Business

• Operations


  The role of operations in a business is to produce goods and services to suitable standard as efficiently as possible
• Production process


  1. Raw materials

  2. Work in progress

  3. Finished goods
• Benefits of operations


  • Survival (all businesses need to produce goods and services for their consumers or they will fail)
  • Increase in product quality (due to better qualified and motivated staff and systems)
  • Decreased costs (due to less wastage and better systems)
  • Opportunity to decrease prices for consumers (due to lowered costs)
  • Positive business image (from high quality products and any lowered prices)
  • Increase consumer satisfaction (from provision of suitable products perhaps at low prices)
  • Increased use of the businesses by consumers (consumer loyalty)
  • Increased profits, budgets or donations (from consumer loyalty)
• Production systems


  • Capital intensive
  • Labour intensive
  • Automation
• Factors of production


  • Capital
  • Enterprise
  • Land
  • Labour
• Capital


  Describes the money invested in a business and all the equipment it can be used to buy. Capital has to be paid for through interest.
• Enterprise


  Covers all of the ideas for goods and services a business has and the organisation of all resources including the factors of production. Decisions must be made to turn these ideas into real goods and services.
• Land


  Is the Earth and all of the natural resources in it or on it (e.g. oil, wood, animals, crops, etc.). Land is paid for through rent (money paid for the use of the land).
• Labour


  Labour is all of the physical and mental efforts carried out by people. Labour is paid for by wages.
• Factors to consider when choosing a supplier

  • Price
  • Quality
  • Delivery Time (Lead Time)
  • Quantity
  • Storage Space
  • Reliability
• Purchasing mix


  The factors that need to be considered when deciding on a supplier
• Credit terms


  Suppliers who can offer credit facilities for purchasing raw materials can be an attractive option, as this allows the business to make money by selling their products and then make a payment to the supplier.
• Discount available


  The Finance Department will work with the Operations department to make sure that they are buying at the best price and getting the best terms – such as discounts. Often the firm will buy in bulk to get better discounts as it is important to get good value for money.
• Inventory management


  Making sure that the business has an inventory level that prevents overstocking problems and understocking problems
• Types of inventory


  • Raw materials from suppliers
  • Work in progress
  • Finished goods
• Reasons for holding inventory


  • Production can always be carried out as inventory is constantly available
  • Consumers will always be able to buy products as inventory is available
  • Sales and usage are maximizes as consumers can always access inventory of products
• Overstocking


  A business has bought in more inventory than it regularly needs
• Problems of overstocking


  • High storage and security costs, this may mean more warehouse staff may need to be employed
  • A great deal of cash is tied up as inventory which could otherwise be used elsewhere within the business
  • If social factors change (trends/fashion) the inventory might be wasted
  • Inventory could perish, deteriorate depending on the type of inventory and how long it is held for therefore increasing waste
  • Inventory has a higher risk of being stolen
• Understocking


  A business has not bought in enough inventory to continue with its ordinary activities
• Problems of understocking


  • The business may not be able to cope with an unexpected order if inventory levels are low. This may upset customers who may take their business somewhere else
  • If there is not enough inventory, production may have to be stopped – machinery will be idle and sales will be lost
  • The firm may have to place orders more often – this causes high administration costs and the firm may lose out on discounts for bulk buying
  • The businesses reputation and consumer loyalty may be damaged if there is a lack of inventory
• Role of operations department in inventory management

  Monitor, control and record inventory to avoid theft, waste or shortage occurring. Ensure that the correct levels of inventory are held - balancing the needs of the production department with the costs of holding inventory in storerooms or warehouses.
• Factors to consider when setting an inventory level

  • Product demand
  • Seasonal factors
  • Finance available
  • Inventory types
  • Lead time
• Inventory control


  The process of reordering inventory when necessary and looking after inventory to prevent wastage or theft
• Steps in an inventory control system

  1. Take a record of all the inventory that has been received and is available

  2. Update the amount of inventory available by subtracting any inventory that is issued

  3. Double check that inventory levels are correct

  4. Reorder inventories as required and adding them to the amount of inventory available
• Inventory control levels


  • Economic (Maximum) Inventory Level
  • Minimum Inventory Level
  • Re-order Level
  • Re-order Quantity
  • Buffer Inventory
• Economic (Maximum) Inventory Level


  The highest inventory level that a business will want to hold without incurring extra costs e.g. extra storage space
• Minimum Inventory Level


  The point below which inventory should not fall. This is the inventory level that ensures that there will always be inventory available for production.
• Re-order Level


  The level at which new inventory should be ordered. It is usually worked out on the amount used per day plus the lead time.
• Re-order Quantity


  The amount of inventory required to return inventory levels to economic inventory level on the same day that new inventory arrives. Normally the re-order quantity is automatically ordered as soon as the re-order level is reached.
• Buffer Inventory


  Extra inventory kept below the minimum level in case of unexpected circumstances, e.g. an unusually large customer order, adverse weather conditions delaying deliveries.
• Advantages of computerised inventory control

  • Computers can accurately calculate inventory figures quickly
  • Computers may be able to replace staff in inventory control which saves on wages
  • Computers can automatically remind staff when the reorder level has been reached
  • Reminding staff of when to reorder should lower the chance of running out of inventory
  • Computers can automatically reorder inventory to prevent any chance of staff forgetting
• Problem of computerised inventory control


  Computers being hacked or overridden to hide theft or wastage
• Complete Activities 1-4 of the Inventory Control Activities Google Doc that has been posted on classroom.
• Methods of production


  The way that a business chooses to organise its production process
• Re-order quantity


  Quantity required to return inventory levels to economic inventory level on the same day that new inventory arrives
• Re-order level


  Level at which new inventory is automatically ordered
• Methods of inventory control

  • Manually (by hand using an inventory card)
  • Computerised
• Buffer inventory


  Extra inventory kept below the minimum level in case of unexpected circumstances
• Advantages of computerised inventory control

  • Accurately calculate inventory figures quickly
  • Replace staff which saves on wages
  • Automatically remind staff when reorder level reached
  • Automatically reorder to prevent running out
  • Prevent staff forgetting to reorder
• Problem with computerised inventory control


  Computers being hacked or overridden to hide theft or wastage