Business Operations
Domain 9: Business Operations. Tests the transformation process, operations decisions (location, layout, capacity, quality, stock) and how these affect cost, speed and reliability.
The operations model
Inputs (materials, labour, capital, information) pass through a transformation process to outputs (goods or services), with feedback to improve. Operations decisions cover location (near market, suppliers, transport, utilities, labour, rent), layout (process layout for varied jobs, product layout for high volume), capacity, quality, stock control, scheduling and supplier management.
Quality and stock
Quality control inspects finished output; quality assurance builds quality into the process through training, standards and supplier checks; total quality management involves everyone and pursues continuous improvement. Stock methods: economic order quantity balances holding and ordering costs; just-in-time cuts stock but depends on reliable suppliers; always set a reorder point = (daily usage x lead time) + safety stock.
Worked example
A bakery uses 40 bags of flour a day, waits six days for delivery and keeps 100 bags as safety stock. Reorder point = (40 x 6) + 100 = 340 bags. Reasoning: the order must be placed when stock reaches 340; if a truck is delayed a week, the safety stock covers only 2.5 days, so the owner should raise safety stock or contract a second supplier. Operations decisions are therefore risk decisions.
Traps
- Confusing quality control with quality assurance.
- Holding too much stock, tying up working capital and risking spoilage or theft.
- Ignoring lead time, so production stops while stock is still on order.
- Choosing premises on rent alone and losing customers through poor access or no parking.