Operations

• Inventory Management

  -> Types of Inventory

  • Raw materials - Suppliers keep enough to have production going and respond to last minute orders - input.
  • Party made goods (known as a work-in-progress) - process.
  • Finished goods - ready to go to customers - output.
• Inventory Management

  -> Purpose of an Inventory Management System

  • To ensure the production line will always be able to run.
  • To ensure customer orders aren't delayed.
  • To avoid overstocking and resulting high cost of storage.
  • To keep down the cost of insuring inventory and arranging security.
  • To minimise the amount of money tied up in inventory which could be used somewhere more efficiently.
  • To reduce the likelihood of inventory becoming damaged or out of date.
• Inventory Management

  -> Having too little inventory

  • You could run out of materials and production has to stop.
  • You can't supply customers who order unexpectedly.
  • Customers may be unhappy if they don't get their goods on time - this may damage your reputation.
  • You may be unable to take advantage of bulk-buying discounts.
  • Lots of re-ordering will mean greater administration costs to process orders.
• Inventory Management

  -> Having too much inventory

  • There will be an increase in the cost of storing the inventory. You may have to pay costs of insuring and keeping the inventory secure.
  • Some items can go out of date and there is a greater risk that the more you hold, the more likely this will happen and there is more waste.
  • There may be changes in demand and inventory may be no longer useful.
  • Money spent on buying inventory which is just wasted can cause cash flow problems.
• Inventory Management

  -> How to manage inventory levels

  • Minimum level - The lowest amount that should be in stock at any one time to ensure you don't run out.
  • Re-order level - The level at which new inventory is ordered, taking into account how long the supplier will take to deliver it.
  • Re-order quantity - The amount of inventory to be ordered to bring it back to the economic level.
  • Lead time - the time between ordering new inventory when it arrives.
  • Buffer inventory - the amount of inventory under the minimum level which is kept in case of supplier or delivery delays.
• Inventory Management

  -> Computerised inventory control system

  • Each item has a barcode.
  • When inventory leaves, the code is scanned.
  • The inventory level is automatically updated in the system.
  • When the new inventory arrives the code is scanned and it is updated.
  • When new inventory arrives, the date is recorded to ensure stock received is issued first.
  • The system should allow you, at any time, to see how much is available.
  • The system will automatically re-order when it reaches a certain level.
• Inventory Management

  -> Benefits of electric stock control

  • Reduction in mistake as there is less chance of human error.
  • Orders are placed automatically when the re-order level is reached.
  • Reduction in paper used for inventory records - more environmentally friendly.
  • Helps management make informed decisions about inventory.
  • Easier to identify if theft has taken place.
• Inventory Management

  -> Advantages of just in time inventory control

  • Money is not tied up buying large amounts of inventory.
  • This money can be used elsewhere in the business.
  • Business cash flow is improved.
  • Costs of storing inventory are less - warehouse, equipment, staff etc.
  • Less waste - less theft, less damage, less obsolescence.
  • Business is more flexible, responsive to changes in fashion.
• Inventory Management

  -> Disadvantages of just in time inventory control

  • The organisation has to rely on suppliers to deliver on time and give good quality materials.
  • There will be many small deliveries so admin and delivery costs could be higher.
  • Any delays in delivery can hold up production.
  • Unexpected orders or increases in demand may not be able to be met.
  • Buying in smaller quantities may mean losing out on bulk-buying discounts.
• Storing Inventory

  -> Advantages of centralised inventory control

  • Supervised by specialist staff.
  • More cost-effective than maintaining many small storage areas with less duplication of stock help throughout the premises.
  • Agreed procedures for ordering, so these will be standard throughout the whole organisation.
  • Bulk ordering may be cheaper due to economies of scale.
  • Fewer smaller purchases are needed.
• Storing Inventory

  -> Disadvantages to centralised inventory control

  • Cost of a dedicated storage area.
  • Cost of specialist staff - recruitment and training.
  • Time wasted going to and from stores.
  • Increased chance of wastage if large amounts are held in one place.
  • It is harder to meet specialised needs of different departments.
• Storing Inventory

  -> Advantages of decentralised inventory control

  • Stock will always be available.
  • Orders of stock will reflect actual usage.
  • Faster turnover of small amounts of stock reduces the likelihood of deterioration.
• Storing Inventory

  -> Disadvantages of decentralised inventory control

  • Theft is more likely - less supervision and control.
  • Takes up space in production areas.
  • Can be more expensive as there may be duplication of resources and inventory.
• Storing Inventory

  -> Advantages to warehousing

  • Large amounts of stock are stored securely, reducing theft and therefore reducing costs.
  • Stock can be stored in categories within the warehouse making management and location of stock easier and quicker.
  • Large warehouses allow for efficient delivery of large quantities of stock and fewer runs may be needed, therefore saving fuel and travel costs.
  • Allows stock to be gathered and stockpiled to cope with periods of high demand.
  • Less space is taken up in departments/outlets.
  • Accessible if located near a motorway network.
• Storing Inventory

  -> Disadvantages to warehousing

  • Expensive to run - cost of energy, rent and security.
  • Fire, flood etc, can affect the whole stock.
  • Warehouses may be located away from business premises in more remote areas due to the cost of premises.
• Methods of Production

  -> Factors to consider when choosing a method

  • Quantity to be made - high demand will need capital production to give the large volumes required.
  • Skills of staff - if staff are low skilled a machinised approach may be better.
  • Product design and quality required - high quality may mean using labour production, but it also may mean using machinery to give accurate standards.
  • Finance available - Mass production may require the investment of large amounts of finance to purchase machinery.
  • Equipment required - Unique production may require skilled staff.
• Methods of Production

  -> Labour intensive description

  • This is where a business uses a larger proportion of human input than machinery to complete the production process. For example fruit picking and postal services.
• Methods of Production

  -> Labour intensive is used when

  • The cost of labour is relatively cheaper than the cost of machines.
  • The production process requires specific skills.
  • The use of machinery would be impractical due to the lack of space or mobility.
  • The production process relies on the ability of humans to think, act on initiative and problem solve.
  • The production process requires flexibility, for example job production will use a high proportion of labour as specialist skills will be needed to make unique products.
• Methods of Production

  -> Advantages of labour intensive

  • Additional flexibility due to human skills - can make unique items.
  • More responsive to change.
  • Lower start-up costs than capital intensive production as no initial outlay on machinery.
  • The use of human judgement is needed, which can improve the process.
• Methods of Production

  -> Disadvantages of labour intensive

  • A skilled workforce can be expensive to recruit, pay and train.
  • Business cannot take advantage of economies of scale.
  • Staff illness or absence can impact the production process.
  • Additional quality control measures may be required due to human error.
  • Can be less efficient than capital intensive production.
• Methods of Production

  -> Capital intensive description


  • This is where the production process relies more on machinery and other capital equipment relative to human input. For example car production.
• Methods of Production

  -> Capital intensive is used when

  • The supply of labour is limited.
  • The production process is routine and repetitive and production is on a large scale.
  • The cost of capital is relatively cheap compared to labour.
  • The use of machinery improves the quality and accuracy of the production.
  • The use of the machinery improves efficiency and consistency of output.
• Methods of Production

  -> Advantages of capital intensive

  • Machinery can run 24/7
  • A higher volume of goods can be produced.
  • Quality of output is standardised and consistent.
  • Removed the chance of human error.
  • Machines can do work that would be dangerous or hazardous to humans.
• Methods of Production

  -> Disadvantages of capital intensive

  • Large initial outlay to purchase machines.
  • The cost of maintaining and repairing equipment can be high.
  • It is mainly suitable for a standardised production process - more difficult to adapt to change.
  • Production time is lost if machinery breaks down.
  • Worker motivation is low and they are not highly skilled.
  • Can lead to redundancies.
• Automation/Mechanisation

  -> Advantages of Automation/Mechanisation

  • Identical products can be made consistently and be more accurate.
  • Can be reprogrammed to make alterations to the product.
  • Consistent quality which means there is a reduced waste.
  • Possibly less returns and complaints from customers.
  • Reduction in labour costs as fewer employees are needed.
  • Reduction in supervision.
  • Robots do not require a break and can operate 24/7.
  • Robots can do work which is repetitive which human workers would not enjoy.
  • Robots can work in conditions employees would not be able.
• Automation/Mechanisation

  -> Disadvantages to Automation/Mechanisation

  • Machines can break down and hold up production.
  • Technology can be expensive to install and maintain.
• Methods of Ensuring Quality

  -> Quality Control


  • This is where the final product is inspected and checked for defects at the end of the production process.
• Methods of Ensuring Quality

  -> Advantages of Quality Control

  • Should prevent faulty products reaching the customer.
  • Doesn't take a lot of time as goods are only inspected at the end of the process.
• Methods of Ensuring Quality

  -> Disadvantages of Quality Control

  • Waste could be high as faults are only found once the product is complete.
  • This could significantly add to the costs of production if a whole batch is wasted.
• Methods of Ensuring Quality

  -> Quality Assurance


  • This is where the product is checked at several stages throughout the production process ensuring that waste is prevented. Quality is paid attention in all parts of the production.
• Methods of Ensuring Quality

  -> Advantage and Disadvantage of Quality Assurance

  • Less wastage as errors are discovered earlier - prevention.
  • Quality standards have to be set and adhered to and this can be expensive to set up.
• Methods of Ensuring Quality

  -> Benchmarking


  • This involves taking the industry leaders standards as the best standard then using it as the criteria for assessing your quality and performance by comparing it to market leaders.
• Methods of Ensuring Quality

  -> Advantages of Benchmarking

  • Supports a culture of continuous change.
  • New ideas and perspectives are introduced into the business from external sources.
  • Provides a focus for change using evidence gathered from competitors.
  • Can lead to a competitive advantage.
• Methods of Ensuring Quality

  -> Disadvantages of Benchmarking

  • Market leaders may resist making information available publicly to competitors.
  • Benchmarking is an ongoing process. A business cannot become complacent or competitors will match or overtake their standard and position in the market.
  • Benchmarking must be accompanied by a plan of change, which will require significant time and resources.
• Methods of Ensuring Quality

  -> Quality Circles


  • Staff from all areas of production, including managers, meet regularly to discuss how to improve product quality and the whole production process. They are constantly looking for better ways of doing things.
• Methods of Ensuring Quality

  -> Advantages of Quality Circles

  • Employees become more productive as they are given the opportunity to discuss issues and offer solutions which increases motivation.
  • Improves quality of product and reduces costs due to less wastage.
  • Opportunity for professional development for staff.
  • There is no additional cost to implementing them as staff are already paid by the business.
  • Increases job satisfaction for employees, which can lead to loyalty and reduced staff turnover.
  • Communication between managers improves and can prevent a 'them and us' culture.
• Methods of Ensuring Quality

  -> Disadvantages of Quality Circles

  • They can identify appropriate solutions to problems but senior management may fail to implement them.
  • Participants may not be adequately trained in problem solving and teamwork.
  • Without proper leadership the meeting could degenerate into discussions about grievances and personal issues without solutions being offered.
  • Middle-level managers or supervisors may feel that their position is undermined by giving shop-floor workers a direct link to senior management.
• Methods of Ensuring Quality

  -> Quality Standards


  • This is where a certificate or stamp is given to a business from an independent organisation for achieving a certain level of quality. Businesses who achieve this are demonstrating to their stakeholders that they are committed to producing the best they can.
  • For example, the wool symbol which is guaranteed that the product is 100% wool.
• Methods of Ensuring Quality

  -> Advantages of Quality Standards

  • Show that quality has been approved by an independent body.
  • A certain level of quality is guaranteed to customers giving them confidence to buy.
  • Can be used as a marketing tool.
  • Higher prices could be charged.
  • Less wastage and less complaints and returns.
  • Could lead to more sales or repeat purchases.
• Methods of Ensuring Quality

  -> Disadvantages of Quality Standards

  • It can be expensive to go through the process of achieving the standard.
  • Time consuming to go through the process.
  • Detailed checks and paperwork must be carried out and kept.