Making Operational Decisions

Question 1

Production Processes: Job

Answer 1

-Job production is used when a firm manufactures individual, unique products.

-Each product has a unique design based on the customer’s specification.

Question 2

Advantages of Job Production

Answer 2

-The business can set higher prices for products.

-However, the products are unique and usually high quality so customers will still be willing to buy the products even if prices are high.

-This will lead to higher profits.

Question 3

Disadvantages of Job Production

Answer 3

All of the products may be made by different workers. Therefore, the products may not be identical. As a result, each product could be of differing quality.

-This method of production is slower than batch or flow. Therefore, productivity may be lower. As a result, the
cost of producing each unit may rise (1).

Question 4

Production Processes: Batch

Answer 4

-Batch production allows a business to produce products in relatively large production runs, with some of the work using automation.

-It allows the business to vary the product being produced and be more flexible.

Question 5

Advantages of Batch Production

Answer 5

-Batch production is faster than job as each product in a batch is identical so will have higher productivity than job.

-Can buy materials in larger quantities so take advantage of economies of scale. This means cost per unit is lower so prices can be lower and the business can be more competitive.

-Standardised production means automation can be used so less labour is needed than in job.

Question 6

Disadvantages of Batch Production

Answer 6

-Time is needed to switch between batches so productivity is lower than flow.

-Different tools and machines for different products means cost may increase. This means prices might not be as competitive as products using flow.

Question 7

Production Processes: Flow

Answer 7

-Flow production involves continuously making identical products.

-This allows the production process to be heavily automated.

Question 8

Advantages of Flow Production

Answer 8

-Products can be continuously produced so larger quantities can be made.

-The business can gain from economies of scale so will have lower costs per unit. therefore, they can be more competitive.

-Modern techniques use robots and machines. therefore, the business can lower costs for wages.

-Consistency in production means products are identical, which means customers know exactly what they are buying.

Question 9

Disadvantages of Flow Production

Answer 9

-In competitive markets for similar mass-produced goods, profit margins can be very low.

-Products are similar to the competition so the business will have to compete differently such as through loyalty.

-Highly capital intensive such as for money needed to buy and upkeep machines. It may also cost a lot to rent out large spaces for product storage and production.

Question 10

Methods of Improving Productivity

Answer 10

Investing in up-to-date machinery – This can help workers to produce more products in the same length of time and reduce the need for employees by replacing them with machinery.

Providing incentives to encourage workers to work harder and faster

Providing training to staff to improve their skills so they can work more efficiently.

Encouraging staff to come up with time-saving ideas that allow them to work more efficiently

Question 11

Advantages of Technology in Production

Answer 11

-Technology can carry out processes more quickly and accurately then humans.

-Therefore using technology can increase productivity and the goods produced will be of a more consistent quality.

-Machines can work 24/7 so production can be completely continuous.

-In the long term, it is cheaper to run machines than to pay humans to do the same thing.

Question 12

Disadvantages of Technology in Production

Answer 12

-Using technology can be expensive as it is expensive to buy and install machinery and they may need regular updates and maintenance.

-Staff will also need to be trained to use the technology. This can be expensive and time consuming.

-Some technology may replace manual work so some staff may become worried that they will lose their job. This could demotivate them causing lower productivity.

-Machines are often suited to one task which makes them inflexible. this makes it difficult if the business wants to change production method or products.

Question 13

Importance of Managing Stock

Answer 13

-A business that holds large quantities of stock is able to meet consumer demand very easily.

-However, holding a lot of stock may cost the business money. This is because renting space for the stock such as in a warehouse can be expensive.

-This is because the money it spends on stock that is not sold quickly cannot be used to cover other costs such as wages and rent.

Question 14

Methods of Managing Stock: Bar Gate Stock Graphs

Answer 14

-A bar gate stock graph indicates the amount of stock a business is holding at any one time.

-It can be used to make decisions about when stock should be reordered or how much is needed to meet consumer needs.

-It also makes sure a business orders at the right time so when the stock arrives, the business doesn’t have to use buffer stock and the amount ordered will not be above the maximum stock level.

Question 15

Features of Bar Gate Stock Graphs

Answer 15

-The maximum stock level is the largest amount of stock a business can store on site.

The minimum stock level (buffer stock), is the lowest amount of stock a business can store on site while still being able to operate effectively.

-Buffer stock ensures a business can still operate for a short while if there are delays to deliveries or there is a large spike in demand.

Lead time is how long it takes from ordering stock for it to arrive.

The reorder level is the point at which a business needs to order new stock in order for it to arrive before its stock falls below the minimum level. .

Question 16

Methods of Managing Stock: Just-In-Time

Answer 16

-Just-in-time (JIT) is a stock control method where the business doesn’t store any raw materials.

-Instead, it has regular deliveries that bring only what is needed before its existing raw materials run out, so buffer stock is not needed.

-The business orders smaller but more frequent quantities of stock that are taken straight to the production line on the factory floor.

-For this method of stock control to be effective, a business needs a good relationship with its suppliers. Suppliers will ideally be local to reduce both delivery costs and lead time.

Question 17

Advantages of JIT

Answer 17

-Removing buffer stock space (which would previously have been used for storage) means more space can be used for sales.

-Smaller but more frequent deliveries mean that the products will be fresher. A business can also have new stock delivered more frequently.

-Businesses will no longer have large amounts of
capital tied up in stock that could go out of date or out of fashion. This capital can then be reinvested or spent elsewhere.

Additionally, having less stock that could go out of date will reduce waste, saving money.

JIT reduces production costs, allowing businesses to price their products to give a more competitive advantage.

Question 18

Disadvantages of JIT

Answer 18

Suppliers of raw materials may not be reliable. As a result, production could stop if deliveries are late. Therefore, the business may not be able to meet customer orders.

The business will not be able to buy in bulk because JIT results in frequent, smaller orders being placed for raw materials. Therefore, the average variable cost of raw materials could be higher.

Question 19

Relationships with Suppliers: Cost

Answer 19

-Cost is a vital consideration. If a business can get supplies cheaply, this keeps its variable costs low, allowing it to maintain higher profit margins.

-Often, the more products businesses buy from suppliers, the more power they have to negotiate discounts.

Question 20

Benefits of Having a Good Relationship with Suppliers

Answer 20

-Suppliers are more likely to give the business discounts on raw materials. This means that the variable costs per unit may fall. Therefore, the profit made on each item may increase.

-Suppliers are likely to become more reliable. Therefore, supplies of raw materials are more likely to arrive on time. As a result, a business can now successfully operate a just in time stock control system.

Question 21

Relationships with Suppliers: Quality

Answer 21

-Quality is essential, even when a product is marketed as a ‘budget’ or a low-cost option, the quality of the raw products must be considered.

-Businesses need to make good-quality products that customers want to buy, but at different price points.

Question 22

Relationships with Suppliers: Delivery

Answer 22

-Delivery is also important, as the products that are ordered have to arrive on time.

-For manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock.

-To avoid this, some businesses fine suppliers a small percentage of the value of any late deliveries. Businesses want quick delivery with minimal lead time so suppliers often set up their businesses near their customers.

Question 23

Relationships with Suppliers: Availability and Capacity

Answer 23

-Availability and capacity of suppliers to meet an unexpected increase in orders is very important.

-This is because if a supplier is often out of stock, this may affect the busienss’ production.

Question 24

Relationships with Suppliers: Trust

Answer 24

-Trust between the business and the supplier is needed, as many businesses buy using trade credit to allow time to sell products to customers before paying their suppliers.

-Businesses also need to trust their suppliers to keep designs and other information confidential.

Question 25

Procurement and Logistics

Answer 25

-Procurement means getting the right supplies from the right supplier.

-Logistics means making sure the correct products are procured and that they will arrive when needed.

-Both procurement and logistics have impacts on a business’ costs, reputation and customer satisfaction.

Question 26

The Impact of Logistics and Supply Decisions: Cost

Answer 26

-Costs can be kept lower if production is quick.

-Delays can cost a business money and can limit cash flow.

-If products are damaged, lost or unavailable.

Question 27

The Impact of Logistics and Supply Decisions: Reputation

Answer 27

-The quality of the raw materials or services provided by suppliers can have an impact on a business’ reputation.

-If businesses provide high-quality and reliable products, they will have a higher chance of gaining a good reputation.

-If products are regularly delivered late, this can negatively affect the business’ reputation because it will affect the business’ ability to deliver to its customers on time.

Question 28

The Impact of Logistics and Supply Decisions: Customer Satisfaction

Answer 28

-Businesses aim to have high customer satisfaction by meeting all of their customers’ needs in a simple, quick and effective manner.

-This is achieved by getting the correct products delivered to the correct places at the correct times.

-By keeping customer satisfaction high, businesses are more likely to get repeat customers, which will improve sales figures and profits.

Question 29

Methods of Quality Control

Answer 29

-Feedback can take the form of customer questionnaires, conducted either at the point of sale or electronically, to ask about the service customers received from the business.

-Factory inspectors are often used at the end of production to ensure that products are of the required standard before they reach customers.

Question 30

Advantages and Disadvantages of Quality Control

Answer 30

-These methods reduce the number of faulty or sub-standard products that reach customers.

-However, a disadvantage is that these methods only identify faults at the end of production, when they may be more expensive to fix than if they were found immediately.

-This is because the whole product may need to be removed and rebuilt in order to fix the fault.

Question 31

Quality Assurance

Answer 31

-Quality assurance is a process of carrying out quality checks at specific stages during the production process.

-This ensures that faults and sub-standard products are found sooner rather than at the end of the production process.

Question 32

Advantages and Disadvantages of Quality Assurance

Answer 32

-Quality assurance makes quality the responsibility of the employees involved in the production process.

-This will require a change in culture. This is because employees will now need to check every stage in the production of the product. As a result, this could be very time consuming.

-This may involve a large amount of employee training. This is because workers at each stage of the production process are now responsible for checking their own work. Therefore, business costs may increase.

Question 33

Differences Between Quality Control and Assurance

Answer 33

Assurance is focussed on improving the production process whereas control is focussed on identifying defective products.

Assurance establishes a good quality management system whereas control finds and eliminates problems.

Assurance makes quality the responsibility of everyone in the production process whereas control makes quality the responsibility of one person or one team.

Assurance is focussed on the process whereas control is focussed on the product.

Question 34

The Importance of Quality

Answer 34

-Businesses seek to achieve high quality and competitive advantage by developing a business culture where employees are motivated and care about their customers, the product and/or service, and the business’ reputation.

-Quality management is important to businesses because it helps them to produce high-quality products and services.

-They need to understand what their customers want, and meet customers’ needs and expectations. This is a way of gaining competitive advantage.

Question 35

Advantages of Creating a High Quality Product

Answer 35

-This may be a source of differentiation. Therefore, the
business may attract more customers. As a result, market share may increase.

-The business may be able to charge higher prices. This could increase the difference between revenue and cost. Therefore, the profit margin on each product may increase.

Question 36

Role of Quality in Cost Control

Answer 36

-Quality management is also important in relation to costs.

-Mistakes are expensive, and quality control and quality assurance help businesses to limit additional costs and reduce wastage by aiming to ensure that things are done correctly the first time.

Question 37

Role of Quality in Competitive Advantage

Answer 37

-When a business can offer higher quality and lower costs, it gains a competitive advantage over similar businesses.

-A good-quality product or service helps to build a strong brand image, which can allow a business to grow its
market share.

-If a business has a product or service that gains a good reputation for being of high quality, the business can charge a premium price.

Question 38

Benefits of Good Customer Service

Answer 38

-Good customer service leads to high levels of customer satisfaction.

-Satisfied customers are more likely to remain loyal to the company and make repeat purchase from them in the future.

-Customers may be persuaded to spend more with a company that provides them with good customer service.

Question 39

Dangers of Poor Customer Service

Answer 39

Customers may become dissatisfied with the business. As a result, they may not make any repeat purchases. Therefore, the market share of the business may fall.

The brand may be damaged. Therefore, the business cannot charge a premium price. As a result, profit margins may fall.

Question 40

Step 1 of the Sales Process: Customer Interest

Answer 40

-At the first stage of the sales process, a business must make sure to attract the attention of potential customers which is often achieved through marketing.

-This may also be through a good product knowledge as questions can be answered quickly and accurately..

-This allows consumers to make the purchase best fitted to their needs so the customer may feel more confident buying from the business.

-A business may also use a hard approach to actively engage customers or a soft approach to make consumers aware there are staff to help.

Question 41

Step 2 of the Sales Process: Speed and Efficiency of Service

Answer 41

-Good customer service can attract customers to use a business and help them feel valued. It is important for a business to deliver products to its customers quickly and in perfect condition.

-Damaged products, or products lost in transit, should be replaced quickly and efficiently.

-Customers are usually happy to pay more for a product or service if it is accompanied by good customer service and is good quality and good value for money.

-E-tailers must ensure that their website offers an efficient and user-friendly purchasing process. If the process is too complicated or takes too long, customers will not place orders.

Similarly, retailers with physical stores must ensure their checkout service is quick and efficient.

Question 42

Step 3 of the Sales Process: Customer Engagement

Answer 42

-The term ‘customer engagement’ refers to the interactions that take place between a business and its customers during the sales process.

-Building and maintaining customer engagement can help businesses to create large brands known around the world.

-Firms should ensure customer experience with staff is positive. Staff should be polite to make the customer feel valued rather than pressured.

Question 43

Step 4 of the Sales Process: Post Sales Service

Answer 43

-Post-sales service involves providing support for customers who have bought a product. Alternatively, it may involve dealing with complaints efficiently when a product is faulty/ does not meet customer expectations.

-Businesses can build positive customer relationships by seeking feedback and acting on feedback from customers.

-This allows customers to resolve any problems they may have with the product. Therefore, customer loyalty should increase. Thus, the business should gain repeat purchases.

-This could give the business a USP. This is because the
customer now feels that the business is looking after them once they have purchased the product. Therefore, the business could gain a strong brand image for customer care.

Question 44

Step 5 of the Sales Process: Customer Loyalty

Answer 44

-When a business provides excellent customer service, customers are more likely to remain loyal and the business may gain repeat customers.

-Businesses often find it more cost-effective to retain existing customers than to find new ones through advertising.