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

Question 1

What is product flexibility?

Answer 1

switching from producing one product to another

Question 2

Explain positive product flexibility

Answer 2

they may have more customer loyalty as they are branching out into different market sectors and so they will have more diversity within their firm (seem like they care more about customers)

Question 3

Explain negative product flexibility

Answer 3

they may mess up their product up and then not succeed in that sector meaning they will lose out on money that they have spent to introduce, market, and advertise their new product/service

Question 4

What is volume flexibility?

Answer 4

changing the level of output to meet changes in demand

Question 5

Explain positive volume flexibility

Answer 5

they are able to operate at a greater capacity, meaning they will sell more and so revenue and profit will increase too

Question 6

Explain negative volume flexibility

Answer 6

they will have to spend more money to expand their factories and storage facilities as they will be producing more and may not have anywhere to put their other products

Question 7

What is delivery flexibility?

Answer 7

changing the timing and volume of customers deliveries

Question 8

Explain positive delivery flexibility

Answer 8

they are offering a wider range of options suiting to more people. They may also decide to charge extra for the different services meaning that will also cover their production and advertisement costs

Question 9

Explain negative delivery flexibility

Answer 9

sometimes the factories may not be able to send as many deliveries at once as they won’t have facilities – meaning they will have to spend even more money to expand their delivery options

Question 10

What is mix flexibility?

Answer 10

providing a wide variety of alternative versions of the same product

Question 11

Explain positive mix flexibility

Answer 11

this may increase customer loyalty as the company is offering a wider range of options for them to choose from, meaning they will see the company as more diverse

Question 12

Explain negative mix flexibility

Answer 12

they will have to expand their business and spend more money of factories and the production line to be able to produce the amount of the different types of products

Question 13

What is mass customisation?

Answer 13

offering individually tailored goods and services to customers on a large scale

Question 14

What is collaborative customisation?

Answer 14

when the needs of a customer are understood and followed as part of the manufacturing process (Example = houses are uniquely designed by architects)

Question 15

What is adaptive customisation?

Answer 15

a basic product is made for customers who then customise it to their needs (Example = the Nike ID trainers which you can personalise)

Question 16

What is transparent customisation?

Answer 16

customers are provided with unique offerings without being told they are customised (Example = hotels may look at their bookings and add small features to the room to please the customer and ensure they return)

Question 17

What is cosmetic customisation?

Answer 17

products are offered in different formations to entice different customer (Example = coke names on bottles)

Question 18

List the factors required for mass customisation:

Answer 18

A market which customers value variety and individuality
Quick responsiveness to market changes
Ability to provide customisation
Scope for the use of economies of scale

Question 19

Explain the advantages of mass customisation

Answer 19

• Low unit costs due to the scale of production
• Low unit costs combined with personalised product leads to a higher added value
• The business is able to charge a premium price as their quality is of a very high standard - The business is able to do this as they are tailoring their products to the customers meaning their products are more valuable and are more exclusive; meaning the company can charge a higher price. (Example = of this could be things like kitchen ware, or food)
• The business is able to build brand loyalty and strength - If their quality remains the same and the products are delivered as said, then customers will stay loyal to the business and therefore shop there more often
• Lower inventory (cash flow benefit) - They will have lower stocks as their products are tailor made to what the customer orders

Question 20

Explain the disadvantages of mass customisation

Answer 20

• There may be challenges if a customer was to return a customised product back - This would be bad for the business as it would be hard to process and they may have to produce a whole new product which may take quite a while as they are all tailor made
• Many businesses may struggle with supply chains as the systems of suppliers are designed and optimised for producing a prearranged amount of products, rather than catering for an unforeseen demand - This could be hard for a business as they need to be able to gain a strong bond with their suppliers so that they can get the best deals. It may also be hard to organise a set amount of supplies
• It isn’t an appropriate option for all markets
• There will be higher costs to customise certain products and clients will have to wait longer for their product

Question 21

Explain how businesses manage supply

Answer 21

A business will have a core capacity that produces a given level, of output
This will then be supported by a flexible structure that enables the business to react quickly to changes in demand
Example = hotel rooms can add more space for sleeping with a sofa bed, as well as the standard bed

Question 22

List ways to match demand with supply

Answer 22

• Made to order
• Using temporary/part time workers
• Outsourcing

Question 23

Explain made to order approach

Answer 23

• An approach to production where the production of an item begins only after a confirmed customer order is received.
• By using mass customisation techniques, it is possible to include a customer’s specific requirements into the product.
• Example = most restaurants match demand with supply by using produce to order. You order what you’d like from the menu and the production process begins! As a restaurant customer you might make some specific requests about your food which can be incorporated into production. Alternatively, in a fast-food environment, you pick a standard product from the menu.

Question 24

What are the advantages of made to order?

Answer 24

Lower levels of finished goods in inventory = lower inventory holding costs & less risk of obsolescence
Greater customer satisfaction = customers get what they want

Question 25

What are the disadvantages of made to order?

Answer 25

Capacity to produce to order may be limited; although mass customisation is automated, it doesn’t work for all products
It may be difficult to handle sudden or unexpected increases in demand

Question 26

Explain what part time workers are and how they are used

Answer 26

• A form of employment with less than 35 hours worked per week
• This is used by agencies to hire works as and when they need them. So when demand is higher a company will hire part time workers to increase the supply. They are more flexibility than permanent worker as they may not have a set number of hours to work or a contract.
• Example = toy factories will hire more part time works near the Christmas season as demand increases rapidly. They will then let these workers go when the demand for toys decreases after the Christmas period

Question 27

Explain the advantages of part time workers

Answer 27

• Only have to pay workers when the demand is high, rather than having surplus staff when demand, and therefore production, is low
• When hiring from agencies, you will find the workers with the right qualifications and skills required for the job and the firm in general
• Productivity may be increased as staff are more motivated if they have hours to suit them and their work-life balance. Workers will feel more valued and therefore will be more loyal to the firm

Question 28

Explain the disadvantages of part time workers

Answer 28

• There will be an increase in costs as agencies often charge high prices for their workers
• Temporary workers could be less motivated and they may not get the hours to suit them and firms will drop them quickly if they don’t need them. This will then decrease productivity and thus could have a knock on effect on the firms reputation if they aren’t efficient enough
• Retention of staff may be low and staff turnover will be high

Question 29

What is outsourcing?

Answer 29

when a business sub-contracts a process, such as design or manufacturing, to another business

Question 30

Explain advantages of outsourcing

Answer 30

• Businesses can react to change quicker if they have access to other firms.
• Outsourcing can provide specialised workers that will be more efficient in their sector. E.g. a car manufacture will buy its tyres in from a firm such as Michelin because they know they know they will be better than if they make their own as they specialise in tyres.
• Outsourcing allows the business to focus on its core business instead of getting involved in activities that would be less competent.
• A non-typical order can be given to another provider instead so that the business benefits from the order but it does not disrupt its normal production.

Question 31

Explain disadvantages of outsourcing

Answer 31

• The quality of the service being provided is no longer under their own control. So an unreliable outsourcer may influence the reputation of the business in a negative way. E.g. customers will blame a supermarket if its own brand of products are poor quality even though it is not the supermarket that makes them.
• It comes at a cost that needs to be evaluated. The outsourcer will also want to make a profit so it is likely that it will be more expensive to subcontract or outsource production.
• It may require you to be more confidential information to a supplier such as details of its methods. This could lead to firm loses its competitive advantage if the supplier steals its ideas

Question 32

What are the types of inventory held?

Answer 32

Raw materials
Work in progress
Finished goods

Question 33

What are the advantages of high inventory levels?

Answer 33

Increased customer satisfaction
Supplier price discounts (economies of scale)
Production lines are not halted because of shortages of raw materials
Customer demands are met properly
Always stock in, in case of sudden increases of demand

Question 34

What are the advantages of low inventory levels?

Answer 34

Security cost and pilferage are lower
More space
Less cash flow problems
More useable cash

Question 35

What does a stock control chart look like?

Answer 35

Question 36

What is maximum level?

Answer 36

the maximum level of stock a business can or wants to hold

Question 37

What is the reorder level?

Answer 37

this acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed
= buffer stock + the number of resources used during the lead time

Question 38

What is lead time?

Answer 38

the amount of time between placing the order and receiving the stock

Question 39

What is minimum stock level?

Answer 39

the minimum amount of product the business would want to hold in stock.

Question 40

What is buffer stock?

Answer 40

an amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers

Question 41

How does price affect the choice of suppliers?

Answer 41

when looking for a supplier, a businesses primary thought would be how much they will have to pay per unit for their product (usually in bulk – economies of scale)

Question 42

How does payment terms affect the choice of suppliers?

Answer 42

this is the arrangements that are made about the timing of payment and any other conditions agreed between the buyer and the seller

Question 43

How does quality affect the choice of suppliers?

Answer 43

as society develops, consumers also develop to become more selective of the products they buy and so it is crucial for businesses to deliver high quality products

Question 44

How does capacity affect the choice of suppliers?

Answer 44

this is the maximum possible output of an organisation – firms need to be reassured that suppliers can provide the quantity of materials required to meet demands

Question 45

How does reliability affect the choice of suppliers?

Answer 45

this is the extent to which the suppliers meets the requirements of the buyer and typically, it can be measured by the percentage of deliveries made on time or the degree to which a supplier meets the terms of the contract to supply

Question 46

How does flexibility affect the choice of suppliers?

Answer 46

Whilst running a business, there may be situations when an organisation needs to make a radical change to its orders from their supplier. Examples of this may be:
* A sudden change in demand for a product
* The liquidation of a rival supplier, leaving the business short of a product or component
* Negative publicity concerning the ingredients or components of a product, or the way in which the product is manufactured
* Transport difficulties preventing the delivery of supplies from other source

Question 47

How does ethics affect the choice of suppliers?

Answer 47

when choosing a supplier, the business needs to choose one that has the same ethics as them – this is important because if they don’t, then they may receive bad publicity

Question 48

What are the areas included in supply chain management?

Answer 48

• Matching supply to demand (part time workers, outsourcing, producing to order)
• Mass customisation
• Flexibility, speed of response, and dependability
• Channels of distribution (retailers, wholesalers)
• Choice of suppliers
• Managing inventory

Question 49

What is the traditional approach to supply chain management?

Answer 49

Buying resources in large amounts to benefit from economies of scale. Firms focus their business on just part of the supply chain - VIKING (‘Volume Is KING’)

Question 50

What is the modern approach to supply chain management?

Answer 50

buying small amounts from a wider range of suppliers, it creates competition within the supply chain causing prices to fall. There is more of a focus on how there action within the supply chain affects the environment