Business 3.4

• Operational objectives

  The short-term goals or aims of the business. Also known as the tactical objectives.
• Operational objectives


  • Costs
  • Quality
  • Speed of response
  • Flexibility
  • Environmental objectives
  • Added value
• Operational objective: Costs

  • For mass-market goods, a business would aim to produce products and services at the lowest possible cost, so prices remain low for the consumer
  • For niche market goods, cost-cutting is not such a high priority as premium prices are charged
  • Ways to reduce costs include: Fixed costs can be reduced by a merger or joint venture sharing the costs
• Operational objective: Quality

  • A business would aim to make products and provide services for consumers which fulfil their needs and wants, at a level of quality that is appropriate
  • Customers require goods that are of satisfactory quality and fit for purpose (consumer rights laws)
  • Good quality products and services will give the business competitive advantage, higher sales volumes and repeat purchases
• Operational objective: Quality


  • Have you ever had a bad bottle of ketchup?
  • Have you ever had to complain about the quality?
  • Do you use a different brand?
  • Have you bought this more than once?

  
• Operational objective: Speed of response

  • Speed of response could be the lead time, which is the time from the customer order to the moment they receive the goods. It could also be the time taken to answer the phone or a customer email
  • Speedy responses mean customer satisfaction and reduced costs from returns and complaints
  • Some companies (Hermes, UPS) charge more for a quicker service
• Operational objective: Speed of response


  • Some sofas can take up to 20 weeks for delivery.
• Operational objective: Flexibility


  • A business needs to be able to change the products that it makes or sells and the services that it provides, to meet current tastes and consumer trends
  • Product flexibility e.g. able to change the products that it makes
  • Volume flexibility e.g. able to change the number of products it produces
• Operational objective: Flexibility


  • Why are Halloween cupcakes at Greggs an example of a flexible operational objective?

  
• Operational objective: Environmental objectives


  • Businesses now have CSR and environmental policies, which will help them to reduce costs and increase their reputation.
  • Some may even use environmental objectives as a way of giving them a USP for their products
  • This may involve reducing: Energy use, Water consumption, Waste created, Noise pollution, Carbon footprint
• USP


  Unique Selling Point, or how the business differentiates one product or brand from another.
• Operational objectives: Added value


  • Added value is an improvement or addition to a product or service to make it more valuable to the customer e.g. turning wood into furniture
  • Examples include: The convenience of a microwave meal, Retailing, through customer service, knowledgeable staff helping customers to choose a product, Distribution, through next day delivery
• Added value


  An improvement or addition to a product or service to make it more valuable to the customer
• Objectives


  The goals and aims of a business e.g. to maximise profit
• Tactical


  A short-term decision, the opposite is a strategic decision which is long-term
• CSR


  Corporate Social Responsibility means that a company will have a statement and policies about how it will trade ethically
• Operational objectives


  • Cost
  • Quality
  • Speed
  • Efficiency
  • Agility
• You will need worksheet 3.4.2 for this topic
• Operational efficiency


  A measure of how many costs are incurred during production, where lower costs means greater efficiency
• Operations data


  • Graphs, charts and calculations used to measure how efficient the business is
  • The measure of your efficiency will be your mock and real A Level grades
  • In a business the main measures would be: labour productivity, average costs, capacity utilisation
• Productivity


  The output per employee in a given time period, a measure of efficiency
• Labour Productivity Formula


  Output ÷ Number of workers

  
• Labour productivity example calculations

  • 220,000 loaves of bread a month ÷ 350 workers = 628 loaves per worker
  • 5,256 computers a quarter ÷ 27 workers = 195 computers per worker
  • 1.4 million pens a year ÷ 8000 workers = 175 pens per worker
  • 4 handmade cars a year ÷ 20 workers = 0.2 cars per worker
• Average unit costs


  The average cost of producing one item, smoothing out fluctuations in the data
• Production at minimum average cost


  • Efficiency is maximised when goods are produced at the minimum unit or average production cost
  • Production will aim to operate at the minimum average cost per unit, so that the business can take advantage of economies of scale
  • The more products that are produced the cheaper they are per unit to produce
• Unit costs (average cost) formula


  Total Costs ÷ Output

  
• Unit costs example calculations


  • 220,000 loaves of bread a month ÷ £75,400 total costs = £0.34 per loaf
  • 5,256 computers a quarter ÷ £1,250,000 total costs = £237.50 per computer
  • 1.4 million pens a year ÷ £400,000 total costs = £0.29 per pen
  • 4 handmade cars a year ÷ £30,000 total costs = £7,500 per car
• Capacity


  The maximum amount that a business can produce
• Capacity introduction


  • Capacity is the maximum possible output of a business
  • Capacity Under-utilisation would mean that not all the capacity is being used
  • Capacity Over-utilisation would mean exceeding the maximum capacity
• Capacity utilisation


  The extent to which a business uses its maximum production capacity
• Capacity utilisation formula


  Current output ÷ Maximum possible output x 100
• Capacity utilisation example calculations

  • 220,000 loaves of bread a month ÷ 300,000 loaves of bread a month x 100 = 73.3%
  • 5,256 computers a quarter ÷ 17,000 computers a quarter x 100 = 30.9%
  • 1.4 million pens a year ÷ 1 million pens x 100 = 140%
  • 4 handmade cars a year ÷ 4 handmade cars a year x 100 = 100%
• Uses of operational data


  • Monitor and react to issues in production, to solve problems
  • Improve reliability and quality to improve customer loyalty and repeat business
  • Plan future strategies
• Operational data can be used to speed up operations by showing exactly where the problem areas are
• Operations data


  Information about the day to day running of the business e.g. labour productivity data
• Labour productivity


  A measure of output per worker per hour e.g. One employee can sew 10 t-shirts per hour
• Capacity utilisation


  The extent to which a business is using its full productive potential e.g. A cafe running at 50% capacity would mean it was half full
• Economies of scale


  As the business produces more goods it can negotiate better deals on raw materials so the average unit cost falls
• Capacity


  The maximum amount that a business can produce
• If you have no other data, always assume that full-capacity is 100 or 100%