SHAFIQ FAKIR

EDEXCEL 9-1 BUSINESS GCSE

2.3.1 BUSINESS OPERATIONS

2.3.1a

The purpose of business operations

 Operations refers to the steps involved in making goods and providing services. In a hotel for
example, operations would include the running of the bar and restaurant as well as the daily
cleaning of the rooms. In a car manufacturing firm, operations would include managing the
stock of raw materials and using robots in the manufacture of cars.
 Operations management is the aspect of business management which concerns itself with
ensuring that the operations of a business are efficiently conducted and result in high quality
output

1
SHAFIQ FAKIR

2.3.1b

Production processes

 In the manufacture of goods, there are three basic approaches known as:
1. Job production
2. Batch production
3. Flow production
 Job production is used in situations where each unit of output is produced according to the
requirements of an individual customer such as the making of a customised suit or an oil tanker.
Job production always requires specialised labour and is associated with products sold at higher
prices.
 Batch production is a type of production where units are produced in small groups and the
manufacturing process consists of several steps and each group of units is put through each step
of the process at the same time. An example is the baking of bread where twenty or thirty
loaves may be shaped from dough, then baked, glazed and finished together.
 The final type of production is called flow production which refers to the typical process used in
the production of goods in very large quantities such as mass produced cars. For example, in a
modern car factory, the semi-finished cars pass along a production line and, at each stage, a
worker or a robot performs one step of the production process as the unit passes by. Flow
production is used to make standardised goods in very large quantities and is the direct opposite
of job production.
 Batch production may be thought of as an intermediate method of production between job and
flow methods
 The production process is chosen according to the type of good being made but always with the
intention of minimising the cost of production and maximising the productivity of each of the
factors of production e.g. maximising the value of output produced by each worker or each
machine in one hour. Clearly, the lower the cost of production and the higher the productivity of
factors of production, the more competitive the price which the business is in a position to offer
customers.

2.3.1c

Technology and production

 The arrival of manufacturing robots has added an element of flexibility into flow production
since these robots may be easily re-programmed to produce different products on the same
production line. Thus, a car firm like Toyota is able to produce SUV’s, and smaller models in the
same factory and on the same production line by simply re-programming the robots. This allows
modern manufacturing companies to adjust rapidly to even small changes in demand and
greatly reduces the chance of overproduction of goods whose demand is falling and
underproduction of goods whose demand is rising.
 Robot technology has also allowed the production of units of more uniform quality as human
error has largely been eliminated from the production process

2
SHAFIQ FAKIR

2.3.2 WORKING with SUPPLIERS

2.3.2a

Managing stock

 Stock or inventory consists of stock of:

1. Stock of finished goods
2. Stock of semi-finished goods also known as work in progress
3. Stock of raw materials
 All businesses have to maintain a certain level of stock in case there is an interruption to the
supply chain caused by transport issues or the bankruptcy of a supplier or other factors such as
war or natural disaster
 However, stock takes up space and may be damaged before it can be used. Therefore, carrying
more than a minimum quantity of stock may increase the cost of production
 Therefore, businesses monitor and manage their stock levels at all times to minimise the risks of
having too little stock while, at the same time, minimising the costs of holding too much stock.
The monitoring is done using charts like the one shown below which shows the consumption of
stock over time:

 Inventory is issued from the manufacturer’s warehouse using bar codes and this is registered by
the stock control computer
 When the stock reaches a certain level, it is automatically re-ordered at the Economic Order
Quantity and there is a LEAD TIME which is the time between ordering of stock and its arrival at
the factory. Upon arrival, the stock level rises and then starts to shrink gradually as it is used up.

3
SHAFIQ FAKIR

 The slope of the downward-sloping line indicates the rate of usage of the inventory
 The level of inventory at which the inventory is re-ordered is called the reorder level.
 The time from reordering inventory to its arrival at the factory is called the lead time
 The minimum level of inventory ever held in the factory is called the buffer stock level

 To minimise the costs associated with holding stock, many businesses use a just-in-time stock
management system (JIT) in which stock arrives just as it is needed in the production process
and does not have to be stored for more than a few hours
 To operate such a system, suppliers of stock must be chosen carefully to produce components
which are defect-free as they arrive just as they are needed and cannot be thrown away due to
defects
 However, JIT, if used effectively, gives the business using it an enormous advantage over rivals
which do not use JIT which results not only in superior quality of output but also a much lower
cost of production which gives the business an enormous competitive advantage
 JIT was invented in Japan and allowed Japanese car firms the ability to successfully export to
the US in the decades of the 1960’s and 1970’s

2.3.2b

The role of procurement

 Procurement refers to the processes involved in obtaining stock of raw materials and
components. Procurement involves:
1. Choosing suppliers
2. Verifying their quality control procedures
3. Negotiating contracts with suppliers including prices and delivery schedules
4. Solving supply chain problems as they arise
 In general, the relationship between a business and its suppliers has a profound effect on:
1. The final cost of production
2. The quality of the final output
3. The reputation of the business with its customers
 If suppliers are reliable in terms of delivery schedules and quality of components, the business
gains a reputation for having products available for customers at all times and strengthens the
bonds of trust with its customers
 Therefore, suppliers should be chosen which:
1. Are large enough to supply the business even as it grows
2. Have appropriate quality control procedures in place
3. Are capable of delivering components according to precise delivery schedules
4. May also be capable of playing a part in the design of the components they supply to
the business

4
SHAFIQ FAKIR

2.3.3 MANAGING QUALITY

2.3.3a

The concept of quality and its importance

 Quality is a multi-dimensional concept which includes:

1. Durability
2. Reliability
3. Appearance
4. Value for money
 There are two basic approaches to the management of quality known as:
1. Quality control
2. Quality assurance
 With the first approach, the responsibility for quality is taken by the firm itself which creates a
quality control department charged with monitoring and improving the output of the firm
 With quality assurance, it is the suppliers of the business which bear the final responsibility for
the quality of its final output and must prove that they have the necessary procedures in place
to ensure high quality of their components. Certificates of quality must be obtained from
independent agencies if the suppliers are to maintain their contracts of supply.
 However it is achieved, a high and consistent level of quality builds a competitive advantage for
a business over its rivals over time

5
SHAFIQ FAKIR

2.3.4 THE SALES PROCESS

2.3.4a

Elements of the sales process

 The sales process refers to all the elements of the process of selling a product to a customer and
maintaining their interest in and engagement with the firm and its products even after the sale
is completed.
 A successful sales process means:
1. The sale is made quickly and at minimum cost in terms of worker time
2. The customer is given sufficient information to use the product successfully
3. The customer is satisfied with the product and the treatment he or she has received
during the sales process
4. The customer is likely to recommend the firm to others
5. The customer is likely to buy more products from the firm in the future
 A successful sales process involves:
1. Staff in the business showing a detailed knowledge of the product which allows them to
answer customer questions effectively (a lack of product knowledge can destroy the
chances of a sale and is especially important in the sale of relatively complex product
such as consumer electronics such as computers)
2. The firm being able to respond to customer requests at speed e.g. requests for
information about the product
3. The firm being willing and able to make changes to its service and even its product
following feedback from customers
4. The firm living up to its promises after the sale in terms of fulfilling guarantees if there
are problems with the product
 It should be remembered that, as technology and expertise in manufacturing has become
widespread, the best way for firms to differentiate themselves may be through the elements of
service mentioned above. Thus, Audi and BMW may both produce very high quality products
using similar technology and production methods but they may differentiate themselves from
each other more effectively in terms of the quality of their sales processes and after-sales
service.

6
SHAFIQ FAKIR

 Excellent customer service results enhances the firm’s reputation, increases customer loyalty
and encourages recommendations to other potential customers which acts as very powerful
(and cost-free) promotion