1. National 4/5 Business Management 2016/2017
OPERATIONS
National 4/5
Business Management
2016/2017

2. Learning Intentions What is operations? Input, process, output
Choosing a suitable supplier
Factors affecting choice of supplier
Management of stock
Problems of too little/too much stock
Methods of production – job, batch, flow
Advantages and disadvantages of each method
Just-in-time production
Quality – Quality Control, Quality Management
Ethical and environmental
Effect of technology (throughout unit)

3. What is Operations?
Everyone has needs and wants. These can be goods or services.
The operations area of the business is the manufacture of goods/products ie the transfer of raw materials into a finished article offered for sale.
This is sometimes called Production.

4. Operations INPUT PROCESS OUTPUT Factors of Production Manufacturing
Finished product and distribution
Customer

5. Task
All production involves Inputs/Processes/Outputs. For each of the following businesses, suggest 3 Inputs, 3 Processes and 3 Outputs.
manufacturer of birthday cards;
manufacturer of jam;
a wedding photographer.

6. Role of Operations
Making products. This can involve people or machinery.
Satisfying customers by making products that they want.
Working with suppliers to ensure raw materials are available at the correct time.
Managing levels of stock to make sure nothing runs out.

7. Choosing a supplier
A business has to buy raw materials from a supplier to be able to make something.
Task
Think of a purchase you have made recently. Why did you choose to buy it from a particular shop/website?

8. Task
In pairs, think of a local business.
Discuss factors they would have to consider in choosing the right supplier.
Make a list of 3 factors and why they are important if the business is to be successful.

9. Factors to consider
Price - the price charged by a supplier for raw materials. A cheaper price will reduce costs, increase profits and improve cash flow.
Quality – how good the raw materials are. This will affect the quality of the finished product. Low quality may lead to higher wastage.
Lead time/delivery time – how long it takes to receive the raw materials after ordering. Delays may mean production has to stop. Some raw materials are perishable.

10. Factors to consider
Quantity – how much is required. Must be enough for production to continue.
Reputation and reliability – will the supplier deliver when they say they will? Do they have a good reputation?
Location – how far away is the supplier located? Deliveries may take longer, and transport costs need to be considered.

11. Management of Stock
The purpose of holding stocks is to have a supply of goods (raw materials) available for the production process and for distribution (finished goods) to customers when needed.

12. 3 main types of stock
Raw Materials – purchases from suppliers waiting to be used.
Work in Progress – products that are currently being made (semi-finished goods).
Finished Goods – completed products waiting to be distributed.

13. Task
Protecting stocks of raw materials and finished goods is very important. For each of the following items, suggest one example of what could happen if an organisation’s stock control system was poor.
frozen fish
mobile phones
fresh vegetables
new cars
printed books
jeans

14. Costs/risks of holding stock
Costs money to store stock:
Warehouse
Lighting
Security
Insurance
Risks are:
Stock has a higher risk of being stolen.
Stock has a higher risk of going out of date.
Risk that the money value of stock will fall eg due to changes in fashion.

15. Too little stock Production might stop.
Customers may not receive their orders on time.
Any sudden increase in demand cannot be met.

16. Too much stock
Costs money to store stock ie warehouse, lighting, security, insurance.
Money which is tied up in stock might be put to better use.
If social factors change (trends/fashion), the stock might be wasted.

17. Technology in stock management
Most businesses have a computerised system that records how much stock there is at any one time e.g. using EPOS or a spreadsheet package.
Internet is used to purchase raw materials.

18. Methods of Production
Businesses must decide which method of production to use to make their products. There are different factors to think about:
The actual product being made.
The quantity of the product.
How to ensure the product is of a high quality.
The way stock is managed.
The resources available (eg staff and machinery).

19. The finance must be available if machinery is to be used in flow production. Very expensive to set up a production line.
The technology available needs to be appropriate to make the product – is it available for you to use?
The size of the premises needs to be big enough to support the use of a large amount of equipment – do you have it?
Staff skills need to be sufficient to make the product, if not the cost of staff training will have to be met.
The product being made needs to be made in the quantity required in the most efficient way.

20. Methods of Production
Job Production
Batch Production
Flow Production

21. Job Production
This is when a product is made individually to meet specific orders from customers.
Often involves skilled labour or craftspeople.
It is labour intensive.

22. Advantages and Disadvantages
It meets the customers’ needs and is produced to their own specifications.
High customer satisfaction.
High prices can be charged as product is unique.
More motivating for workers as they see the product through all stages of production.
DISADVANTAGES
High labour costs as the process is labour intensive.
Specialist tools and equipment may be needed, which can be expensive.
Costs are not recovered until the completion of the project

23. Batch Production
This is where a group of identical products are made at one time. All products in the batch move onto the next stage of production at the same time.
Machinery and equipment can be cleaned and/or changed between batches.
Workers usually specialise in one job, so become skilled in one area.

24. Advantages and Disadvantages
Batches can be changed to meet the requirements of the customer.
Raw materials can be bought in bulk, saving money.
Less skilled workers are required as only one part of the process is completed by a particular person, so reduced costs.
DISADVANTAGES
Equipment and employees are not working between batches, which costs money.
Any mistakes in one item can result in the whole batch being wasted, which costs money and wastes time.
Workers motivation is reduced because they do not see the process from start to finish.

25. Flow Production This is the continuous production of the same good.
It is used for making large quantities of an identical product.
Economies of scale can be made with this process.

26. Advantages and Disadvantages
Economies of scale can be met due to the large production of goods
Large quantities can be produced = high sales
DISADVANTAGES
A large amount of money is required for set up costs
Each product is identical
Lack of motivation for workers because they only work on a small part of the process

27. Flow production example
Car manufacturing uses flow production
Chassis of car
Engine
Gearbox
Seats
Outer Shell
Dashboard and wiring
Windscreen and windows

28. Division of Labour
Both batch and flow production use division of labour which means that each worker specialises in one job on the production line. This makes the job very repetitive and boring.
Many of these jobs have been replaced by machinery. This has caused unemployment for unskilled workers.

29. Labour Intensive Products made using mainly human effort. Advantages
Disadvantages
Employees can be creative
It is expensive to recruit and train employees
No need for expensive equipment
Specialist skills require time to learn
Unique products can be made
The quality of work can vary

30. Capital Intensive
Products made using mainly machines and equipment. If it is made using only machinery this is called automation. When it is a mixture of both humans and machines this is called mechanisation.
Advantages
Disadvantages
Can work 24/7
Expensive to purchase
The product will be of a consistent quality
Can’t meet individual customer requirements
Unskilled employees required (cheaper labour)
Breakdowns cause production to stop

31. Quality Products and Services
All businesses must ensure they provide a good quality product or service which meets customer needs in order to survive.
The business must decide minimum quality levels and who is responsible for ensuring that quality is maintained at the lowest possible cost.

32. Advantages of Ensuring Quality
Repeat purchases
Improved reputation
Competitive advantage
Maximise sales/profits
Increased market share
Reduced wastage

33. Methods of Ensuring Quality
High Quality Raw Materials
This will ensure only the best inputs are used in your production and lead to a higher quality product
However the costs of these materials may be higher and a reliable supplier is required

34. Methods of Ensuring Quality
High Quality Employees
Fewer errors are made and accidents are less likely to happen
However it can be time consuming and expensive to train employees

35. Methods of Ensuring Quality
Quality Control
Quality Control is the checking of a product or service by carrying out an inspection.
This usually happens at the end of the production process.
This is less time consuming than other methods of inspecting quality
May lead to large amounts of waste as it is only checked at the end.

36. Methods of Ensuring Quality
Quality Management
Quality Management is a method by which a business focuses on ensuring the product is made perfectly every time. This requires a commitment by all employees
Samples of products are tested at random and at different stages of the production process.
See Nissan diagram

37. Methods of Ensuring Quality
Quality Management
Product constantly checked to minimise waste
More thorough than other methods
Improves team work and morale
However it requires a commitment from everyone
Policies take time to implement and must be strictly followed

38. Ethical and Environmental
Businesses have to be socially responsible.
Means they will be seen in a positive way by not harming the local environment or community.
How can they do this?

39. Businesses can:
Try to minimise wastage by ensuring employees are trained, ensuring machinery is kept in good condition and by not overstocking. Could be expensive.
Recycle as much as possible by encouraging employees to put rubbish in appropriately coloured bins and by re-using materials in the production process as much as possible.

40. Businesses can:
Try to minimise packaging by only using the necessary amount of packaging to maintain the product’s quality. Cuts costs, good for the environment.
Prevent pollution by watching the materials it uses in production (eg fuel and chemicals) and by disposing of any harmful chemicals or products in the most environmentally friendly way.