to make an accurate decision, qualitative factors should also be taken into account. What could these factors be?

Answer 44

The quality of the product if produced inhouse or from a external supplier
The timeframe it will take to produce the good or buy it externally
If the firm has spare capacity to meet more orders
The reliability of the suppliers

Question 45

The BMTs than can be used to choose a location or relocation are…… ?

Answer 45

Gantt Charts
Critical Path analysis

Question 46

what is a gantt chat?

Answer 46

A Gantt chartis a visual representation of all the tasks in a particular project plotted against a timescale.
It was developed by Henry Gantt around 1910 to help supervisors see whether factory workers were on their targets in meeting deadlines for manufactured products.
Now a days, it is a management tool used to plan and schedule business projects, allowing managers to monitor progress.

Question 47

what is the process of making a gantt chart?

Answer 47

Identify all the activities required to complete the project
Break down the project into separate tasks, clearly identified (vertical axis)
Determine how long each task will take (horizontal axis)
Identify all the activities that need to be completed before going into the next task ( also called dependencies)
Determine which tasks can take place at the same time, highlight them in the chart
Place all the tasks in a sequence manner in the chart

Question 48

what are the benifits of making a Gantt chart?

Answer 48

Gives a clear picture of current progress of various tasks
Gives a clear picture of the overall project
Flexible - can be applied to many situations
Simple and visually attractive
Allows managers to plan the use of resources to complete the project in the most efficient way

Question 49

whatare the limitations of a gantt chart?

Answer 49

Is based on estimates on the timings of each tasks
Difficult to follow for complex projects
Is based on qualitative data, ignoring quantitative data (i.e. costs)
Can’t separate independence tasks
Is target oriented, deadlines must be met. Could affect the quality of work

Question 50

what is critical path analysis?

Answer 50

A Critical Path Analysis is sequence of scheduled activities that determines the duration of the project.
It is a tool to plot the tasks, processes, timelines and resources required of a project. Basically, the sequence of all activities required in the planning of the project can be plotted onto a critical path or simple network diagram.
It will show how the different activities run alongside of each other and is a useful visual aid to be able to plan and know which activities can happened at the same time.
It should be regularly referred to, so that the actual progress of the project can be measured against the projected critical path analysis.

Question 51

what are the adtantages of critcal path analasis?

Answer 51

CPA provides managers and decision makers with a visual representation of a complex project which may be easier to interpret.

It can be used to suit a range of situations and help solve a variety of business problems or issues.
It reduces the time lost between tasks, ensuring that projects run smoothly and are completely in the most time efficient way.

It forces managers and decision makers to consider all aspects of a project, including resourcing all tasks, thereby improving efficiency in production.

Question 52

what are the disadvantage sof critical path alansysis?

Answer 52

Construction of a network diagram alone does not guarantee the smooth completion of a project. In real life, there are likely to be disruptions and unforeseen circumstances that may well delay the project.

Not every single task in a project may be included during the planning stage; human error therefore limits the extent to which CPA assists with project management.

Some projects are too big, making network diagrams complex and difficult to manage.

Network analysis will only be helpful if the data used to construct the network diagrams are complete and reliable.

Question 53

for the critical path analysis, you do not need to construct, but need to identify the earliest and slowest time and interpret it, it will probably come up in paper one.

Answer 53

you can also suggest the use of one.