Capacity Utilisation, Stock Control, Quality Management (2.4.2/2.4.3/2.4.4)

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What does capacity utilisation show to businesses?
Shows their actual output and how it compares to the maximum possible output they could produce.
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What is the calculation for capacity utilisation?
Capacity utilisation = (current output / maximum possible output) x 100
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If a company has the capability to produce a maximum of 50,000 products p/month but only makes 37,000 p/m what is the capacity utilisation?
Capacity utilisation = (current output / maximum possible output) x 100 =(37,000/50,000) x 100 = 74%
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What are the problems that are related to *under* capacity utilisation?
Fewer resources that are used by a firm the higher the fixed costs are to produce each unit. Firms that under utilise their capacity run the risk of not meeting demand when high. Workforce of a firm that under utilises its capacity lack in motivation
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What are the issues with over-utilisation of capacity?
Workload can get too intense for staff-leading to demotivation. Work done quickly may reduce in quality. If a business is over producing then it will have problems when there is a spike in demand. Maintenance of machinery is hard due to constant work
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How can businesses improve capacity utilisation? (5)
Estimate the long term level of sales. Create more demand. Understanding the consumer. Sale of assets. Employing more/fewer staff.
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How will estimating the long term level of sales increase capacity utilisation?
This will help businesses prepare itself for surges and drops in demand so that it is always working as close to the necessary capacity as possible.
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How will creating more demand improve capacity utilisation?
This can be done through promotion and brand strengthening. If a business has a capacity to produce 100,000 units, for example, but does not have that demand yet, it can work to create demand.
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How will understanding the consumer improve capacity utilisation?
Usually done through primary/secondary research. The more the business learns about its customers, the better it can organise its capacity to make sure it meets demand.
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How will the sale of assets improve capacity utilisation?
If the business is continually unable to use its entire capacity (or even close to it), it may wish to consider selling some of its machinery/equipment. This money could then be reinvested into the firm as promotion in order to create more interest.
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How will employing more/fewer staff improve capacity utilisation?
Capacity can take the form of equipment, machinery or employees. If the business has more employees than its consumer demand requires, it may need to consider redundancies. Likewise, if demand is high, the business could need more staff.
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What is classed as stock?
Raw materials, supplies or goods that businesses hold over a specific time period.
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What does a stock control diagram allow businesses to identify?
The reorder level of stock. The level of buffer stock available. The time it takes for stock to arrive once ordered.
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What does the buffer stock show?
Shows the difference between the absolute minimum stock that a company can function on and zero.
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What does the reorder level show?
Shows the business how low the stock can get before the company needs to place a new order for supplies.
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What does the reorder time show?
Shows the business how long it takes for new stock to arrive once the company has placed an order.
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What are the main advantages of buffer stock?(4)
Production flow. Ability to satisfy demand. Coping with peaks in demand. Economies of scale.
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Explain why production flow is an advantage of buffer stock.
Large manufacturing firms need to keep a steady flow of production. If stock falls below a certain point the business will hit a bottleneck, which will slow production to a halt. Keeping a steady flow of stock therefore helps production flow.
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Explain why the ability to satisfy demand is an advantage of buffer stock.
Having buffer stock readily available ensures businesses are always able to fulfil normal demand. Supermarkets, for instance, keep a steady flow of stock because they know there will be demand.
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Explain why coping with peaks in demand is an advantage of buffer stock.
This is important for most businesses, especially those whose demands are influenced by cultural trends. E.g a shoe shop, if the owners learn that their shoes have received a surge in popularity they will need to react by buying in more stock.
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Explain why economies of scale is an advantage of buffer stock.
Buying in bulk helps businesses bring down their costs of sales because they have more power to negotiate with suppliers. An electronics company, for instance might be able to purchase raw materials more cheaply if they place a high order.
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What are the main disadvantages of holding buffer stock? (6)
Opportunity costs. Costs of storage. Depreciation/obsolescence. Security. Insurance. Administration.
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Explain why opportunity costs are a disadvantage of holding buffer stock.
One main problem for any business is the fact that the cash it spends on the stock could have been better used as reinvestment in the company. It is a risk for businesses.
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Explain why costs of storage are a disadvantage of holding buffer stock.
This can involve stocking warehouses full of finished products, filling shelves and freezer. Stock might need to be chilled, heated or frozen and will require some management, such as digital databases. All these will have high costs.
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Explain why depreciation is a disadvantage of holding buffer stock.
E.g the shoe shop. If a fashion trend becomes popular, management may respond by purchasing in bulk. However, if they are unable to sell enough of these shoes while they are popular the shop will have left over stock and will decrease in value.
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Explain why security is a disadvantage of holding buffer stock.
Stock needs to be taken care of; this is not just to keep it refrigerated or frozen, but to ensure it is not damaged or stolen. Therefore companies go to great lengths to mind their stock, paying for security such as CCTV.
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Explain why insurance is a disadvantage of holding buffer stock.
In case any stock is stolen or damaged, businesses need some sort of guarantee. Firms invest in insurance for this, which can be very expensive, especially if goods are high value.
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Explain why administration is a disadvantage of holding buffer stock.
Buffer stock is handy for fulfilling demand, but the business still needs to source the stock, order it, transport it and check it is up to the correct standard. This all costs time and money.
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What are the implications of poor stock control?
Firms that have too much stock are running inefficiently, the excess stock represents money that could be better used as investment in the firm. Not having enough stock poses a risk, if businesses have low stock levels they can't cope with demand.
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What is Just-in-time management of stock (JIT)?
Businesses using the JIT method keep a low inventory of stock and produce only to specific orders. Businesses produce to requirements not predictions. Requires a lot of organisation and communication.
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What are the main advantages of JIT management? (6)
Time saver. Money saver. Compact production. Add value Less obsolescence. Less risk to goods.
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Explain why time saving is an advantage of JIT management.
Businesses receive an order, request the stock from their suppliers and then either produce the good or put it directly on the shelves. There is no need to keep stock in storage for long lengths of time.
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Explain why money saving is an advantage of JIT management.
The business should spend less money on stock until they absolutely need it.
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Explain why compact production is an advantage of JIT management.
With less stock in storage, a company's production line is more compact and, hopefully, more efficient.
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Explain why adding value is an advantage of JIT management.
A business can instantly add value to its stock because it is either purchased and then put on shop shelves or manufactured/converted into a good. This is very little time for stock to sit in storage, which would be money wrapped up in stock.
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Explain why stock being less obsolescence is an advantage of JIT management.
This is still a risk, but businesses run much less risk of obsolescence if they only produce and sell goods when there is demand.
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Explain why stock being at less risk is an advantage of JIT management.
If fewer goods are in storage, then they are less likely to be stole or go out of date. There will be little money lost if goods are stolen.
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What are the main disadvantages of JIT management of stock? (4)
Suppliers. Expensive. Mass orders. Unforeseen circumstances.
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Explain why the suppliers are a disadvantage of JIT management.
Businesses need suppliers they can trust to do a good job on a short notice. If a supplier fails to produce stock in time, the business will suffer greatly.
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Explain why this method being expensive is a disadvantage of JIT management.
This can be expensive to do on a grand scale, as businesses need to employ databases and computer systems in order to monitor incoming orders and available stock.
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Explain why mass orders are a disadvantage of JIT management.
If a business using JIT stock management suddenly receives a giant order, it may not be able to cope with the volume of requests. Moreover, the business's suppliers may not be able to provide enough stock.
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Explain why unforeseen consequences are a disadvantage of JIT management.
War, famine, and natural disasters can put halts on any stock coming from a business's supplier.
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JIT management of stock is suited most to which types of businesses?
Car manufacturers and publishers that print on demand.
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What two things is JIT linked with?
Waste management and Lean production.
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What is waste minimisation?
Businesses reduce the amount of waste they create for many reasons, from addressing environmental issues to reacting to consumer demand.
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What can correctly managing firms waste improve?
Improve their efficiency while simultaneously bringing down their costs of production.
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Businesses take advantage of new technologies in order to: (5)
Reduce defective products. Curb overproduction of goods. Decrease wait time for consumers and downtime of machinery. Monitor and moderate unnecessary stock. Streamline production.
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What is lean production?
Lean production is a form of production that focuses on waste saving measures, inspired by Japanese manufacturers.
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This form of production involves a range of techniques, including: (6)
JIT, Total Quality Management (TQM), Kaizen, Cell production, Reduction of excess stockholding, Improvement of communications between production and marketing departments.
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What are the main benefits of lean production? (6)
Productivity. Motivation. Shared decisions. Waste management. Quality.
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Explain why productivity is a benefit of lean production.
This increases as employees decide the most efficient way to produce goods.
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Explain why motivation is a benefit of lean production.
Businesses can motivate their workforces by giving more responsibility.
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Explain why shared decisions are a benefit of lean production.
Empowered workforces take part in decision making, which decreases pressure on management and opens up the potential pool of ideas.
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Explain why waste management is a benefit of lean production.
Businesses that operate lean production benefit from minimising waste and stock holding (from JIT methods), which increases available funds and therefore, cash flow.
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Explain why quality is a benefit of lean production.
Employees and management work together to streamline and improve business processes which can help increase quality.
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What is quality control (QC)?
The analysis of quality in a finished good/service. The product is reviewed at the end of production.
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What is quality assurance (QA)?
The analysis of quality in business processes that are used to produce goods/services. Products are continuously checked throughout the production line.
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Why is QC used?
QC is a corrective method, it helps identify and fix defects in goods before they're released.
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Why is QA used?
A managerial method, it helps businesses improve quality of the production process.
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When is QC used?
This is a reactive measure. Businesses make improvements to any defects at the end of the production process.
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When is QA used?
This is a proactive measure. Businesses foreceast what processes need to be put in place in order to precent defects from occurring.
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What type of businesses is QC used in?
Businesses where cost of production is cheap such as pens.
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What type of businesses is QA used in?
Businesses which have high production costs and produce high quality products such as cars or food.
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What are quality circles?
This is when firms organise some of their employees into groups and give them direct responsibility for continuously analysing, helping to improve business processes. The circles identify potential for enhancement in quality, productivity, efficiency
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What is a 'kaizen' business?
Kaizen businesses work to improve their processes with the idea that this should eventually produce positive outcomes. Unlike quality circles, Kaizen empowers the whole workforce as they keep asking for ideas on how employees think firm can improve.
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What are some of the advantages to kaizen?
Increase in employee motivation and productivity, reduction in wasteful processes, higher quality and overall improvements to a business's final product.
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What do kaizen businesses focus on (in terms of staff)?
Focus on the talent of their employees, and their ability to generate good ideas, rather than invest in expensive machinery in order to get the same outcome.
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What is total quality management (TQM)?
Another method that aims to empower employees. TQM involves the entire workers, not just workforce members. Employees act like customers and suppliers, analysing the work they receive from other departs. to critique+improve then create the best prodc
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What is the competitive advantage of quality management?
Keeping goods to a high standard of quality gives firms a competitive advantage over rivals. The higher quality the goods, the better your brand is. A high quality image can also give perception that the rest of your products are of similar value.
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Leading on from the previous question and answer, why is this important and what will it lead to?
Because it will lead to repeat purchases and word of mouth sales. Consumers that value high quality products are more willing to pay high prices, so if the firm has an image of quality high end customers may purchase from the firm.
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What is the competitive advantage of low quality products?
Zara for example, have *good* quality clothing at low prices, meaning consumers are happy. Zara produces its products at an efficient rate and so can easily react to sudden trends. In this sense, low selling price but very high sales.
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Card 2

Front

What is the calculation for capacity utilisation?

Back

Capacity utilisation = (current output / maximum possible output) x 100

Card 3

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If a company has the capability to produce a maximum of 50,000 products p/month but only makes 37,000 p/m what is the capacity utilisation?

Back

Preview of the front of card 3

Card 4

Front

What are the problems that are related to *under* capacity utilisation?

Back

Preview of the front of card 4

Card 5

Front

What are the issues with over-utilisation of capacity?

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