4. Operations management (AS Level)
A section of Business Studies, 9609
Listing 10 of 59 questions
Cobblestone Shoes (CS) Yazeem is a highly skilled shoemaker. He opened CS in 1975, as a sole trader, to design and repair shoes. When Yazeem set up CS the main target market was professional people who wanted shoes to wear to work or to dress smartly. He produced the shoes using batch production and sold them in his own shop. Each design of shoe was made in a range of sizes and colours. Recently there has a been an increase in low-priced shoes produced for the mass market, which has reduced Yazeem’s sales of new shoes. It has also reduced the demand for shoe repairs. Yazeem’s daughter, Abir, is keen to take over the running of CS. She has been fully trained in making shoes and feels that it is time for Yazeem to retire. Abir thinks that the business should be targeting niche markets. She would like to design and produce unique shoes and use price skimming to increase the profitability of the business. Abir is also concerned about the contribution made on each batch of shoes. Table 2.1 shows some break-even data for a recent batch of shoes. Table 2.1 Break-even data about a recent batch of shoes Break-even level of output 400 units Margin of safety 100 units Total variable costs $18 750 Total costs $23 750 Total revenue $25 000 Abir has suggested that CS should adopt a just in time (JIT) approach to inventory management. By using JIT, she argues, CS would be able to increase its working capital and avoid having money tied up in inventory that might not be used or sold. CS currently has a large number of shoes on display in the shop. There is also a large amount of their main raw material, which is leather and must be kept in a climate-controlled storage area. Abir has already found a new local supplier which is happy to deliver inventory as required. Identify one type of training. Explain the term mass market. Refer to Table 2.1. Calculate the contribution per unit for the recent batch of shoes. Explain one limitation for CS of using break-even analysis. Analyse two disadvantages to CS of adopting a JIT approach to inventory management. Evaluate the importance to CS of being a small business.
9609_s24_qp_22
THEORY
2024
Paper 2, Variant 2
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Rugged Back Packs (RBP) RBP is a manufacturing business that specialises in producing travel bags and backpacks. The products are sold by many different retailers. The brand of RBP has become well known for quality and reliability. Each retailer requires a fast response to orders for more inventory from RBP. RBP holds high levels of inventories to enable it to respond to orders from retailers within 48 hours (see Fig. 1). The inventory is kept in a secure warehouse next to the factory. Fig. 1: Inventory control chart inventory level (000s) time 40 RBP employs around 100 employees in the factory. Most of the employees are skilled operators of the machinery used to make the bags. The factory manager was dismissed last month because productivity levels had fallen and the factory was not achieving RBP’s production targets. This manager had many disagreements with the employees and most of the workforce is demotivated, with high levels of absenteeism and labour turnover. RBP’s factory is now managed by Maya. Maya is a very experienced manager and she was described by her previous employer as having a high level of emotional intelligence. Define the term ‘brand’ (line 2). Briefly explain the term ‘labour turnover’ (lines 11–12). Refer to Fig. 1. Identify the size of: • maximum inventory level • buffer inventory level • re-order quantity. Explain one possible use of an inventory control chart to RBP. Analyse two disadvantages to RBP of holding a high level of inventory. Evaluate the importance to RBP of Maya having a high level of emotional intelligence.
9609_w17_qp_21
THEORY
2017
Paper 2, Variant 1
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Clothing Line (CL) Thamir is an entrepreneur who built up an international retail business. He is now a multi-millionaire who provides venture capital. Thamir is currently deciding whether to purchase 50% of the shares in Clothing Line (CL) which is a private limited company. CL is an online clothing retailer which has been operating for five years. The owners cannot finance further internal growth and have invited Thamir to invest in the business. CL purchases clothing from a number of suppliers. CL places orders for items of clothing each month. The clothes are then delivered to a large warehouse where employees sort and package individual items ready for sending to customers when they are ordered. CL has published its latest accounts and Thamir has obtained a copy of them. A summary is shown in Fig. 1. Fig 1: Summary of CL’s published accounts on 31 December 2017 ($000s) Income statement Statement of financial position Revenue Non-current assets Gross profit Current assets Profit for the year Current liabilities Non-current liabilities Equity and reserves CL has a very popular website where customers order their clothes. Products that are ordered by 18:00 each day are guaranteed to be delivered to customers the next day. This means that CL must hold high levels of buffer inventory. Thamir is concerned that the business is holding too much inventory which may lose value over time. He has told the current owners of CL that he will only invest in the company if they introduce a just-in-time (JIT) system of inventory management. Define the term ‘venture capital’ (line 2). Briefly explain the term ‘internal growth’ (line 5). Refer to Fig. 1. Calculate the current ratio as at 31 December 2017. Analyse two limitations to Thamir of using published accounts to decide whether to invest in CL. Explain two qualities that Thamir is likely to need as a successful entrepreneur. Discuss which stakeholders of CL are likely to be most affected by the introduction of just-in- time (JIT) inventory management.
9609_w18_qp_22
THEORY
2018
Paper 2, Variant 2
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Quality Furniture (QF) QF is a public limited company in country S. It manufactures furniture for cafés. The number of cafés in country S has increased by more than 50% over the last 5 years. This has meant that QF has been able to expand and achieve internal economies of scale. However, the growth of the café market has attracted new firms supplying café furniture and increased competition for QF. An extract from QF’s income statement is shown in Table 1.1. Table 1.1: Extract from QF’s income statement for 2020 $m Revenue Cost of sales Gross profit Expenses Although QF has been successful so far, Javid, the Managing Director, has identified two problem areas: inventory and human resources. Inventory QF’s inventory includes raw materials, work in progress and finished tables and chairs. QF buys 80% of its materials from country T and there is a long delivery lead time. This means that QF holds a high level of buffer inventory which has a high value. Human resources QF’s production employees are unhappy that they have not received any benefit from the company’s expansion. Profit has doubled over the past three years but employees have not received any pay increases or bonuses. The employees have all been trained by QF and have specialist skills which had ensured that customer expectations were met. However, customers are starting to complain about a fall in the quality of the furniture, which could be the result of the low morale of the employees. Some highly trained employees have left QF to work for competitor firms. Define the term ‘buffer inventory’ (line 18). Explain the term ‘internal economies of scale’ (line 3). Calculate QF’s profit margin for 2020. Explain two ways QF could increase its profit margin. Analyse two disadvantages to QF of holding a high level of inventory. Recommend how QF’s management could improve the morale of its production employees. Justify your recommendation.
9609_w21_qp_21
THEORY
2021
Paper 2, Variant 1
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Bear Bears (BB) BB is a business partnership owned by Sade and Chika. BB produces personalised teddy bears for children. The toys are made using mass customisation targeted at specific market segments. Each toy has the same shape and size but it is customised with names and words provided by the customer. These are hand‑stitched onto the toy and the employees are paid using piece rate. Customers receive their products within a week of ordering. Each toy is sold for $50 and has a unit contribution of $6. Last month BB sold 4000 units with a margin of safety of 120 units. BB currently holds a large amount of inventory in a temperature‑controlled warehouse (see Table 2.1). Table 2.1 BB’s current inventory Type of inventory Items Raw materials 100 kg cotton fabric 300 kg synthetic fibre Work in progress 300 non‑customised toys Finished products None Sade thinks that BB should adopt a just in time (JIT) approach to inventory management. However, Chika is concerned about the possible impact on BB. The stitching department is managed by Chika. She has recently received a complaint from David who is the only male employee in the stitching department (see ). I feel that I am being discriminated against because I am a man. There are no washroom facilities for me on the ground floor but there are for the women. I have to go up two floors for a washroom which takes me a lot of time. I am given all the tasks which require heavy lifting. I am often asked to fix problems with other people’s stitching machines, and this slows my production. I earn less money than anyone else in the stitching department. Complaint from David in the stitching department After some further investigation, Chika believes there needs to be increased equality in the stitching department. Identify one method of market segmentation. Explain the term mass customisation (line 3). Calculate BB’s fixed costs last month. Explain one limitation for BB of using break‑even analysis. Analyse two possible impacts on BB of adopting a just in time (JIT) approach to inventory management. Evaluate the most likely impact on BB of increased equality in its stitching department.
9609_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
59