Making operational decisions to improve performance: managing inventory and supply chains

What are the 4 ways to improve flexibility?
Product, Volume, Delivery and Mix Flexibility
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Define product flexibility
Can be achieved by designing production lines that can be quickly altered to change the end product.
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Define volume flexibility
Cn be achieved through maintaining high levels of spare capacity, but this is expensive as it represents unused resources.
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Define delivery flexibility
Relies on having a flexible workforce, particularly in terms of working hours.
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Define mix flexibility
Requires a combination of the other flexibility factors. To provide different customers with different variations of the same product.
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Define mass customisation
Offering individually tailored goods or services to customers on a large scale. Focuses on the product designed for the individual.
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State the 4 types of mass customisation
Collaborative (where the business works closely with customers to suit their needs) , Adaptive (product can be customised+adapted by the customer), Transport , Cosmetic (where standardised products are produced but marketed to different customers).
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State the factors required for mass customisation
A market in which customers value variety+individuality. Quick responsiveness to market changes as businesses must be able to detect market changes. Abilities to provide customisation e.g. capital equipment. Scope for mass efficiency/economies of s.
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Benefits and drawbacks of mass customisation
Cost reductions, higher rev, greater customer loyalty, improved understanding of customer wants, higher profits, greater protection from market changes. But, unsuitable supply chain, greater expense due to IT, capital equipment, staff training etc.
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Define managing demand
The marketing mix is used to increase demand. On rare occasion, a firm may suffer from a capacity shortage or spare capacity. Some firms charge higher prices than usual in order to reduce the demand to a reasonable level.
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Define managing supply
A business will aim to make as much profit as possible, and so it will attempt to increase demand. Therefore, the focus will usually be on increasing supply to match the increased demand. Through producing to order, outsourcing and temporary+PT staff
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Define producing to order
A strategy in which a business only manufactures a product once an order for that product has been received from a customer. It is often known as build to order (BTO), or make to order (MTO).
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Advantages of producing to order
Ability to supply a product that meets customers exact specification, reduced costs of holding inventory, potential for higher prices, targeting markets, producing planning is easier as they don't need staff to forecast demand.
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Disadvantages of producing to order
Considerable fluctuations in production levels over time, higher costs, inability to take advantage of sudden interest in a product, uncertainty about production levels can make it difficult to plan.
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Define temporary or part time workers
PT workers are permanent employees who work a limited number of hours, whereas TW are people who's employment is subject to a time limit.
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Advantages of using TW and PTW
Efficient way to keep costs down, a way of building in flexibility which allows a firm to respond to changes in demand, availability of PTW may create a wider pool of candidates.
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Disadvantages of using TW and PTW
May involve potentially higher staffing costs as a result of fees paid to agencies + extra induction training and administrative costs. Such workers may also be less loyal + committed to the business, especially on temporary contracts.
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Define outsourcing
The transfer of activities, which were previously conducted in-house, to a third party, outside of the business.
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Advantages of outsourcing
Firms are able to react to changes in demand if they have access to a no of other firms' production plants. Providers may be specialist+more efficient in that activity. Lets a firm focus on its core business.
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Disadvantages of outsourcing
Firms must recognise that the quality of the service is no long in their own control. Excessive outsourcing erodes a firms operations base. Cost should be evaluated. May require a firm to give confidential info to a supplier.
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Factors influencing decisions to outsource
If theres a capacity shortage outsourcing is financially viable. Outsourcing can protect the firm from fluctuations in demand. May be cheaper. May lead to a loss of control+profit. Quality could improve or worsen.
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Define inventories and the three different forms
Items the firms need to produce for, or supply to, customers. Raw materials, work in progress (part-finished products), finished goods (completed products).
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Define inventory control
Management of levels of raw materials, work-in-progress, and finished goods in order to reduce storage costs while still meeting the customers' demands. Used to ensure that production matches demand.
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Advantages of high inventory levels
Customers demands are met properly, there is no loss of goodwill caused by running out of inventory, sudden increases in demand can be dealt with efficiently, production lines are not halted, companies can benefit from bulk buying.
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Advantages of low inventory levels
Reduced warehousing costs are possible, opportunity costs is low, security+pilferage costs are lower, perishable products are less likely to deteriorate+problems of obsolescence are minimised,no cashflow problems as cash is being tied up in inventory
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Define inventory control chart
A diagram thats used to register levels of stock/inventory over a period of time.
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Define buffer inventory level
The minimum level of inventory targeted by a business. It should cover the sudden increase in demand or unexpected problems in getting inventories.
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Define re-order level and the 3 factors it will depend on
The inventory level at which an order is placed for new inventory. The suppliers lead time (how long it takes to deliver once an orders placed), demand for the product, consequences of running out of inventory
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Define inventory rotation
Using old inventory before new inventory to make sure inventory wastage is kept to a minimum. Warehouses are designed so that new inventory is not placed in a position where it blocks old inventory.
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How to improve the efficiency of inventory control through JIT
Items of inventory arrive JIT they are needed for production or sale. To eliminate the need for inventory. However, costs of raw materials are likely to be high (no bulk), problems getting it on time.
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What are the influences on the choice of suppliers
Price (firms will seek value for money), payment terms (arrangements made about the timing of payment), quality, capacity suppliers can provide, reliability, flexibility (if they need to make changes to orders from suppliers).
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Define supply chain
A network of sellers of raw materials, manufacturers that transform those materials into products, and wholesales+retailers who get those products to customers.
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Define supply chain management
The organisation of these activities to create value for the customer+profit for the business involved in supplying the products. An effective management of supply chain contributes towards the achievements of the firms operational costs.
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Define the tradition approach to supply chain management
'Viking' is the term used as its based on a policy of buying in huge quantities in order to get the lowest possible price. Try to ensure that suppliers were sourced as cheaply as possible+have sufficient quality.
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Define the modern approach to supply chain management
Buying in smaller quantities from a number of different suppliers. Provides more flexibility+may create competition between suppliers, resulting in quality improvements.
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What is Porters value chain and suppliers?
According to Porter in his 'Competitive Advantage', a firm can gain a competitive advantage through cost advantage and differentiation. If a supplier can provide a unique product it offers differentiation+low prices gives an comp advantage.
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Other cards in this set

Card 2


Define product flexibility


Can be achieved by designing production lines that can be quickly altered to change the end product.

Card 3


Define volume flexibility


Preview of the front of card 3

Card 4


Define delivery flexibility


Preview of the front of card 4

Card 5


Define mix flexibility


Preview of the front of card 5
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anthony yeboah


absolutely amazing, THANKS GETREVISING! :)

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