Operations and Business Growth
What this domain tests
Operations questions cover production methods, productivity, quality, stock control, location and growth. You must calculate productivity changes, compare production methods for a given product, and evaluate growth routes such as merger, takeover and franchising.
Core concepts
- Production methods: job (one-off, customised), batch (groups, such as bakery runs), flow/mass (continuous, standardised, capital-intensive). Choice depends on volume, variety and customisation.
- Productivity = output ÷ input (units per worker or per hour). Efficiency concerns cost per unit - not the same thing.
- Economies of scale: purchasing, technical, financial, managerial, marketing - unit cost falls as output rises. Diseconomies arise from poor communication and coordination.
- Quality: quality control (inspection at the end), quality assurance (checking the process), TQM (everyone responsible).
- Stock: buffer stock versus just-in-time (lower holding costs, higher supply risk).
- Growth: organic, or external through merger (agreed) and takeover (acquired). Horizontal integration is the same stage of the same industry; vertical is backwards to supply or forwards to distribution; conglomerate is unrelated diversification. Franchising expands with less capital but cedes control and profit share.
Worked example
Five workers produce 500 units a day, so productivity is 100 units per worker. A new machine raises output to 800 units with the same workers: 160 units per worker, a rise of 60%. Reasoning: the machine's cost must be set against the extra output. If the machine costs €400 a day and each unit earns €2 contribution, extra contribution is 300 × €2 = €600, so the investment pays. Productivity alone is not enough.
Traps that cost marks
Equating growth with economies of scale; confusing merger with takeover; calling vertical integration 'diversification'; treating just-in-time as simply 'no stock'; reporting a productivity change in units rather than as a percentage change.