Business GCSE topic 2.3 - Making operational decisions

Purposes for business operations

• To provide services

• To produce goods

Types of production processes

• Job

• Flow

• Batch

Purposes for business operations

• To provide services

• To produce goods

Types of production processes

• Job

• Flow

• Batch

Job Production

• Single product is made at a time

• Products made for specific client and is high quality

• Higher prices can be charged

Advantages of Job Production

• Unique → Tailored to customers measurements and specifications

• Less absenteeism → More motivated workers who are more productive

• Higher prices charged

Disadvantages of Job Production

• High labour costs → Skilled labour are expensive

• Expensive to buy necessary equipment → Increase cost of products

• No economies of scale → One person making that product

Economies of scale

Cost advantages that a business can exploit by expanding their scale of production

Batch Production

• Small quantities of identical products are made

• Used when business wants to make more than one item (ie → Bread factory makes crumpets and tortillas)

Advantages of Batch Production

• Flexible → Production can change to meet customer needs or fluctuation in demand

• Less labour involved → Due to the standard production of items through machines

• Specialisation → Employees specialise in their areas to become good at their job

Disadvantages of Batch Production

• Repetitive → Monotonous work so workers may be demotivated leading to inefficient productivity

• If one batch takes too long, other batches will all be held up

• Idle time between batches need to be managed as this is wastage as work stops while machines are changed to make the next product

Flow Production

• Continuous movement of items through the production process.

• Large numbers of the same goods are produced continuously in this production process.

• Often an opportunity for a high level of automation on a flow production assembly line.

Advantages of flow production

• Economies of scale can be achieved as cost per unit will be low

• Automated assembly lines save time and money

• Quality systems can be built into the production at each stage

Disadvantages of flow production

• Standardised product produced

• High initial set-up costs of automated assembly lines

• Workers find work repetitive and boring

Logistics

Commercial activity of transporting goods to customers

Stocks

A share in the ownership of a company

Bar gate stock graph

• Graph which gives a business a plan to make sure they do not run out of stock to sell

• Diagram helps business to plan when to order more stock

High stock holding

Massive storage space and huge insurance along with a larger amount of manpower and warehouse maintenance cost.

Problems with high stock holding

• Expensive and adds cost to business reducing profits

• Business can be left with unwanted stock making it hard to compete on price due to stock holding costs

Parts of a bar gate stock graph

• Max Stock Level

• Re order Level

• Min Stock Level

• Lead time

Max Stock Level

Most a business can store in a shop or warehouse and business can’t share more stock as they don’t have space and will go out of date

Reorder Level

Level of stock in a business that should signal when it is time to reorder

Min Stock Level (Buffer Stock)

Least a business should store, any less and they will run out and won’t keep up with demand

Lead time (Delivery time)

How long it takes from ordering stock for it to arrive

Just in time stock control

Business doesn’t keep stocks of parts in a warehouse but instead they order the parts and get them delivered the same day from the supplier

How to make JIT to work

Manufacturer needs to have great relationships with their smaller parts supplier

Times when JIT doesn’t work

• Quality issues

• Delivery issues

Advantages of JIT

• Parts are ordered when needed so no wastage

• Parts aren’t warehoused so costs are saved

• Stocks less likely to be out of date

• Business cash flow will improve

Disadvantages of JIT

• Unable to meet unpredicted surges in demand

• Unable to replace damaged parts quickly

• Late delivery stops whole production line

Procurement

Where business buys raw materials, components, products, services from suppliers to make their own products/services

Relationships with suppliers on quality

Business wants its suppliers to sell them the best possible quality products for the price

Relationships with suppliers on delivery

Some businesses may wish to enter into JIT agreement with a supplier involving number of deliveries being made a day

Relationships with suppliers on availability

There’ll be problems if the stock isn’t available which may stop production entirely and if products are still out of stock, customers will shop elsewhere

Relationships with suppliers on cost

• Both sides want deal to last a long time to reduce costs of having to find another supplier or customer or renegotiate another deal

• There’ll be initial costs in setting up agreements such as administration

Relationships with suppliers on trust

• Important for joint problem solving and open communication between the businesses which is what makes a great relationship.

• Trust is built through reliable deliveries and quality products/services

Quality

Measure of excellence or a state of being free from defects, deficiencies and significant variations

Ways to preserve quality

• Quality Control

• Quality Assurance

Quality Control

Inspectors check standards have been met at end of production process:

• Standards consistent ensuring quality standards are met

• Customer doesn’t receive a sub-standard product

Advantages of Quality Control

• Controlling quality means less wastage

• Less wastage means lower cost of production

Disadvantages of Quality Control

• Faulty goods means costly wasted resources/materials

• Could be a lot of waste as the fault is only identified at end of production process

Quality Assurance

• Building quality into every stage of production process and isn’t left until the end

• When product is sold, business can assure customer it’s a quality product

• Each worker is responsible for making sure that the work they do meets quality standards

Advantages of high quality products

• Differentiate products from competition increasing product range → Bring more customers → Increase brand awareness → Brand loyalty → Charge premium price for product → Increase sales revenue

Disadvantages of high quality products

• Extra quality control checks → Employee specialisation training needed → Cost per unit increases → Reducing profits

Steps of the sales process

• Product knowledge

• Speed and efficiency of service

• Customer engagement

• Response to customer feedback

• Providing good customer service

Product knowledge

• Understanding features allows sales person to present their benefits accurately and persuasively

• Customers respond to enthusiastic sales staff who’re passionate about their products and eager to share the benefits with them

Speed and efficiency of service

Customers expect a fast service with the correct order

Customer engagement

• An effect, reaction, response, experience of customers with one another, with a company or brand

• The initiative for engagement can be either consumer or company led and the medium of engagement can be on or offline