2.3 - Making operational desicions

Question 1

What is the role of the operations department?

Answer 1

The function of a business that produces and delivers the goods and services produced or provided by a business.

Question 2

What are the three different types of stock?

Answer 2

Raw materials: these are the items ordered from suppliers before they are transformed into another component. Eg the tyres and metal needed for an aeroplane.

Semi finished goods (or work in progress): These are goods which are part way through the production process, but not yet finished. Eg the landing gear of an aeroplane.

Finished goods: The goods that are completed and ready for sale. Eg the aeroplane.

Question 3

What are the three different types of production?

Answer 3

• Job
• Batch
• Flow

Question 4

Describe job production and explain the benefits and drawbacks of this method.

Answer 4

Job production: Producing a one-off/bespoke item for a customer. Example; wedding dresses, house extension

Benefits

+ Bespoke, to customers measurements or specifications e.g. a kitchen

+ Very motivated workers as they see the product from start to finish

+ This usually increases productivity and reduces rates of absenteeism

+ Higher prices can be charged to the customers and therefore results in higher profit margins

Drawbacks

• Skilled labour and craftsmen are more epensive than non skilled workers
• Wide range of tools/equipment may be required
• Often unable to benefit from economies of scale
• Longer production processes so products can take time to produce

Question 5

Describe batch production and explain the benefits and drawbacks of this method.

Answer 5

Batch production: Producing a set number of identical items, the re-organising to produce a different set of goods. e.g 500 pairs of red size 8 shoes in a specific design, then re-organising the equipment/machinery to produce a different size.

Benefits

+ Some flexibility as production can be changed to meet customer needs or fluctuations in demand

+ Standard production of items means it can be mechanised, which means less labour involved than job production and more efficient

+ Employees specialise so become good at their job, which means they can be more efficient

+ Semi-skilled workers required, so labour costs will be lower than that of job production

Drawbacks

• Workers may be less motivated with repetitive work
• Idle time between batches needs to be managed as this is wastage because work stops while the machines are changed to make the next product
• If one batch takes too long the other batches will all be held up too
• Semi-skilled workers required, so labour costs will be higher than that of flow production

Question 6

Describe flow production and explain the benefits and drawbacks of this method.

Answer 6

Flow production: Production of an identical single item on a large scale, such as cans of Heinz Baked Beans.

Benefits

+ Economies of scale

+ Automated/computerised production means improved quality and more complex designs in shorter times

+ As production is continuous stocks of parts and raw materials don’t need to be held, so businesses can use JIT

+ High volumes can be produced quickly, so high levels of efficiency and lower unit costs

+ Low skilled workforce required so lower labour costs than other methods of production

Drawbacks

• High costs to buy the factory and machinery
• Low motivation of staff due to repetitive tasks
• Break downs and lost production can be costly
• Very inflexible, hard to change the factory machinery to make different products, the production process will be set up to make just one item e.g. bottled cola

Question 7

What are the factors that will affect the use of technology within a business?

Answer 7

1. Productivity- how will productivity be impacted?
2. Flexibility- will the technology enable the business to maintain flexibility in terms of customisation
3. Cost of the technology, average rate of return?
4. Quality- if the process becomes automated how will quality be impacted for example?

Question 8

Define productivity and explain how it is calculated.

Answer 8

Productivity is the output per worker. It measures how much each worker produces over a period of time: Productivity = Total output (number produced) ÷ number of workers.

Question 9

Explain how CAD & CAM can be used in business.

Answer 9

• Computer aided design: the use of computers to help in the design of a product.
• Computer aided manufacturing: uses computer software to automate the production process.

Question 10

Explain how EPoS can be used in business.

Answer 10

EPOS stands for Electronic Point of Sale and is a computerised system used in shops, restaurants and other retail outlets. Essentially it’s an electronic way of letting people pay for goods or services.

Question 11

Explain how 3D printing can be used in business.

Answer 11

• Making prototypes
• Creating custom made products
• Creating spare parts where an item is no longer available widely, eg spare parts for older cars
• Create templates for designs, eg cake moulds

Question 12

Explain the positive and negative impacts of technology on operations.

Answer 12

Positive impacts

+ Speeds up the production process (CAD/CAM) and therefore lowers unit costs, reduces mistakes and defects as computer precision is achieved.

+ Keeps businesses in touch with customers (GPS) and improve customer satsifaction levels

Negative impacts

• Can involve a costly investment in the short term
• Technology can become obsolete, or neds constant updating
• Requires employees training to be updated

Question 13

What are the factors that will affect the chosen method of production?

Answer 13

1. The nature of the product
2. The target markets- do they need customisation or is value for money more important?
3. The production facilities and capacity of the company

Question 14

What is the purpose of a bar gate stock graph? What are the key features?

Answer 14

Managing stock is about managing the materials that the business needs in the most effective way. This canbe represented in a bar gate stock graph which shows the following:

• The highest each peak reaches is the maximum stock after a delivery arrives.
• The horizontal line in the middle is the point at which the business will contact suppliers in order to get more stock before they run out- this is known as the re-order level
• The line at the bottom shows the buffer stock, which is also known as the minimum stock level.
• The time between the stock order and the delivery is known as the lead time.

Question 15

Describe the two main methods of stock control?

Answer 15

JIT- Just in time, no minimum stock level is held, stock is delivered only when it is needed

JIC- Just in case, where the business holds a buffer level of stock.

Question 16

What is buffer stock and why is it needed?

Answer 16

Buffer stock is the lowest amount of stock a business will hold, it is the safety net in case there is a surge in demand or if supplies have not arrived in time.

Question 17

What are the advantages and disadvantages of holding buffer levels of stock?

Answer 17

Advantages

• Any unpredicted surges in demand can be met
• Damaged goods can be replaced quickly
• Business can benefit from bulk buying discounts

Disadvantages

• Space required to store stock, which means higher rent, increased fixed costs
• Labour needed to manage the storage of stock, which will increase wage costs
• Chance of damaged or stolen stock, this is particlarly the case where stock is perishable

Question 18

What are the advanatges and disadvantages of JIT?

Answer 18

Advantages

• As parts are ordered as they are needed there is no wastage
• Significant cost saving in terms of premises and staff (no warehouses)
• Stock is less likely to go out of date
• The business will improve their cash flow, as their cash is not tied up in stock

Disadvantages

• The business can’t meet unpredictable surges in demand
• The business can’t quickly replace damaged parts
• If the delivery does not turn up in time this can stop the whole production line, which is costly
• Unable to benefit from bulk buying discounts

Question 19

Why is it essential that business using JIT have a good relationship with their suppliers?

Answer 19

• JIT does not work when there are delivery or quality issues.
• No buffer stocks are held in a JIT system so if delivery does not arrive the product cannot be made so if the supplier is not reliable the JIT system will not work efficiently

Question 20

Define the term ‘procurement’.

Answer 20

Procurement involves the process of selecting suppliers, establishing payment terms, the negotiation of contracts and actual purchasing of goods. Procurement is concerned with acquiring (procuring) all of the goods, services, and work that is vital to an organisation.

Question 21

What are the factors that affect a businesses choice of supplier?

Answer 21

• Price- do they represent good value for money
• Discounts available- will they offer discounts for bulk ordering?
• Are there deleiveries flexible and reliable?
• Quality?
• Availability of products, what is the maximum order?
• What is the lead time?

Question 22

Define the term ‘quality?’

Answer 22

Achieving a minimum standard for a product or service, or a production process, which meets customers’ needs.

Question 23

What are the benefits of providing a quality product?

Answer 23

• Can charge a premium price
• Builds a strong brand image
• Can provide a competitive advantage and help to satisfy customer needs
• Provides a method of differentiation and hence adds value

Question 24

What are the two methods of managing quality?

Answer 24

Quality control and quality assurance

Question 25

What is the difference between quality control and quality assurance?

Answer 25

Quality control: Taking a small sample of finished products and testing if they meet the standards required at the end of the production process.

Quality assurance: Ensuring that quality is produced and delivered at every stage of the production process, often through making quality the responsibility of every worker.

Question 26

What are the benefits and drawbacks of quality control as a method of managing quality?

Answer 26

Benefits

• Quality control is less expensive as you don’t have to check every single process
• Some products are more appropriate to being checked at the end as it may be difficult to test taste for example throughout a production process

Drawbacks

• Often high levels of wastage as mistakes are identified at the end of the production process, it is too late to fix any mistakes

Question 27

What are the benefits and drawbacks of quality assurance as a method of managing quality?

Answer 27

Benefits

• Since a business will aim for zero defects it minimises wastage and therefore costs
• Can be motivating for staff to have quality objectives, this way employees/departments can be recognised for meeting quality targets
• Similarly, areas where quality issues are present can be identified and addressed

Drawbacks

• Higher training costs as all staff must be trained in understanding and delivering quality measures
• Production time can be longer as you have to allow for quality checks at every stage

Question 28

What is the impact of good customer service?

Answer 28

Good customer sevice can result in:

• satisfied and loyal customers
• positive brand image and reputation
• differentiated products
• competitive advantage
• increased sales and repeat purchase

Question 29

What is the impact of poor customer service?

Answer 29

Poor customer sevice can result in:

• poor levels of customer satisfaction and low levels of customer loyalty
• poor brand image
• products that do not stand out in the market- lack of differentiation
• lack or loss of competitive advantage
• falling sales and low repeat purchase

Question 30

What is the sales process? Idenitfy the 5 stages of the sales process.

Answer 30

The sales process identifies the key stages of buying a product or service that contributes to customer satisfaction. A business will consider the following stages in their customer service strategy:

1. Customer interest
2. Speed and efficiency of service
3. Customer engagement
4. Post-sales service
5. Customer loyalty

Question 31

What are the key factors affecting the sales process?

Answer 31

Some products have shorter sales processes than others, eg a chocolate bar has a very short sales process, whereas a house purchase has a much longer sales process. Depending on the product a business will need to consider the following:

• the product knowledge of staff
• what level of speed and efficiency can be achieved?
• Customer engagements with its products
• responses to customer feedback

Question 32

What are the key questions a business will need to consider at each stage to ensure maximum customer satisfaction?

Answer 32

1. Customer interest: How can we grab the customers attention? Promotional strategies to use?
2. Speed and efficiency of service: How can we ensure that we respond to customer needs promptly?
3. Customer engagement: How can we buld relationships? How can we communicate with them?
4. Post sales service: How can we ensure that customers continue to be satisfied well after their purhase?
5. Customer loyalty: How can we ensure the customers repeat purchase? Eg how can we ensure they know about new product launches?

Question 33

What is post-sales service?

Answer 33

Various processes which make sure customers are satisfied with the products and services of the business. e.g. Repair, Maintenance, Warranty