1. 4 Decision making to improve operational performance
Take any product that you have with you today. It might be an item of clothing, piece of equipment or personal object such as a phone.
Write a list of all the suppliers that would have contributed to producing that item. Don’t just list the suppliers that would have provided materials to the manufacturer but try to go as far back down the supply chain as possible.
4.5.1 Making operational decisions to improve performance: managing inventory and supply chains
AQA Business

2. 4.5.1 Making operational decisions to improve performance: managing inventory and supply chains
In this topic you will learn about
Ways and value of improving flexibility, speed of response and dependability
How to manage supply to match demand and the value of doing so
Influences on the amount of inventory held
Influences on the choice of suppliers
How to manage the supply chain effectively and efficiently and the value of this
The value of outsourcing

3. Managing inventory and supply chain
Suppliers are those people responsible for providing resources to businesses
Farmer supplying wheat to Kellogg's or beef to Asda
Component manufacturer supplying bolts to a furniture manufacturer
Electricity company providing power to a theatre
Fashion designer providing their summer range to a boutique
Regardless of the nature of a business they will have goods and services provided to them from another business (B2B)
Most businesses will work with many suppliers
The supply chain is all of the resource providers throughout every stage of operations
Inventory is the number of goods held in stock including raw materials, work in progress and finished goods

4. Managing inventory and supply chain
Flexibility is the ability to respond to change
To meet a sudden increase or decrease in demand
Change an aspect of the product to meet changing consumer tastes
Respond to erratic demand
Seasonality
Fashion
Flexibility can be improved through managing inventory and supply chain management
Good relationship with suppliers to respond quickly to changing needs
Just in time operations
Technology to quickly change re-order levels

5. Mass customisation at Nike.
Flexibility
A trend in increased flexibility is the ability of firms to use mass customisation
Mass customisation is the ability to tailor goods made in bulk to meet the requirements of individual consumers
Is Mass Customization the Future of Retail?
NIKEiD
Is mass customisation the future of retail?
Mass customisation at Nike.

6. Managing inventory and supply chain
Speed of response
To meet customers needs within a set time period e.g. delivery times
Ability to make changes to products to reflect changing consumer tastes
This will only be achievable if inventory levels are low and suppliers can change order sizes and components quickly
Dependability
A business operating a just in time system will be reliant on suppliers to deliver the right quantity and quality on time to ensure supply meets demand

7. Managing supply to match demand
To meet operational objectives and achieve customer satisfaction it is important to match supply to demand
This can be difficult if demand fluctuates e.g. seasonality, change in trends
This can also be difficult if there are potential threats to the ability to supply e.g. industrial action, delay in supplies

8. Managing supply to match demand
Ways of matching supply to demand include:
Outsourcing – the practise of the services of other organisations to complete all or parts of the manufacturing process
The value of outsourcing includes:
Provides flexibility in supply
Can increase capacity without high capital expenditure
Can buy in expertise
However
Quality must be maintained
Sub-contractor will also want to be making a profit

9. Managing supply to match demand
Use of temporary and part time employees
Temporary employees are contracted to work for a business for a specified period of time e.g. 3 month
Part time employees are contracted to work less hours than a full time employee e.g. 3 days a week
The benefits of using temporary and part time workers include:
Flexible workforce
Better able to match supply to demand
Not tied into paying workers when they are not being used to their full potential
However there are issues
Recruitment and training costs may be high and not seen as value for money when employees are only with the business for a short period of time
May be more transient
May lack commitment

10. Class discussion
Should businesses be allowed to use zero hour contracts to increase flexibility?
Q&A: What are zero-hours contracts?
Zero-hours contracts have nothing to do with flexibility and everything to do with dodging tax
Zero-hours contracts are a tyranny that must end now

11. Managing supply to match demand
Producing to order
Supply is only triggered by specific demand i.e. as an order is received the goods are produced to match the order
Requires high levels of flexibility
One benefit is that cash is not tied up in holding inventory
Sony warns of PS4 stock shortages ahead of Christmas
Parents face shortage of most popular children's toy this Christmas
Why do stock shortages seem to be a common theme at Christmas?

12. Influences on the amount of stock held
Managing stocks efficiently:
Stock can be used to fill differences between production output and demand
The amount of stock held will depend upon :
the business’ attitude to risk
the importance of speed of response as an operational objective
speed of change within the market
nature of the product e.g. perishable or long lasting

13. Inventory control charts
A management tool used to control and monitor the flow of stock
This gives a visual representation of:
Lead time
The time it takes between placing an order and receiving delivery
The greater the lead time the higher the minimum inventory level
Lead time can be measured on the horizontal axis of an inventory control chart as the distance from re-order level to minimum inventory level
Re-order level
The level of inventory which triggers an order, this may be done automatically by a computerised system
The re-order level will be determined by both the lead time and the minimum inventory level

14. Inventory control charts
This gives a visual representation of:
Buffer level of inventory
Stock held by a business to cope with unforeseen circumstance e.g. sudden increase in demand, break down in supplies
When a business reaches its minimum inventory level it is left just with buffer inventory
A business operating a just in time system will have zero buffer inventory
Re-order quantities
The point at which an order for new inventory is placed, this will be dependent on buffer level of inventory and lead time
A computerised stock control system will automate this process so that when stock reaches this level an order is automatically sent to a supplier

15. Inventory control chart
Maximum inventory level
Inventory levels fall as it is used
New inventory is delivered
Inventory level
Re-order level
Lead time – the time from placing the order to getting the delivery
Buffer inventory – held in case there is a problem with delivery of new stock or a sudden increase in demand
When it reaches this level more inventory is ordered either manually or automatically
Minimum inventory level
Number of Weeks

16. Buffer stock
The buffer stock method of stock control is sometimes called “Just in Case”.
Can you explain why?
Advantages of holding buffer stock
Can meet customer demand
Quickly respond to increases in demand
Continue with production even if a problem with stock deliveries
Disadvantages of holding buffer stock
Money tied up in holding stock
Costs associated with stock holding e.g. storage, staff, insurance
Risk of waste e.g. out of date, damaged or obsolete
Should all businesses hold buffer stock or does it depend on the nature of the business?

17. Test yourself
SuperDenim is an online retailer of designer Japanese denim. It imports jeans directly from Japan and sells them over the internet. SuperDenim prides itself on a high level of customer service.
Using the diagram opposite, what is the:
Buffer level of inventory
Re-order quantity
lead time?
Explain one possible benefit of SuperDenim operating this method of stock control.
State one advantage and one disadvantage to SuperDenim of switching to a Just in Time (JIT) method of stock control. For each, explain one likely effect on the business.
Max. level
Re-order level
Inventory levels
Min. level
No. of weeks

18. Influences on choice of suppliers
Before choosing suppliers businesses should set criteria for the selection process, identifying what are the most important factors for them
These may include:
Price
Payment terms
Quality
Capacity
Reliability
Flexibility

19. Influences on choice of suppliers
Price is often a key consideration in choosing a supplier
Keeps unit costs low
Can either
pass on savings to consumer in the form of lower prices or
enjoy higher profit margins
Businesses must however be careful that lower prices do not mean sub standard quality
Value for money is important
Larger businesses are often able to exert pressure
on smaller suppliers to secure low prices

20. Influences on choice of suppliers
It is common place for suppliers to offer credit to its customers i.e. the option to receive the goods or service now but pay at an agreed point in the future
Payment terms will vary depending upon the relative sizes of the firms and also nature of the product or service
Payment terms can be
In advance
Upon delivery
Pre agreed credit terms e.g. 30 days
Payment Plan i.e. payment in stages
A business may wish to choose a supplier with generous payment terms in order to help their own cash flow

21. Influences on choice of suppliers
When choosing a supplier for a component, quality will have a direct effect on the quality of the finished product
One poor quality component will affect the whole product
A top chef working with a poor quality steak will not be able to achieve the quality of meal he/she could with a quality steak
A pair of jeans with a poor quality zip will devalue the quality of the jeans
The quality may also impact upon the operational efficiency
Need to rework manufactured goods
Cause breakages to machinery
Take longer to handle
In retail the quality of the stock will directly influence the reputation and image of the store
A poor quality product can damage the image of the retailer more than
the actual manufacturer. Why is this?

22. Influences on choice of suppliers
The importance of capacity and reliability
Is the supplier able to produce enough to meet demand
Consistent quality?
Correct quantity?
On time?
Can the supplier be trusted to deliver the order
Accurately?
If not then how will this influence operations
Stoppages in production?
Empty shelves?
Letting down customers?
Why might a business choose to
buy stock of one item from more than one supplier? .

23. Managing the supply chain
Establish criteria for selecting suppliers
Identify procurement needs
Produce a policy for dealing with suppliers including:
Terms and conditions
Responsibility and decision making
Any vetting required
Degree of involvement
Code of conduct
Ethical requirements

24. The value of managing the supply chain – in pairs
Identify 6 operational objectives
For all six plus the ability to match supply to demand explain the value of managing the supply chain
Operational objectives
Managing the supply chain
Matching supply to demand

25. 4.5.1 Making operational decisions to improve performance: managing inventory and supply chains
In this topic you have learnt about
Ways and value of improving flexibility, speed of response and dependability
How to manage supply to match demand and the value of doing so
Influences on the amount of inventory held
Influences on the choice of suppliers
How to manage the supply chain effectively and efficiently and the value of this
The value of outsourcing