Business Operations

• Buffer Stock


  The amount of stock held between the minimum stock holding and zero stock. Used in case of late deliveries or extra orders
• Where to Source Supplies

  • Locally
  • Globally
  • Less developed countries
• Computerised Stock Control


  Stock control systems can be computerised. When a specified quantity is reached new stock is automatically ordered. Stock levels are recorded using barcodes and scanners i.e. each time materials are removed from a warehouse they are scanned and the stock level updated. Relies on accuracy eg. all workers remember to scan, no loss of stock, system is set up correctly.
• Lead Time


  The amount of time that elapses between placing an order and the delivery of that order.
• The relationship between the functional areas of a business and its supply chain


  Marketing: Cost of raw materials and manufacturing to inform pricing decisions, Product features and functions, USP eg ethically sourced, Quality of product-leading to brand loyalty and repeat sales, Customer satisfaction, Place available to end customer

  Operations: Quality of supply will affect the quality of the product, Frequency of delivery will affect the operations process

  Finance: Cost of raw materials, Payment terms negotiated with suppliers impacting on cash flow, Sales revenue, Higher profit margins from increased efficiency, lower stock holding costs and less waste

  Logistics: Delivery time, Risk of stock not arriving or being damaged
• Are suppliers paid a fair rate? Can ethical behaviour be tracked back through the supply chain eg working conditions or child labour? Impact on local economy eg job
• Do cost savings justify the uncertainties or risk to Quality?
• How to Store and Distribute Supplies

  This will depend on the frequency and size of deliveries, storage requirements eg, security or special conditions such as refrigerated, flow of materials through the production process, distribution of finished goods, right quantity and quality at the right time, ability to match supply to demand to achieve customer satisfaction.
• Suppliers will affect unit costs in the following ways


  • The price of the components directly affects the cost of a product
  • Discounts may be offered for buying in bulk
  • Appropriate payment terms will help businesses avoid bank charges
  • If a supplier can deliver reliably and regularly then stock holding costs can be reduced
• Suppliers will have a direct influence on prices


  • High quality components allow businesses to charge a higher price
  • Reliability and speed of supply can add value to a product and allow a premium price to be charged
  • Reliability and quality will help a business establish a good reputation
• Summary of the impacts a supplier can have on a business

  • Costs
  • Quality of finished goods
  • Price changes
  • Customer satisfaction
  • Reputation
  • Sales
  • Profits
• The impact of supply decisions on stakeholders


  Owners: Quality of the products, the costs and the speed of delivery will affect sales, profits and dividends

  Local community: Transportation of products will impact on air pollution and congestion. Choosing local suppliers can create jobs and help grow the community.

  Suppliers: If a supplier wins a contract it may be able to expand and reward its own staff and investors. If they lose a contract then they may see sales and profits fall.

  Government: Movement of products around the country will affect the pressure on infrastructure such as the road system. Choosing a UK supplier will boost the economy.
• Logistics


  Involves the management of the movement of goods from where they are to where they are needed: often between the manufacturer and the consumer
• Logistics is the flow of materials


  • Into a business from suppliers
  • Delivery and transportation from suppliers
  • Correct quantity and quality on time
  • Within a business as raw materials are transformed into a finished product
  • Warehousing and stock management
  • Inventory of supplies and finished goods
  • Packaging of finished goods
  • Security of supplies and finished goods
  • Out of a business to reach the customer
  • Transportation and distribution of finished products
• Any disruptions in any part of this flow will mean that a business is unable to match supply to demand.
• Inventory


  Raw materials that have not yet been used or products that have been made, but not sold. It can also include semi-finished goods or finished goods
• Holding stocks are important in order to

  • Have supplies to keep production going
  • Have stocks to meet customer demand
• Stock Control Methods


  • Just-in-Case (Traditional)
  • Just-in-Time
• Just-in-Case (Traditional)


  Holds stock just in case there is a delay from suppliers or a sudden unexpected increase in demand. Advantages: Stock usually available, Bulk purchases discounts available, Quality of stock can be checked, Stock can be kept in correct environment. Disadvantages: Need to find storage, Warehousing can be expensive, Stock needs to be moved, Labour costs involved, Materials may deteriorate, Materials may become out-of-date
• Just-in-Time


  Requires businesses to keep their stocks of the goods and/or materials to a minimum. Goods will only be produced when orders are received and/or materials are only received when they are needed. Advantages: Saves storage costs, Avoids having assets tied up in stocks, Stock only bought when needed, Materials generally in good condition, Up-to-the-minute materials bought, Little waste. Disadvantages: Downturn in business means high cost materials not needed cannot be resold, Depend on suppliers if they run out of materials production may have to stop, Delivery difficulties, No bulk buying discounts
• Procurement


  Involves obtaining or buying of goods and services from an external source. These are to be used in the production process or are to be sold on.
• Supply Chain


  A complex system of businesses, people, activities, information and resources involved in moving goods and services from source to customer.
• Warehouse


  A place where resources or finished products are stored before they are sold.
• Why Supply Matters


  • Customer satisfaction
  • Costs
  • Quality of finished goods
  • Reliability
• Choosing Suitable Suppliers: Choice involves a number of factors:


  • Cost
  • Quality
  • Range of products
  • Speed of delivery
  • Flexibility
  • Reliability
  • Reputation
  • Payment terms
  • Contract terms
  • Behaviour of suppliers
• Functions of Production Department

  Production planning and scheduling

  Deciding the best production methods to use

  Managing product quality including process control and monitoring
• Methods of Production


  • Job
  • Batch
  • Flow
• Job Production


  Involves the manufacture of an individual good from start to finish. Each product is different and offers a unique good for the consumer or meets specific consumer requirements. Advantages: Higher quality, Unique bespoke to customer specification. Disadvantages: Expensive, Time-consuming, Replacements more difficult to find
• Batch Production


  Found when a small number of identical products are made at once. Each batch goes through one stage of the production process before moving onto next stage. Advantages: More products can be produced, Costs for producing each product (unit costs) are lower, Production is more efficient, Specialist machinery can be used. Disadvantages: Quality is not as high, High level of stock may be needed
• Flow Production


  Goods are produced continuously usually on a production line. Partly finished goods move along the assembly line with parts being added through the process. Advantages: Efficient use of labour and machines, Produces similar/identical goods, Quicker, Reduce unit costs of production. Disadvantages: Machinery is expensive, Lack of flexibility
• Total Quality Management (TQM) 1


  Creates quality through continuous improvement, development of systems and products and by creating an organisational culture of quality. For TQM to be effective a number of production management and control methods need to be used: Quality chains - the next person in the production process (chain) is treated as a customer and customer satisfaction is the objective. Empowerment - giving employees control over tasks completed. Monitoring - checking that standards are being met.
• Batch production


  • Produces similar/identical goods
  • Quicker
  • Reduces unit costs of production
  • Benefit from economies of scale
• Batch production


  • Takes time
  • Adds to costs
• Efficient use of labour and machines

  Division of labour
• Machinery is expensive, smaller businesses may not be able to afford it
• Lack of flexibility in flow production, produces identical products, what if there is a slight modification?
• Bored workers could lead to lower quality
• Total Quality Management (TQM)


  Creates quality through continuous improvement, development of systems and products and by creating an organisational culture of quality
• TQM production management and control methods

  1. Quality chains

  2. Empowerment

  3. Monitoring

  4. Teamwork

  5. Quality circles

  6. Zero defects

  7. Benchmarking
• Importance of quality to a business

  • Satisfying and increasing customer expectations
  • To gain and retain customers
  • Repeat custom
  • Word of mouth advertising
  • Brand loyalty
  • Increasing sales
  • Reputation of the business
  • Positive image to consumer
  • Positive word of mouth
  • Improved customer satisfaction
  • Reducing cost and waste
  • Reduce product returns and recalls
  • Avoid negative publicity
  • Cost of recall and reworking faulty goods
  • Dealing with customer complaints
  • Loss of trust