1. Revision -10
01/12/2011

2. Today, the first part of revision is about some important discussions going in one academic website dedicated to NCC lectures. You can find the answers either in your text book or reference book. However, I would give you the answer straight from website.
What factors does a business need to consider when deciding whether to outsource?
Answer:
There are several factors that a business needs to take into account in deciding whether to do something “in-house” or whether to outsource.  These relate to the corporate and functional objectives of a business and can be summarized as follows:

4. 2. Explain what is meant by outsourcing.
Answer:
A business does not have to do everything that is required to produce its products and services.  For example:  - A retailer rarely designs and makes the fixtures and fittings that create the shop interior
- A large consumer products business will not do all its own primary market research - A local baker will not grow wheat or even mill it into flour
Why don’t these businesses do these things?  Because there are other businesses that are specialised in the tasks required and can do it better and cheaper. This process is called outsourcing.
Outsourcing can be defined as follows:
“the delegation of one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard” [CIPD]

5. It is important to note that outsourcing is NOT the same thing as “offshoring” (the two terms are commonly, but wrongly taken as meaning the same thing.
Offshoring involves either outsourcing business activities or services to a third party overseas and/or moving business activities or services to another country as a direct or indirect employer. In other words, offshoring does not always involve the services of an external provider. Outsourcing always involves getting another business or organisation to provide the service for you. Most businesses have always outsourced some of their activities. For example, businesses of all sizes have used the services of professionals like management consultants, auditors and lawyers - rather than having them employed on the payroll. However in recent decades a larger proportion of business activities and processes are now bought-in from suppliers.

6. The main reason for increased outsourcing is normally as a way of reducing costs.  However, there can also be some significant gains in the quality and flexibility of the service or product offered. The choice of whether to outsource or not is really part of a debate that a business has about what the scope of its business should be. In other words: - What should a business do itself? - What should a business buy in from others?
3. What is the difference between outsourcing and offshoring? Although the two terms sound similar, and are connected, offshoring” is not the same as outsourcing! Here is a simple way to remember the difference between these two terms:

8. Looking at these two definitions, it is possible to illustrate some different options for a business looking to change its operations:

9. The fundamental advantage of offshoring is the potential gains for competitiveness: • Access to lower unit costs • Access to more specialised suppliers and services • Economies of scale from operating in larger international markets
However, the decision to take operations offshore should not be taken lightly. There are many examples of businesses that have undertaken offshoring and experienced problems relating to: • Customer service: a combination of poor training, cultural differences and local management sometimes lead to worse customer satisfaction • Higher than expected costs: low-wage economies like India and China might seem attractive, but there are many hidden costs associated with offshoring and some firms find that lower productivity from the overseas location actually means higher unit costs • Public and employee relations: a decision to “move jobs” from the UK to a low-wage economy is a sensitive one. Handled poorly, the damage to public and employee goodwill can be significant • Protection of intellectual property: the legal protections for business information, processes and brands are not as strong in many countries as they are in the UK. A risk of offshoring is that intellectual property (know-how, trade secrets) is lost and that a potentially stronger future competitor is born

10. 4. What are the main issues in operating a multi-site business?
Many businesses start and continue to trade from just one business location.  However, for others, the growth of the business necessitates the opening of locations on more than one site…
Examples of multi-site businesses include:
• A retailer who expands by launching the same format in other locations nearby and then across the UK • A manufacturer who establishes regional distribution centres • A franchisor that expands by selling geographical territories to franchisees • A financial services business that opens a call centre operation overseas
In all these and other examples, the decision to operate multi-site creates opportunities and issues in relation to the four main functional areas.  A summary of the main points is provided below.

11. Advantages of multi-site locations
• Most importantly – closer to customers; the business operates in the geographical markets when it can compete • Greater potential for promotion amongst junior management • Recruitment may be easier, particularly is done locally • Marketing and management economies of scale – costly resources can be spread across more business locations, customers and revenues • Easier to flex capacity – by adding or removing locations • Less risk of the business disruption from problems at just one location • Better understanding of local market cultures & conditions

12. Disadvantages of multi-site locations • Potential duplication of activities (diseconomy of scale) • Harder to control operations – though IT systems can make this much easier • Communication across the business is more challenging • Increased strategic risk – the risk that the business does not understand the local market which it is entering
5.  Explain what is meant by industrial inertia

13. A business, once established, will often decide to stay in its original location even if other factors suggest a new location would be beneficial. The term for this is “industrial inertia”.
A positive reason is that the existing location provides advantages from external economies of scale.  Over a long period of time, a location or region that has become associated with a particular industry develops specialist skills and experience.  The pool of potential recruits is like to contain many people with relevant training and experience.  Specialist suppliers are likely to be nearby.
Another reason is the cost and disruption that can arise from relocation.  A decision to relocate involves potentially significant costs including:
- Recruiting and training staff in the new location
- Duplicated property costs – e.g. remaining periods on the original lease + upfront payments on a new lease
- Costs of physical transfer – moving production equipment, transferring stocks.
A third reason is a more intangible and qualitative reason – simply the desire to “stay put where the business has established its roots”.

14. 6. How important is location in determining business success?
For businesses in some sectors, location really is important.  For others, it is a relatively minor decision.  The key is to consider the main issues faced by a business choosing a business location and to address the most appropriate way of making a choice.
Location decisions are often important – to both large and small businesses. The location decision has a direct effect on an operation’s costs as well as its ability to serve customers (and therefore its revenues).   Also, location decisions, once made, are difficult and costly to undo.  The costs of moving an operation are often significant and run the risk of inconveniencing customers and staff. It is always best to get the location decision right first time.
There is no such thing as the perfect business location.  Every choice made involves having to balance the supply (cost) and demand (revenue) factors.
However, a good location is one which delivers the following benefits:
Competitive unit costs – through a combination of a productive and efficiency labour supply, acceptable location overheads and cost-effective access to inputs (raw materials, components etc)

15. Optimal revenue opportunities – customer service is not inconvenienced through the choice of location An acceptable rate of return on investment – all business projects compete for scare cash resources; a business location decision is no different Sufficient production capacity to meet demand and future flexibility in capacity management decisions Access to a labour force which enables the business to achieve the objectives of its workforce planning
7. Which is best - quality control or quality assurance? Which approach to managing quality is best? The answer is that both can play an important role in managing quality.

17. 8.How can benchmarking help with managing quality?
Benchmarking is a general approach to business improvement based on best practice in the industry, or in another similar industry.
Benchmarking enables a business to identify where it falls short of current best practice and determine what action is needed to either match or exceed best practice. This can be a helpful approach for services as well as for products – for example a fast food business selling fish and chips could decide that it wanted to aim to equal McDonalds’ speed of meeting customer orders for takeaway food.
A financial services firm might want its call centre staff to answer 95% of telephone calls within six rings, if this is the practice of the best in the industry.
In some cases, firms can use internal benchmarking in which best practice may be set with reference to another department, or by a similar factory in a different location.

18. 9.What is involved in quality assurance
A definition of quality assurance is: “the processes that ensure production quality meets the requirements of customers”.
This is an approach that aims to achieve quality by organising every process to get the product ‘right first time’ and prevent mistakes ever happening. This is also known as a ‘zero defect’ approach.
In quality assurance, there is more emphasis on ‘self-checking’, rather than checking by inspectors.
Advantages of quality assurance include:
• Costs are reduced because there is less wastage and re-working of faulty products as the product is checked at every stage • It can help improve worker motivation as workers have more ownership and recognition for their work (see Herzberg) • It can help break down ‘us and them’ barriers between workers and managers as it eliminates the feeling of being checked up on • With all staff responsible for quality, this can help the firm gain marketing advantages arising from its consistent level of quality
Total Quality Management (“TQM”)
This is a specific approach to quality assurance that aims to develop a quality culture throughout the firm. In TQM, organisations consist of ‘quality chains’ in which each person or team treats the receiver of their work as if they were an external customer and adopts a target of ‘right first time’ or zero defects.

19. 10. Explain what is involved in quality control
A good definition of quality control is: “the process of inspecting products to ensure that they meet the required quality standards”
This method checks the quality of completed products for faults. Quality inspectors measure or test every product, samples from each batch, or random samples – as appropriate to the kind of product produced.
The main objective of quality control is to ensure that the business is achieving the standards it sets for itself.
In almost every business operation, it is not possible to achieve perfection.  For example there will always be some variation in terms of materials used, production skills applied, reliability of the finished product etc.
Quality control involves setting standards about how much variation is acceptable.  The aim is to ensure that a product is manufactured, or a service is provided, to meet the specifications which ensure customer needs are met.
There are several methods of quality control. 

20. At its simplest, quality control is achieved through inspection
At its simplest, quality control is achieved through inspection.  For example, in a manufacturing business, trained inspectors examine samples of work-in-progress and finished goods to ensure standards are being met.
For businesses that rely on a continuous process, the use of statistical process control (“SPC”) is common.  SPC is the continuous monitoring and charting of a process while it is operating.  Data collected is analysed to warn when the process is exceeding predetermined limits
Advantages of quality control
With quality control, inspection is intended to prevent faulty products reaching the customer. This approach means having specially trained inspectors, rather than every individual being responsible for his or her own work. Furthermore, it is thought that inspectors may be better placed to find widespread problems across an organisation.

21. Disadvantages of quality control
A major problem is that individuals are not necessarily encouraged to take responsibility for the quality of their own work.
Rejected product is expensive for a firm as it has incurred the full costs of production but cannot be sold as the manufacturer does not want its name associated with substandard product. Some rejected product can be re-worked, but in many industries it has to be scrapped – either way rejects incur more costs,
A quality control approach can be highly effective at preventing defective products from reaching the customer. However, if defect levels are very high, the company’s profitability will suffer unless steps are taken to tackle the root causes of the failures.

22. 11. Can quality be measured?
Given the importance of achieving the right level of quality, a key question is how a business can measure the effectiveness of its quality performance.
Businesses can measure quality aspects such as:
• Failure or reject rates • Level of product returns  • Customer complaints • Customer satisfaction – usually measured by a survey • Customer loyalty – evident from repeat purchases, or renewal rates
However, it is important to remember that:
• Quality is subjective, it is a matter of personal opinion and what constitutes an acceptable level of quality will vary from one individual to another • Not all aspects of quality are tangible – for example the degree of assurance given by a firm’s name or reputation can be very important even though it is hard to measure. • Quality is always evolving because of things like improved technology, better materials, new manufacturing techniques and fresh competitors. No firm can afford to stand still as far as quality is concerned
• Whilst controlling quality has benefits to the firm, it can also be costly to do, so it is important that the benefits outweigh the costs in the long term

23. 12.What are the costs of poor quality?
• Product fails – e.g. a breakdown or unexpected wear and tear • Product does not perform as promised (or what the customer thought was promised!) • Product is delivered late • Poor instructions/directions for use make using the product difficult or frustrating • Unresponsive customer service
Poor customer service as listed above results in additional business costs:
• Lost customers (expensive to replace – and they may tell others about their bad experience) • Cost of reworking or remaking product • Costs of replacements or refunds • Wasted materials
You can see from the list above that poor quality is a source of competitive disadvantage. If competitors are achieving higher quality, then a business will suffer.
The flip side of the above is that a business can benefit by improving its quality.  The key benefits of improved quality are:
• Improved image & reputation, which should result in • Higher demand, which may in turn mean • Greater production volumes (possibly providing better economies of scale) • Lower unit costs because of less waste and rejected output • Fewer customer complaints (& more satisfied customers) • Potentially higher selling prices (less need to discount)

24. 13. Why is quality so important in business?
Quality helps determine a firm’s success in a number of ways:
• Customer loyalty – they return, make repeat purchases and recommend the product or service to others.  • Strong brand reputation for quality  • Retailers want to stock the product • As the product is perceived to be better value for money, it may command a premium price and will become more price inelastic • Fewer returns and replacements lead to reduced costs • Attracting and retaining good staff
These points can each help support the marketing function in a business. However, firms have to work hard to maintain and improve their reputation for quality, which can easily be damaged by a news story about a quality failure.

25. 14. Define what is meant by quality
Quality is important to businesses but can be quite hard to define. A good definition of quality is:
“Quality is about meeting the needs and expectations of customers”
Customers want quality that is appropriate to the price that they are prepared to pay and the level of competition in the market.
Key aspects of quality for the customer include:
• Good design – looks and style • Good functionality – it does the job well • Reliable – acceptable level of breakdowns or failure • Consistency • Durable – lasts as long as it should • Good after sales service • Value for money
‘Value for money’ is especially important, because in most markets there is room for 

26. products of different overall levels of quality, and the customer must be satisfied that the price fairly reflects the quality. Some products and services are marketed as ‘basic’, having none of the extra features and benefits of more expensive alternatives. Good examples would be Easyjet and George at Asda clothing ranges. Even though it may be ‘low quality’ in terms of style or features, these products still give good value for money for their overall level of quality. For the firm, good design is fundamental, so that the product can be produced efficiently, reliably and at the lowest possible cost.
15. What is meant by production capacity?

27. Capacity can be defined as: the maximum output that a business can produce in a given period with the available resources Capacity is usually measured in production units (e.g. 1,000 cars per month or 50,000 meals per day). Productive capacity can change e.g. when a machine is having maintenance, capacity is reduced. Capacity is linked to workforce planning: e.g. by working more production shifts, capacity can be increased. Capacity needs to take account of seasonal or unexpected changes in demand.  For example, - Chocolate factories need capacity to make Easter Eggs in November and December before shipping them to shops after Christmas - Ice-cream factories in the UK needed to quickly increase capacity during a heat wave

28. 16. What is capacity utilisation and why is it important?
capacity utilisation measures the extent to which a business is using its production potential.
Capacity utilisation can be defined as - the percentage of total capacity that is actually being achieved in a given period
Capacity utilisation ( which is traditionally expressed as a percentage) is calculated using this formula:

29. Capacity utilisation is an important concept because:
- It is often used as a measure of productive efficiency - Average production costs tend to fall as output rises – so higher capacity utilisation can reduce unit costs, making a business more competitive - So firms usually aim to produce as close to full capacity (100% utilisation) as possible
It is important to remember that increasing capacity often results in higer fixed costs.  A business should aim to make the most productive use it can of its existing capacity.
The investment in production capacity is often significant. Think about how much it costs to set up a factory; the production line with all its machinery and technology.

30. Explain quality engineering – new reference book 214, 215
How goods and services affect operations management activities? Page 13 new reference book – figure 1.2 JIT in service and design, JIT system – 757, 756 Figure Scope of project management – 771, 772 Roles of project manager – 773, 774 Factors for successful projects – 775 JIT details – 753 How manufactured goods recovery happens? 744 Issues related to statistical process control – 713

31. Quality costs or quality cost classification – 657,656
Demand patterns (dependent demand, independent demand) – 560,561,487
Supply chain management and design issues – 385, 386,387,388