2.3 Making Operational Decisions Practice Questions

Read the following extract before answering the question.

Extract A: Nordvik Cycles

Nordvik Cycles manufactures bicycles at factories in Poland and the Netherlands. It sells 180,000 bicycles a year to retailers across Europe. Every bicycle is built around an aluminium frame bought from a supplier in Italy. Frames arrive by lorry at the Poland factory, where they are stored until they are needed on the assembly line.

The operations manager, Ilse Boer, uses a bar gate stock graph to plan deliveries of frames. Frames are used at a steady rate, and a new delivery is arranged to arrive at the moment stock falls to the buffer stock level. Ilse keeps a buffer stock because a delayed lorry would stop the assembly line and the factory would still have to pay its workers.

Figure 1 shows the stock of aluminium frames held at the Poland factory over a 24-day period.

Figure 1 shows the stock of flour, in kilograms, held by a bakery business over a 15-day period.

Read the following extract before answering the questions.

Extract A

CycleStream plc is an online retailer of electric bicycles. It was founded in 2011 and now sells to customers in the UK, France, Germany and Spain from one distribution centre in Kent. Its bicycles are priced between £900 and £2,400.

Orders placed before 2pm are delivered within three working days. Every bicycle comes with a two-year repair warranty, and customers can book a free first service at one of 40 partner bicycle shops. A telephone helpline, staffed by trained mechanics, answers questions about assembling and maintaining the bicycles.

CycleStream sends a short survey to every customer after their bicycle has been delivered. Table 1 shows the results of last year's surveys.

Table 1: Customers rating CycleStream's delivery service as 'excellent'

Country	Customers rating delivery as 'excellent' (%)
United Kingdom	71
France	58
Germany	64
Spain	49

Read the following extract before answering the questions.

Extract A: Calvera Lighting plc

Calvera Lighting plc designs and manufactures LED light fittings. It has factories in Porto, Portugal and in Hai Phong, Vietnam, and employs 2,400 people. Calvera uses flow production to make around 200,000 fittings each month, which are sold to electrical retailers and builders' merchants in 30 countries at an average price of £18 each.

At the end of each production line a team of 15 inspectors gives every finished fitting a visual check before it is packed. Despite this, 6% of the fittings that reached retailers last year were returned as faulty. Engineers found that most failures were caused by a loose wiring connection made early in the assembly process, which cannot be seen once the fitting has been assembled. Calvera replaces every returned fitting free of charge, at a cost of £11 each.

The operations director, Tomas Reis, is considering introducing quality assurance, so that every employee checks their own work at each stage of assembly instead of relying on the inspectors at the end. Training all production staff would cost £350,000.

Read the following extract before answering the questions.

Extract A: Swiftdrop

Swiftdrop is a parcel delivery business with depots in the UK, France and Spain. It employs 4,000 drivers and operates 1,200 vans. Swiftdrop does not sell products of its own; it provides a delivery service for online retailers, who pay it £1.90 for every parcel delivered.

Customers track their parcel on the Swiftdrop app, which gives them a one-hour delivery slot and asks them to rate each delivery out of five stars. Over the last year the average rating has fallen from 4.6 stars to 4.1 stars. Most of the negative comments come from customers whose parcel arrived outside the promised slot, or was left somewhere unsafe. Swiftdrop employs 60 staff at a customer contact centre in Manchester to answer calls and messages, and it publishes a monthly summary of customer feedback for every depot manager.

Demand for home delivery has grown quickly, although the number of parcels delivered each week varies. The operations director, Mia Khan, is worried that the quality of the service is falling as volumes rise.

Table 1: Parcels delivered by Swiftdrop

Week	Parcels delivered
1	465,000
2	420,000
3	510,000
4	525,000

Read the following extract before answering the questions.

Extract B

Harrowgate Foods plc makes chilled ready meals which it supplies to supermarket chains in the UK and Ireland. The company was founded in 1998 and now produces 2 million meals a week at three factories.

Chilled meals have a short shelf life, so they must reach supermarket shelves within 24 hours of leaving the factory. In 2022 Harrowgate spent £14 million on a new distribution centre near Birmingham and on 60 refrigerated lorries fitted with tracking technology. Supermarket buyers can now see on screen exactly when a delivery will reach their depot, and the temperature of the load is recorded throughout the journey.

Supermarkets charge Harrowgate a penalty of £250 for every delivery that arrives late or at the wrong temperature. Supply contracts are reviewed every two years.

Table 2 shows Harrowgate's delivery record before and after the new distribution centre opened.

Table 2: Harrowgate Foods' deliveries

	2021	2023
Deliveries made	40,000	48,000
Deliveries arriving late	4,800	3,600

Read the following extract before answering the questions.

Extract C

Thornbury Ceramics plc manufactures plates, bowls and mugs at a factory in Stoke-on-Trent. It sells to hotel and restaurant chains in 20 countries and exports 60% of its output. A standard hotel dinner plate sells for £6.50 and orders are usually for batches of 5,000 items.

Until 2022, quality was managed by 12 inspectors who checked finished items at the end of the production line. Faults such as cracked glaze and uneven rims were usually found only after the items had been fired, and 9% of output had to be destroyed.

In 2022 Thornbury introduced quality assurance. Every employee is now trained to check their own work before passing items to the next stage, and each team agrees quality standards with the customer before an order begins. Employees received two days of training, which cost the company £180,000.

Hotel chains renew their supply contracts every three years. One chain told Thornbury that a single cracked plate on a dining table damages the hotel's own reputation with its guests.

Read the following extract before answering the questions.

Extract D

Brightwater Drinks plc bottles fruit drinks at a factory in Bristol and sells them to supermarkets and cafés across the UK and northern Europe. It produces 1.2 million bottles a week using flow production.

The glass bottles are bought from one supplier in Poland and arrive by lorry. They are stored in a rented warehouse beside the factory. Brightwater holds a buffer stock of glass bottles because a stoppage on the bottling line costs the company around £9,000 an hour.

Demand for Brightwater's drinks is seasonal and is highest in the summer. Table 3 shows the number of glass bottles delivered to the factory in the first four months of the year.

Table 3: Glass bottles delivered to the Bristol factory

Month	Glass bottles delivered
January	180,000
February	220,000
March	260,000
April	180,000

Read the following extract before answering the questions.

Extract A: Kestrel Outdoor plc

Kestrel Outdoor plc manufactures tents, rucksacks and sleeping bags at two factories, one in Leicester and one in Portugal. It sells to outdoor retailers in 14 European countries, and its best-selling two-person tent is sold to retailers for £120.

Waterproof fabric, zips and buckles are bought from suppliers in Vietnam, and shipments take six weeks to arrive by sea. Kestrel buys fabric in bulk and receives a 10% discount on any order over 20,000 metres. The fabric is kept in a warehouse next to the Leicester factory, which costs £400,000 a year to rent, heat and insure.

Around 70% of Kestrel's orders from retailers are placed between January and April, ready for the summer camping season, so the factories are extremely busy in those months. Last year Kestrel wrote off £85,000 of fabric in colours that were no longer used in any of its designs.

The operations director, Dan Whitcombe, has been asked by the board to reduce the amount of money tied up in stock without putting production at risk.

Read the following extract before answering the questions.

Extract B: Brightwave

Brightwave is a global online retailer of smart home technology such as heating controls, security cameras and lighting. Founded in 2012, it now sells to more than 3 million customers in 12 countries from three distribution centres. Brightwave owns no shops; everything is ordered through its website and app.

Its best-selling smart thermostat is priced at £89, around £15 more than similar products sold by larger competitors. Brightwave offers a 24-hour online chat service staffed by trained advisers, a three-year warranty and free returns within 60 days. Customers who buy a security camera are offered a free video call with an adviser to help them install it. The customer support centre costs Brightwave £5 million a year to run.

In a recent customer survey, 84% of Brightwave customers said they would recommend the company to a friend and 61% said they had already bought a second Brightwave product.

However, several competitors have cut their prices, and some online reviewers now say that Brightwave's devices have fewer features than cheaper rivals. The marketing director, Erin Raman, believes Brightwave's success depends on its customer service. Other directors argue that the £5 million would be better spent on developing new products.

Read the following extract before answering the questions.

Extract E

Orbit Technology plc assembles laptop computers at a factory in Gdansk, Poland, and sells them online in 14 countries. It employs 900 people and assembled 640,000 laptops last year.

Screens, batteries and keyboards are bought from six suppliers in Asia. Components travel by sea and take five weeks to reach Gdansk. Orbit currently holds six weeks of components in a warehouse beside the factory. Renting and heating this warehouse costs £1.8 million a year, and components can become out of date because Orbit changes its laptop models every nine months.

Last winter one supplier failed to deliver batteries on time. Assembly stopped for nine days, 12,000 customer orders were delayed and Orbit paid £400,000 in refunds. Its average score on shopping review websites fell from 4.4 to 3.6 out of 5.

Orbit's operations director must now decide how the company will manage its stock of components.

Read the following extract before answering the questions.

Extract F

FreshFare plc delivers recipe boxes containing fresh ingredients to customers in the UK, Ireland and the Netherlands. Customers pay a subscription of £34.95 a week for four meals. The company has 320,000 subscribers and packs the boxes at two sites.

In its early years FreshFare grew quickly by offering a £15 discount on a customer's first box. Many of these customers cancelled after only a few weeks. FreshFare's own research found that the most common reason given for cancelling was a missing or damaged ingredient in a box.

FreshFare now employs 60 customer service staff who answer live chat messages within two minutes and refund the full cost of a box if any ingredient is missing. Every recipe card carries a telephone number for cooking advice, and each month FreshFare publishes online the changes it has made in response to customer feedback.

Rival recipe box companies charge between £29 and £39 a week for a similar number of meals. Table 4 shows the percentage of FreshFare subscribers cancelling each month.

Table 4: FreshFare subscribers cancelling each month

Year	Subscribers cancelling each month (%)
Year 1	9.0
Year 2	7.2
Year 3	5.4