1. N5 Business Management
Unit 2 - Part 2
Operations

2. Topics to Cover SUPPLIERS how price influences choice of supplier
how location and transport costs influence choice of supplier
how lead time influences choice of supplier
how product quality influences choice of supplier
how reliability and reputation influences choice of supplier
STOCK MANAGMENT
the costs of storing stock (eg warehousing, security)
the risks of storing stock (eg theft, obsolescence)
cash flow problems from overstocking
the loss of profit and reputation from understocking
the processes that businesses use to manage their stock levels
METHODS OF PRODUCTION
the costs and benefits of capital-intensive production
the costs and benefits of labour-intensive production
QUALITY
the costs and benefits of quality control activities
the costs and benefits of quality raw materials
the costs and benefits of well trained staff
ETHICAL AND ENVIRONMENTAL
the costs and benefits of recycling
the costs and benefits of minimising packaging

3. What is Operations? Input Process Output
The operations department (or function) is responsible for manufacturing products and services. They do this by processing inputs into outputs during the production process.
Input
The factors of production
Process
The making of the product
Output
The finished product ready for sale

4. Using the 4 Factors of Production
Capital
Land
Labour
Enterprise

5. Activities of the Operations Dept
Make the products – by hand or machine
Help satisfy customers by making the products they want
Work with suppliers to ensure raw materials are available at the correct time
Manage levels of stock to make sure nothing runs out.

6. The Supplier – supplies the raw materials
Raw materials are the different items needed to make something eg a chocolate cake:
Chocolate
Eggs
Flour
Sugar
Butter
Cream
Raspberries

7. Oban Chocolate Factory
Imagine you are helping Helen to decide on a new supplier of raw materials, what factors would you take into considderation?

8. How to choose a Supplier
Factor
What does this mean?
Why is this important?
Cost of raw materials
the price charged by suppliers to purchase raw materials
costs should be kept low to maximise profit
Low costs will improve the cash flow of the business
Quality of raw materials
How good the raw materials are
Quality materials give quality product
Low quality materials will mean more wasteage
Lead time/delivery time
How long it will take to receive the raw materials from when an order is placed
 Some materials need to be used quickly eg eggs
If materials run out, production may have to halt
Quantity of raw materials
How much raw materials are required
Materials can be expensive to store
Correct quantities are required to meet customer demand

9. How to choose a Supplier cont
Factor
What does this mean?
Why is this important?
Location of supplier
Where the supplier is situated – is it far away
 A distant supplier may take longer to deliver
Transport costs will be higher
Reliability and reputation of supplier
Reliability – will the supplier deliver when they say they will?
Reputation – what people think of the supplier
 Supplies must be received on time to satisfy keep customers happy
Suppliers with a good reputation will get more business
Storage space available
How much space the business has in a warehouse to hold the raw materials until they are needed
 Raw materials may be wasted if not stored correctly
Storage costs can be expensive eg cost of buildings or insurance

10. Click for video
Job Production
A job is done from start to finish, then another job is started, eg bridge building, wedding cake manufacture
Advantages
Disadvantages
Personal touch – made to customer requirements
Labour-intensive skilled workers – probably expensive
More motivating to workers
Cost not recovered until job finished

11. Click for video
Batch Production
Number of similar lines of production - each line will be produced in a batch before the next batch is started eg Tesco bakery, chocolates in Oban Chocolate Co
Advantages
Disadvantages
Can be suited to the needs of the customer
Careful planning required
Less skilled workers –cut costs
Reduced worker motivation

12. Click for video
Flow Production
Product is passed down a line with a series of operations eg car manufacture, soft drink production
Advantages
Disadvantages
Goods produced on a large scale – economies of scale
Expensive to set up
Products are identical
Less skilled workers –cut costs
Workers lack motivation
Technical problems can halt production

13. Methods of Production
Depends on:
7 Nature of the product 7 Number of customers wanting to buy 7 Labour 7 Technology available 7 Size of the business 7 Finance available

14. Which method would be used to produce the following:
Bread
A Hospital
Houses
Biscuits
Wedding cakes
Cars
Tins of soup
Mobile phones
Portrait
Crisps
Subway sandwich
A Ship
Newspapers
Paint

15. Labour or Capital Intensive Production (People v Machines)
This is where products are made mainly using machines and equipment (technology).
Automation – only machines are used
Mechanisation – mix of humans and machines
Labour Intensive
This is where people use their skills and knowledge to produce goods by hand
Click on pizza for video

16. Advantages/Disadvantages of Labour Intensive Processes
Employees can be creative and use their own initiative
It is expensive and takes time to recruit, select and train employees
Labour is usually readily available
Employees require specialised skills which can take time to learn
No need for expensive equipment
Quality of work can vary depending on who is doing it
One off or unique products can be made

17. Advantages/Disadvantages of Capital Intensive Processes
Increased output – machines don’t need breaks!
High cost of buying and installing equipment
Fewer employees required
Not possible to meet individual customer requirements
Better quality – less chance of human error
Breakdowns and technical difficulties can stop workflow
Greater variety of machinery available which can be adapted to carry out different processes
Can result in workers losing their jobs and higher unemployment
Robots can do work which is dangerous
Machine can’t answer queries

18. Effect on Workforce of Automation/Computerisation
Many jobs have been lost especially in manufacturing where machines can do repetitive, unskilled tasks
Demand for skilled workers has increased
Skills required to manage and control production
Workers expected to be multi-skilled
Governments and industries must put money into training staff appropriately

19. Click for John Lewis video
Are the following items produced using Labour or Capital Intensive methods:
Houses
Biscuits
Wedding cakes
Cars
Tins of soup
Bread
Portrait
Crisps
Subway sandwich
Newspapers
Paint
Click for John Lewis video

20. Stock Control Raw materials – resources for production
Purpose – to ensure a supply of stock (raw materials) available for the production process and for distribution (finished goods).
Raw materials – resources for production
Work-in-progress – semi-finished products
Finished goods – waiting to be distributed

21. What are the Costs of Storing Stock?
Stock must be kept secure against internal and external theft
Costs of warehousing can be expensive. Storage areas must by dry and well ventilated

22. What are the Risks of Storing Stock or Overstocking?
goods can deteriorate in quality
Goods can quickly go out of date/obsolete (eg fashion items or electronic games)
Greater risk of theft
Stock also ties up money – too much money tied up in stock can lead to cash-flow problems (eg not being able to pay staff)
So a business must hit the right balance of having enough stock to operate but not so much that it will spoil.

23. What are the Risks of Understocking?
Production may have to stop
Unexpected orders cannot be met
Customers may not receive their orders in time
The reputation of the organisation can be affected
Profits may be lower

24. Quiz Would the following result from Over- or Under-stocking
High warehousing costs
Possible loss of unexpected sales orders
Unhappy customers
Not having enough cash to pay bills
Wastage due to out of date stock
Production stoppages
High security costs

25. Manual Stock Record Keeping (on paper)
Records must be kept of stock ordered, received and used

26. Electronic Stock Records – Using Spreadsheets
Spreadsheets are designed to complete automatic calculations
They do this with the use of formula – this tells the spreadsheet which calculation to perform
Changes can easily be made to data
They minimise the risk of human error
The new balance of stock is recalculated each time stock is received or issued
Graphs can be easily created
Data can be exported to other packages

27. Electronic Stock Records – EPOS (Electronic Point of Sale)
Most organisations now computerise their stock control system. Barcodes are scanned which automatically record stock received and used. This permits stock to be recalculated automatically and is often linked to automatic ordering of new stock.
EPOS (electronic point of sale) systems can be set to record stock levels and reorder more stock when it is required

28.  Stock Control: 
details of each item of stock – a record of each item held is necessary to ensure that there is never a shortage of necessary materials.
Maximum stock level (highest number which should be held) – depends on space, delivery time, etc 
Minimum stock level (lowest number which should be held) – depends on buffer stock needed, etc
Re-order level (when to order more) – depends on production needs, delivery time, etc.

29. Graph illustrating traditional Stock Control System
Traditional method where stock never falls below minimum stock level

30. Just-in-Time Stock Control
JIT is where the manufacturer orders goods from suppliers only when they need stock. This means that stock levels do not build up, however there is no emergency or back-up stock. Manufacturers must be able to rely on suppliers delivering the goods immediately.
Click for video

31. Advantages/Disadvantages of Just-in-Time Stock Control
Up-to-date raw materials
Very dependent on suppliers for quality and punctuality
No over-stocking
Production held up if supplies are late – no stock to fall back on
No storage costs
Difficult to expand production at short notice
No money tied up in stock

32. Graph Illustrating Just-in-Time Stock Control
Just-in-time method where stock levels fall to zero before new supplies are bought

33. The Importance of Quality
How might products or services be improved:
Better raw materials
Improved packaging
More eco friendly
More care with production process

34. High quality + high price product
Low quality + low price product
High quality + high price product 
7  Must find out who you are selling to
7 Can produce a range of products for different types of customers

35. Why is Quality Important?
Quality raw materials
Quality of production (click for video)
Quality targets should be set and monitored, and procedures should be set up to deal with areas in which quality is not meeting the targets. If quality is poor, demand will fall as customers will not return so profits will fall as the company reputation suffers.
After-sales service

36. Methods of Improving Quality
Benchmarking
Quality Control
Quality Assurance/Quality Circles
Total Quality Management
Quality Standards

37. Methods of Improving Quality
Benchmarking
This means identifying the best performance in the industry and trying to match their quality

38. Methods of Improving Quality
Quality Standards
This is where a symbol or logo is applied to the product. This indicates that a product/service has met an agreed standard.

39. Methods of Improving Quality
Quality Control
This is where one department is responsible for checking and monitoring quality. Inspectors check final product and scrap them if they are substandard. This means, however, that substandard items are not found till the end of the process and results in high waste levels.

40. Methods of Improving Quality
Quality Assurance/Quality Circles
Workers are organised in teams to ensure quality during and after production. These teams may be known as Quality Circles.

41. Methods of Improving Quality
Total Quality Management
This is the newest form of quality control where views are sought by
Involving customers in quality monitoring by asking how satisfied they are with quality of product or service
Also involving workers in quality control
People will also work in teams to help each other

42. Advantages/Problems of Quality Checks
Less likelihood of customer dissatisfaction
Time involved in consistently checking production
Attempts to improve and stabilise production
Need more manpower to carry out quality checking process
Good reputation for company
Higher revenue through
Less waste of materials and substandard products

43. Why Consider Ethical and Environmental Issues?
Most business organisations wish to be seen as being SOCIALLY RESPONSIBLE. This can give them a more positive image and help them to gain more customers as well as, in many cases, saving money and looking after the environment.
Consumers don’t want to buy from a business whose products are polluting the environment – this gives the business a bad reputation and affects sales

44. The Supply Chain
Organisations should consider where they buy their raw materials. Use of FairTrade materials ensures producers in developing countries get a fair share of the profits
Some overseas countries do not have the same care policies regarding looking after the environment

45. Consider alternatives such as recycling
Minimise Waste
Ensure employees are trained to do the job properly
Ensure machinery is kept in good condition
Don’t overstock
Store waste securely
Consider alternatives such as recycling

46. Recycle Encourage employees to use appropriate recycling bins
Try to use recycled materials in the production process or for packaging
Costs of Recycling
Benefits of Recycling
Cost of providing bags/recycling bins etc
Helps protect natural resources
Costs of personnel to collect waste
Saves energy
Cost of transport to recycling sites
Protects the natural environment
Costs of providing recycling sites
Fewer landfill sites

47. Minimise Packaging
Packaging is necessary as it protects the product during transportation and on the shelves. It can also help attract customers eg perfume sets.
Costs of Reducing Packaging
Benefits of Reducing Packaging
Products can be damaged on route to customers
Less packaging means less waste and fewer resources being used up
Customers may think the product is inferior if the packaging is not attractive
Less litter being dumped (eg fast food wrapping/packaging)

48. Avoid Pollution
Greenhouse gases and emissions have to be reduced in order to prevent further damage to the environment
Business should consider their carbon footprint – eg sourcing raw materials locally to cut down on transportation costs. Some have changed the product (concentrated fabric softener) so that it takes up less space during transport.
Businesses using dangerous materials must dispose of waste carefully. If they don’t they can risk prosecution