Component 1 - Operations Management

Question 1

Explain : Added value

Answer 1

Added value refers to the difference between the cost of producing a product or service and the price at which it is sold.

Question 2

Calculate : Added Value

Answer 2

Added Value = Selling Price - Cost of Production

Question 3

Explain : Ways of increasing added value

Answer 3

1) Improving Productivity - By improving efficiency and productivity, a company can reduce the cost of production

2) Improving Quality - By improving the quality of its products or services, a company can increase the selling price of a product.

3) Efficient marketing - Increases the perceived value to the customer. Marketing also plays an important role in creating and communicating the value of a product or service to the customer.

Question 4

Explain : The different methods of production including job, batch and flow

Answer 4

Job Production - Goods are manufactured to order; bespoke. Often used for low-volume, high-value products, such as a handmade luxury good.

Batch Production: Goods are manufactured in small quantities, such as a bakery.

Flow Production: Also known as mass production, method of production. This method of production is often used for high-volume, low-cost goods, such as consumer goods, and is characterized by high efficiency and low unit cost.

Question 5

Explain : Productivity

Answer 5

Productivity is a measure of how effectively an organisation is using its resources to produce goods or services.

It is calculated by dividing the output of an organisation by the inputs used to produce it.

Question 6

Explain : Why is measurement of productivity important to a business

Answer 6

Productivity measures are crucial to a business because it measures how effectively they are using their resources to produce goods or services, which in turn affects the competitiveness and profitability of an organisation.

Question 7

Explain : The concept of capacity utilisation

Answer 7

Capacity utilisation is the extent to which the potential output of an business is being used to produce goods or services

Question 8

Calculate and interpret : capacity utilisation

Answer 8

actual output / potential output

Potential output is the maximum output that an business could produce if all its resources were used fully.

Question 9

Explain : lean production

Answer 9

Lean production is the emphasis on the reduction of waste and the maximisation of value for the customer.

Question 10

Explain : The idea of Lean production was developed by […] based on the idea of […]

Answer 10

The idea of lean production was developed by Toyota based on the idea of continuous improvement.

Question 11

Explain : The types of lean production practices
- kaizen (continuous improvement)
- just-in-time
- cell production
- time-based management

Answer 11

Kaizen (continuous improvement) - The goal of kaizen is to continuously identify and eliminate waste and improve efficiency and quality.

JIT - Just in time focuses on producing only what is needed, when it is needed, and in the quantity that is needed. it minimises waste and inventory costs.

Cell production - Manufacturing is organised into small, self-contained teams or “cells.”

it aims to improve efficiency through waste reduction by allowing workers to specialise in specific tasks and work together as a team.

Time-based management - This method focuses on reducing lead times. It can reduce waste by minimising the time it takes to complete a process.

Question 12

Explain : What is meant by quality

Answer 12

Quality can be seen as the degree of excellence or merit of a product/service in meeting the needs and expectations of customers.

Question 13

Explain : The concept of quality is central to a businesses success because…

Answer 13

it can have a strong affect on a company’s reputation, customer satisfaction, and overall financial performance

Question 14

Explain : The difference between quality control and quality assurance

Answer 14

Quality control is the process of checking that a product or service meets the required standards of quality before it is released to the market.

whereas quality assurance is the implementation of processes to prevent defects from occurring in the first place.

Question 15

Explain : The concept of total quality management (TQM) and the ways
that it can be achieved.

• quality chains
• quality circles
• and benchmarking

Answer 15

Quality chains - This involves breaking down complex processes into smaller and more manageable steps, which can be monitored and improved individually.

Quality circles - Teams of employees who meet regularly to solve quality problems, and make improvements.

Benchmarking - Comparing one’s own products, services, and processes to those of superior businesses to identify areas for improvement and continuously raise the bar.

Question 16

Explain : Interpret stock control diagrams and
explain the main components
- re-order level
- lead time
- buffer stock
- minimum stock level

Answer 16

Stock control diagrams are visual representations of a business’s inventory management system. The main components of stock control diagrams are:

Re-order level: The minimum level of stock at which a business needs to reorder items to ensure they do not run out of stock.

Lead time: The time it takes to receive a new delivery of stock after an order has been placed.

Buffer stock: An extra amount of stock held in reserve to provide a cushion in the event of unexpected demand or supply disruptions.

Minimum stock level: The lowest level of stock that a business is prepared to hold, below which a reorder will be placed.

Question 17

Explain : How can holding to much or too little stock negatively impact a business?

Answer 17

Excessive inventory can tie up valuable resources such as capital, storage space, and manpower. This can result in decreased profitability, as the business is using its funds to store unsold products.

On the other hand, holding too little stock can lead to stock shortages, which may result in lost sales and customer dissatisfaction. In turn harming the business’s reputation

Question 18

Explain : Economies of scale

Answer 18

The reduction in the average costs to a business over time.

Question 19

Explain : The different types of internal economies of scale;

• Technical
• Managerial
• Financial
• Marketing
• Risk bearing

Answer 19

Technical - More efficient production methods and greater specialisation of labour are introduced to a business.

Managerial economies of scale - Better management of the firm’s resources leads to more efficient decision-making.

financial - Banks trust you more, ergo ; Better interest rates, creadit rating, longer loan periods.

Marketing - Increased purchasing power, allows a firm to negotiate lower prices from suppliers, marketing and advertising costs can be spread over a larger output.

Risk-bearing economies of scale - The risks of investing in new products and processes are spread over a larger output.

Question 20

Explain : External economies of scale

Answer 20

Economies of scale that come from outside the business - such as ;
- Improved infrastructure
- Technological advances

Question 21

Explain : How businesses benefit from the different types of external economies of scale

Answer 21

Infrastructure EOS - increased investment in infrastructure benefits all firms in the area, leading to lower costs for each firm.

Technological EOS - Greater technological innovation leads to more productive inputs and therefore lower costs.

Question 22

Explain : Reasons for internal diseconomies of scale

Answer 22

Internal diseconomies of scale the disadvantage that a business faces as it grows larger.

Bureaucracy - As a business grows, it may become more complex and bureaucratic, leading to increased administration costs and slow decision-making processes.

• Coordination and communication difficulties

Decreased motivation and morale: As businesses become larger, employees may feel less valued and motivated.

Question 23

Explain : Problems caused by internal diseconomies of scale

Answer 23

Overhead costs: As the business grows, overhead costs such as rent, utilities, and management salaries increase at a faster rate than the growth of the business. This leads to a decline in overall efficiency.

Management problems: As a business grows, it becomes increasingly difficult to manage effectively. This can lead to issues such as communication breakdowns, coordination problems, and reduced motivation.

Decreased efficiency: As a business grows, processes can become cumbersome and cumbersome, leading to decreased efficiency and increased costs.

Bureaucracy: As a business grows, it may become necessary to introduce bureaucratic processes to manage the increased complexity. This can lead to increased costs and decreased efficiency.

Decline in product quality: As a business grows, it may become difficult to maintain the same level of product quality. This can lead to a decline in customer satisfaction and decreased profits.

These problems caused by internal diseconomies of scale can negatively impact the competitiveness of a business, and it is important for managers to be aware of them in order to mitigate their impact.

Question 24

Evaluate : The importance of added value to a business and its stakeholders

Answer 24

Plan on paper or word

Question 25

Evaluate : Appropriate methods of production for businesses

Answer 25

Plan on paper or word

Question 26

Evaluate : The importance and impact of productivity
for a business and its stakeholders

Answer 26

Plan on paper or word

Question 27

Evaluate : The concept of capacity utilisation for a business
and its stakeholders

Answer 27

Plan on paper or word

Question 28

Evaluate : The impact of new technology on
the various stakeholders of a business

Answer 28

Plan on paper or word

Question 29

Evaluate : The importance and impact of technology in
the operations of a business

Answer 29

Plan on paper or word

Question 30

Evaluate : The importance and impact of lean production for businesses
and their stakeholders

Answer 30

Plan on paper or word

Question 31

Evaluate : The importance of quality

Answer 31

Plan on paper or word

Question 32

Evaluate : The importance of purchasing and working with suppliers

Answer 32

Plan on paper or word

Question 33

Evaluate : What is meant by stock control

Answer 33

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Question 34

Evaluate : The importance of controlling stock

Answer 34

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Question 35

Evaluate : Methods of stock control
- traditional stock
- control methods
- just-in-time
- computerised stock control

Answer 35

Plan on paper or word

Question 36

Evaluate : The costs and benefits of innovation, research and development
for a business and its stakeholders

Answer 36

Plan on paper or word

Question 37

The impact of economies and diseconomies of scale
on a business and its stakeholders

Answer 37

Plan on paper or word