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The purpose of business operations
The term business operations refers to the part of the business that provides customers with the goods or services that they ordered.
Operations is responsible for taking resources – such as raw materials, finance and the business’ workforce – and using them to create finished goods or services. Operations then ensures that these goods or services arrive on time and to the right quality standards.
There are slight differences in how operations are defined in relation to goods and services:
Goods – When products are produced in a factory, everything that happens within the factory, from making goods to delivering goods, is classed as operations.
Services – When a business provides a service, the processes it uses are known as operations. For example, a dairy company that delivers milk to customers’ homes could have a website or app that customers use to order their milk. The company could also have some form of quality control to ensure customers are happy with the service they receive.
Job production
Job production is when individual products are made one at a time to meet specific customer preferences. An example would be tailor-made suits, which are made specifically to each customer’s measurements and tastes.
Batch production
Batch production involves making a set quantity of identical products. This quantity is known as a ‘batch’. The batch size could be ten, 10,000 or a million identical products. An example would be a bakery making a batch of 100 white bread rolls and then making a batch of 50 wholemeal bread rolls.
Flow production
Flow production involves continuously making identical products. This allows the production process to be heavily automated.
The impact of technology on production
Technology has a big impact on businesses, in terms of both updating existing products and finding new ways of manufacturing products. Technology benefits businesses as it allows them to produce higher quantities, make products more consistent and be more cost-effective.
Businesses try to use technology in a balanced way so that its disadvantages don’t outweigh its many advantages. They need to balance:
Costs - Technology costs money to purchase, but reduces the cost of producing products. For example, using machinery to complete dangerous tasks means a business no longer has to pay the higher wage costs associated with risky jobs. This both reduces costs and improves employee health.
Productivity - Using machinery to mechanise or automate parts of the production process leads to an increase in productivity. This means a business can either reduce its prices to remain competitive or increase its profit margins.
Quality - Businesses need to be consistent in the quality of the products they produce. Mechanising or automating parts of production can help with this.
Flexibility - Businesses often need to balance technology with human flexibility. Automation is good for mass production but it doesn’t work so well for products that will be personalised to meet individual customers’ preferences. For example, in the luxury car industry, customers have a wide variety of optional extras to choose from, which may need to be hand-finished.
MANAGING STOCK Businesses need to manage their stock in the most effective and efficient way possible.
Stock can consist of:
raw materials waiting to be used in production
work in progress
finished stock waiting to be delivered
For example, a car manufacturer’s stock could include car parts and components waiting to be fitted (raw materials), partially built cars (work in progress) and completed cars waiting to be delivered to customers (finished stock).
If the stock materials are not managed efficiently, it could mean production has to stop. As a result, the whole factory production line could come to a halt.
Procurement means getting the right supplies from the right supplier. Effective stock control is important to both customers and businesses.
Customers expect to be able to go into a store and buy the products they desire.
Without appropriate stock control, businesses can run out of stock, which loses them sales and potentially customers. However, holding too much stock can also have negative consequences:
high storage costs, which may mean the business has to raise its prices
increased waste, if the products are perishable, eg fruit and vegetables
reduced income, if the business needs to sell off excess stock at a reduced price
The maximum stock level is the largest amount of stock a business can store on site. In the bar graph example, it is 500 items of stock.
The minimum stock level is also known as buffer stock. This is the lowest amount of stock a business can store on site while still being able to operate effectively. In the bar graph, the minimum stock level or buffer stock is 100 items. Buffer stock ensures a business can still operate for a short while if there are delays to deliveries or there is a large spike in demand. It also allows a business to replace any damaged stock while continuing to meet customer demand.
Lead time is how long it takes from ordering stock for it to arrive. The bar graph shows that the lead time is two weeks.
The reorder level is the point at which a business needs to order new stock in order for it to arrive before its stock falls below the minimum level. In the bar graph, the business would reorder stock when it has 300 remaining.
Many businesses now use computer software that automatically reorders stock when it reaches a pre-set reorder level. For example, stock levels can be automatically updated every time a product is sold to a customer, as products are scanned at the checkout using a barcode scanner. This not only ensures accurate stock levels but also allows stock to be automatically reordered when it reaches a pre-set level.
Just-in-time (JIT) is a stock control method where the business doesn’t store any raw materials. Instead, it has regular deliveries that bring only what is needed before its existing raw materials run out, so buffer stock is not needed.
The business orders smaller but more frequent quantities of stock that are taken straight to the production line on the factory floor. For this method of stock control to be effective, a business needs a good relationship with its suppliers. Suppliers will ideally be local to reduce both delivery costs and lead time.
Advantages of JIT
Removing buffer stock space (which would previously have been used for storage) means more space can be used for sales.
Smaller but more frequent deliveries mean that the products will be fresher. A business can also have new stock delivered more frequently, eg perishable items such as fresh fruit and vegetables.
Businesses will no longer have large amounts of capital tied up in stock that could go out of date or out of fashion. This capital can then be reinvested or spent elsewhere.
Additionally, having less stock that could go out of date will reduce waste, saving money.
JIT reduces production costs, allowing businesses to price their products to give a more competitive advantage.
Disadvantages of JIT
It can be hard for businesses to react to unexpected changes in demand, eg a heatwave causing an increase in the demand for ice cream.
Businesses are unable to use bulk-buy discounts if they only buy in small quantities.
Customers could receive a poor service if the business misjudges the amount of stock it needs and allows products to go out of stock.
Relationships with suppliers
Most businesses don’t produce a product completely. Instead, they have suppliers that supply some of their raw materials or components. Finding suppliers that can meet all of a business’ needs is essential for a business to remain competitive and successful.
There are five key factors a business needs to consider when trying to build a relationship with a supplier
Cost is a vital consideration. If a business can get supplies cheaply, this keeps its variable costs low, allowing it to maintain higher profit margins. Often, the more products businesses buy from suppliers, the more power they have to negotiate discounts.
Quality is essential, even when a product is marketed as a ‘budget’ or a low-cost option. For example, whether a business is making a gourmet or supermarket own-brand bar of chocolate, the quality of the raw products must be considered. Businesses need to make good-quality products that customers want to buy, but at different price points.
Delivery is also important, as the products that are ordered have to arrive on time. For manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock. To avoid this, some businesses fine suppliers a small percentage of the value of any late deliveries. Businesses want quick delivery with minimal lead time so suppliers often set up their businesses near their customers. For example, Silicon Valley is made up of technology companies such as Apple and Facebook and their suppliers.
Availability and capacity of suppliers to meet an unexpected increase in orders is very important. For example, during a heat wave, a local corner shop might increase the quantity of ice creams and ice lollies it orders, and it would need its suppliers to meet the demand.
Trust between the business and the supplier is needed, as many businesses buy using trade credit to allow time to sell products to customers before paying their suppliers. Businesses also need to trust their suppliers to keep designs and other information confidential.
The impact of logistics and supply decisions on businesses
Procurement means getting the right supplies from the right supplier. Logistics means making sure the correct products are procured and that they will arrive when needed. Both procurement and logistics have impacts on a business’ costs, reputation and customer satisfaction.
Costs
Costs can be kept lower if production is quick. Delays can cost a business money and can limit cash flow if products are damaged, lost or unavailable.
Reputation
The quality of the raw materials or services provided by suppliers can have an impact on a business’ reputation. For example, if products are regularly delivered late, this can negatively affect the business’ reputation because it will affect the business’ ability to deliver to its customers on time. If businesses provide high-quality and reliable products, they will have a higher chance of gaining a good reputation.
Customer satisfaction
Businesses aim to have high customer satisfaction by meeting all of their customers’ needs in a simple, quick and effective manner. This is achieved by getting the correct products delivered to the correct places at the correct times. By keeping customer satisfaction high, businesses are more likely to get repeat customers, which will improve sales figures and profits.
The production of goods and the provision of services
If a product or service is of good quality, it means that it is of a high standard. Quality can come from how well a product is made, the use of high-quality raw materials, and ensuring that products will last a long time and work well, eg a watch should tell the time correctly. Post-sales service should also be of good quality. For example, businesses should deal with faults quickly and efficiently.
Businesses have two ways of managing quality – quality control and quality assurance.
Quality control - Quality control is the process of inspecting products and services to ensure that what customers receive is of a high standard. There are many different ways that businesses conduct quality control.
Factory inspectors are often used at the end of production to ensure that products are of the required standard before they reach customers. For example, car manufacturers have a list of checks that they complete before cars are sent out, eg doors must be correctly aligned, car mats must be present and there must be no visible flaws in the paint. A one hundred percent inspection system is often used in high-end restaurants. In this method of quality control, all food is checked by the head chef before it is given to the customer. If the chef spots any imperfections, the whole dish is cooked again before the customer receives it.
How businesses manage product quality, producing high standards of customer service, production processes and checks and staff teams.
Quality assurance - Quality assurance is a process of carrying out quality checks at specific stages during the production process. This ensures that faults and sub-standard products are found sooner rather than at the end of the production process.
Training staff and employing highly-skilled people can come at a cost. This means the quality assurance process can be expensive for businesses, and often the added costs are reflected in what customers are charged.
Cost control and competitive advantage
Businesses seek to achieve high quality and competitive advantage by developing a business culture where employees are motivated and care about their customers, the product and/or service, and the business’ reputation.
Quality management is important to businesses because it helps them to produce high-quality products and services. They need to understand what their customers want, and meet customers’ needs and expectations. This is a way of gaining competitive advantage.
Quality management is also important in relation to costs. Mistakes are expensive, and quality control and quality assurance help businesses to limit additional costs and reduce wastage by aiming to ensure that things are done correctly the first time. For example, quality management can help to:
reduce waste, eg if a car light is damaged during production, it will have to be scrapped and replaced at additional cost to the business
reduce employee costs, as replacing the car light will cost the manufacturer additional wages, because an employee must be paid to replace the light
When a business can offer higher quality and lower costs, it gains a competitive advantage over similar businesses. A good-quality product or service helps to build a strong brand image, which can allow a business to grow its market share. If a business has a product or service that gains a good reputation for being of high quality, the business can charge a premium price.
The sales process
The process of purchasing a product or service is made up of five key stages:
customer interest
speed and efficiency of service
customer engagement
post-sales service
customer loyalty
These stages all contribute to customer satisfaction. This makes the sales process a valuable part of providing good customer service.
1. Customer Interest Businesses need to ensure they attract the attention of potential customers, for example by using emotive language in their advertising.
Product knowledge - Businesses need to ensure that their employees have good product knowledge. Customers expect a high level of product knowledge and customer service. For example, a supermarket employee should be able to direct a customer to any product that they are looking for. Similarly, an employee working in an electronics store should be able to give details to a customer about the features of a TV they are interested in purchasing.
Sales approaches
There are two types of sales technique that can be used to help develop customer interest:
Hard approach – This is when sales employees actively seek out customers and advise them about the products or services on offer, trying to encourage them to make a purchase. This can be done face to face or through cold calling.
Soft approach – This is when sales employees simply advise customers that they are available should the customers require any help or information about the products or services on offer. This approach allows customers to look at the products and services on offer in their own time.
2. Speed and efficiency of service
Good customer service can attract customers to use a business and help them feel valued. It is important for a business to deliver products to its customers quickly and in perfect condition. Damaged products, or products lost in transit, should be replaced quickly and efficiently. Customers are usually happy to pay more for a product or service if it is accompanied by good customer service and is good quality and good value for money.
E-tailers must ensure that their website offers an efficient and user-friendly purchasing process. If the process is too complicated or takes too long, customers will not place orders.
3. Customer engagement
The term ‘customer engagement’ refers to the interactions that take place between a business and its customers during the sales process. Some products don’t require much interaction, eg buying a loaf of bread from a supermarket. However, some products and services require a high level of engagement, eg the sale of a house through an estate agent, or the purchase of a car. In such cases, the salesperson must build a relationship with the customer.
Many businesses use social media to reach their customers. They may ask customers to ‘like’ or ‘follow’ the business, or to make recommendations or post images of themselves using the business’ product or service. Businesses sometimes post updates about their products, eg product launches and upcoming events, to keep customers involved and engaged.
4. Post-sales service
Post-sales service involves providing support for customers who have bought a product or service from a business. For example, a business might provide assistance to a customer who has bought a new computer and needs help using it. Alternatively, post-sales service may involve dealing with complaints efficiently when a product or service is faulty or does not meet customer expectations. Many retailers do this by providing an online service, eg a chat facility with customer service personnel, where questions and problems are dealt with quickly.
Businesses can build positive customer relationships by seeking feedback and acting on feedback from customers. Businesses may gather this feedback using traditional methods, eg questionnaires, or newer methods, eg social media. Access to the internet and new technologies means that businesses can receive feedback from customers quickly and can also respond quickly to complaints and other issues.
5. Customer loyalty
When a business provides excellent customer service, customers are more likely to remain loyal and the business may gain repeat customers.
Businesses often find it more cost-effective to retain existing customers than to find new ones through advertising
Customer service
There are many factors that contribute to providing good customer service:
knowledgeable, helpful and friendly staff
meeting all legal requirements
quick delivery
efficient service
excellent post-sales service and support
good product availability
Good customer service is important, as customers who are satisfied with their purchase and the customer service they have received are more likely to become regular customers. When customers post recommendations online or speak positively about a business to people they know, this helps the business to build a good reputation and positive brand image.
Differentiation is the process of making a product or service different from others so as to make it more appealing to a particular target market, eg smartphone manufacturers often differentiate their products by offering faster processing speeds and a longer battery life. Excellent customer service is a method of differentiating a product from the competition and providing a competitive advantage, which allows businesses to charge a premium price. This will also lead to increased sales via repeat purchases.
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