2.3 Making Operational Decisions Flashcards
All 52 cards in this deck
What is the purpose of business operations?
To convert resources such as raw materials, finance and the workforce into finished goods or services, delivered on time and to quality standards.
What is job production?
Making individual products one at a time to meet a specific customer's needs.
What is batch production?
Making one group of identical products at a time before switching to produce the next group.
What is flow production?
Continuously making identical, standardised products on an assembly line.
What is productivity?
The amount of output produced by a worker (or machine) in a given period of time.
Give two ways a business can increase its productivity.
Retraining employees; introducing new technology. (Also: investing in machinery, offering incentives.)
Give one benefit of flow production for a business's costs and prices.
It raises the rate of production, so the average cost of each unit falls and the business can cut its price to gain a competitive advantage.
Give one benefit to a business of using technology in production.
Machinery works faster than employees, raising productivity, so average variable cost per unit falls. (Also: products are more consistent in quality.)
Give one drawback of investing in machinery and technology for production.
High initial cost raises fixed costs, so the break-even point may rise and the investment is wasted if demand is not sustained.
True or false? Flow production is more flexible than job production.
False. Flow production makes a standardised product, so it is difficult to make different versions to meet individual customer needs.
What is buffer stock?
The minimum level of stock a business keeps as a safeguard against late deliveries or a sudden rise in demand.
What is just in time (JIT) stock control?
A system of regular, frequent deliveries of only the stock needed for immediate production, holding no buffer stock.
Give one advantage of just in time (JIT) stock control.
Less stock is held, so warehousing costs are reduced and net cash flow improves. (Also: stock matches demand, so no excess stock sold off at a discount.)
Give one disadvantage of just in time (JIT) stock control.
If suppliers deliver late there is no buffer stock, so production stops and customer orders are not met. (Also: no bulk buying, so unit costs of materials rise.)
What is procurement?
Buying in the right supplies from the right supplier — it involves building a relationship with the business's suppliers.
Give three factors a business considers when choosing and working with a supplier.
Any three of: quality; delivery (cost, speed, reliability); availability; cost; trust.
Give one benefit to a business of having a good relationship with its suppliers.
Suppliers may give discounts on raw materials, so variable costs per unit fall and profit per item rises. (Also: faster, more reliable delivery; better trade credit terms.)
How can an unreliable supplier affect customer satisfaction?
Deliveries arrive late, so the business runs out of stock and cannot meet orders — customers are disappointed and switch to rivals, reducing revenue.
How can improving logistics reduce a business's costs?
Stock is moved and delivered more efficiently with less waste, so the cost of producing each product falls and the profit margin rises.
What is quality control?
Inspecting products or services at the end of production to identify faults, so that what customers receive is of a high standard.
What is quality assurance?
Carrying out quality checks at each stage of production, making every employee responsible for the quality of their own work.
Give one benefit of using quality assurance rather than quality control.
Every worker is responsible for checking their stage, so faults are spotted during production and faulty products are less likely to leave the production line.
Give one drawback of introducing quality assurance.
It requires a large amount of employee training because workers must check their own work, so business costs increase. (Also: it needs a change in culture and is time consuming.)
Give one way a business could improve the quality of its products.
Train employees better so they can spot faults. (Also: introduce quality assurance so every worker checks the product is made correctly.)
How can a business ensure quality when providing a service?
Train staff and employ highly skilled people, and build a culture where all employees focus on high-quality service — though this raises costs.
Why does managing quality help a business control its costs?
Mistakes in production are expensive, so fewer faults means less wastage and fewer costs of replacing or repairing faulty goods.
Give one advantage to a business of producing a high quality product.
Quality is a source of differentiation, attracting more customers and increasing market share. (Also: it allows higher prices and so a higher profit margin.)
Give one disadvantage of manufacturing a high quality product.
Raw materials cost more, so the business must charge a premium price that some customers cannot afford. (Also: specialised labour is hard to recruit and costly to train.)
Name the five stages of the sales process.
Product knowledge; speed/efficiency of service; customer engagement; responses to customer feedback; post-sales service.
What is meant by product knowledge in the sales process?
Staff knowing the product well enough to answer customers' questions and advise them on the right purchase.
What is meant by speed and efficiency of service in the sales process?
Serving customers quickly and without mistakes, so they do not have to wait.
What is customer engagement in the sales process?
Interacting with the customer and building a relationship with them so their needs are understood and met.
What is meant by responses to customer feedback in the sales process?
Listening and acting on what customers say about the product or service, such as complaints and reviews, to improve it.
What is post-sales service?
Service given after a product or service has been bought, such as technical support or dealing with complaints.
Why is post-sales service important to a business?
It lets customers resolve problems, so customer loyalty increases and the business gains repeat purchases.
Give one benefit to a business of providing good customer service.
It differentiates the business from competitors, making customers more loyal, so sales and market share rise.
Give one impact on a business of providing poor customer service.
Customers become dissatisfied and make no repeat purchases, so market share falls. (Also: the brand is damaged, so a premium price cannot be charged.)
True or false? Excellent customer service can allow a business to charge higher prices than its competitors.
True. Customers value the service, so the business can charge a premium and earn a higher profit margin on each sale.
True or false? A poor relationship with suppliers can reduce a business's net cash flow.
True. The business may not get good trade credit terms, so it has to pay suppliers earlier.
What is logistics?
Organising how raw materials and goods are transported: getting supplies into the business and finished products out to its customers.
What four factors must a business balance when choosing technology for production?
Cost, productivity, quality and flexibility. Improving one, such as productivity, can mean giving up some of another, such as quality.
On a bar gate stock graph, what is the reorder level?
The stock level at which the business places a new order with its supplier.
What is lead time?
The time between a business ordering stock and that stock being delivered.
On a bar gate stock graph, what is the maximum stock level?
The largest amount of stock the business is able to hold at any one time.
Give two things a business needs for just in time (JIT) stock control to work.
Any two of: reliable suppliers it has a close relationship with; an efficient, well-planned production process; steady demand that can be forecast accurately.
Give one advantage of job production.
Any one of: each product is made to the customer's exact requirements; customers pay more for a one-off item, so profit margins are high.
Give one disadvantage of job production.
Any one of: it needs highly skilled workers, which raises labour costs; each item takes a long time to make, so output is low.
Give one advantage of batch production.
Any one of: the business can switch between versions of a product, such as sizes or flavours; it makes more units than job production, so unit costs are lower.
Give one disadvantage of batch production.
Machines must be stopped and reset or cleaned between batches, so no output is made during the changeover and productivity falls.
How can a supplier affect a business's reputation?
Customers judge the business by what they receive, so late deliveries or poor-quality supplies from a supplier reflect badly on the business that uses them.
Give one drawback of using technology in production, other than its cost.
Any one of: it can soon become out of date and need replacing; employees must be trained to use it.
Give two examples of technology used in production.
Any two of: computer-aided design (CAD); robots or computer-controlled machinery (CAM); automated assembly lines; 3D printing.