AS Revision Exercise Production

1. Define the following terms; a) repeat purchase b) just in time c) stock 2. Explain the design mix.

The trade-offs involved in designing new products can be shown in the triangle. As Craig tried to make his boot perform better, it became more expensive to produce and looked uglier. FUNCTION ECONOMY OF MANUFACTURE AESTHETICS

3. List the problems a firm may encounter with poor stock control; Too much stock Costs will rise – warehouse costs Stock may go out of date Too little stock May run out of stock – miss orders, poor reputation

What is the aim of stock control? To make sure that businesses always have sufficient stocks to meet its own needs and those of the consumer However, it needs to keep the minimum amount of stock so as to avoid damage and waste, and to minimise the cost of holding stock

Stock Control Graph Stock Level Time Maximum Stock Level Minimum Stock Level Re-order level The Traditional Stock Control Model Maximum stock levels achieved after stock delivery. Stock levels decline during production. When the stock level reaches the re-order level, it triggers a new order. The difference between the time of re-order and delivery is the ‘lead time’. Lead Time Re-order triggered

Warehouse Costs Rent / mortgage Utilities – gas, electricity, water bills Depreciation Store person's wages Money tied up in stock Security Insurance Re-Order Costs Purchasing more frequent smaller amounts will result in higher purchase cost Higher transport costs Handling costs Risk of running out of stock Warehousing

TQM Total Quality Management is the commitment by all employees to providing quality products. The concept relies on all employees following a written procedure. Employees are encouraged to make suggestions feeding back their ideas on how the process could be improved; this is known as continuous improvement. The ultimate objective is to achieve zero defects, no faulty goods at all. Good quality components and machines are used. Everyone should ensure their work is done correctly before passing it on. TQM uses the idea of quality assurance. When staff are initially trained, procedures written and new machinery purchased, costs are likely to rise. However, as wastage falls and hidden costs are reduced such as a firm getting a poor reputation or customers not returning because they have had poor quality products, then costs should start to fall in the long term.

Quality Control Checks are made on completed products. It takes place after the event. Inspects in Quality. X - could be a lot of waste X - not always possible to put fault right

Quality Assurance Quality components or raw materials are used in the production process. Everyone follows a written procedure. Employees are responsible for their own work. Focuses on how the products are produced Prevents failure – Right First Time  - less wastage

JIT and TQM – True or False? Just in Time Just in time production keeps stock to a minimum. Stock arrives just in time to before it is used. Warehouse cost are very high. JIT requires good communication. Goods are made just in time to meet orders Feedback from workers is encouraged. Authoritarian management is preferable. There must be no bottlenecks in the production. A large numbers of suppliers are used to keep costs low. A relationship is built up with one supplier. True False

TQM stands for total quality management. TQM is a commitment by all staff to quality. TQM requires democratic management TQM firms have a quality inspection department. A written procedure is followed by everyone. TQM uses the concept of quality assurance. There should be zero defects i.e. no faulty products. Continuous improvement is feedback of ideas by staff. Workers check each other’s work. There should be less hidden costs such as poor reputation. TQM True False

Full Capacity JIT Kaizen TQM Quality assurance Lean Production Capital Intensive Explain & link these factors to lean production

Capacity Utilisation Rolls Royce Aero engines were working at full capacity; however, during a recession the demand for the company’s products fell and factory was working at just 40% capacity. 1)What will have happened to total cost? 2)What will have happened to average unit cost (the cost of making an engine)? 3)State two disadvantages of having spare capacity. 4)State one advantage of having spare capacity.

Answer Prompt  Start with a killer first sentence – define repeat purchase  How do firms attempt to gain repeat purchases?  Why are existing customers so important for a new business?  Give some examples  Conclude – what are the advantages of having loyal customer and repeat purchases? a)Why do most firms attempt to create customer loyalty?

Example Answer Most businesses attempt to build up customer loyalty in an attempt to encourage repeat purchases of their products. New customers are both very difficult and very expensive to win. Businesses spend large sums of money on advertising and with promotions such as penetration pricing in order to win new customers. Once those customers have been won, then a business will attempt to build up brand loyalty. For example, Tesco use Club Card Points and Sainsbury’s Nectar Cards in an attempt to build customer loyalty. Firms will also offer a good quality product or service and support this with good customer care in order to ensure customer satisfaction. In conclusion, in order to be successful in the long run a business must retain its existing customer base through a culture that creates customer satisfaction and hence customer loyalty, which should result in repeat purchases. For example most consumers will become loyal to a particular supermarket if they are satisfied with the service they receive and are likely repeatedly use the same shop. Customer loyalty resulting in repeat purchases will be a key element in a firm maximising its profits. Positives in My AnswerTargets to Improve my Grade

1)Explain the difference between quality culture (assurance) and quality control? Review Test (10 minutes)