1. How do businesses operate?
UNIT 3.4
How do businesses operate?
Unit How do businesses operate?

2. WHAT IS PRODUCTION?
Production is the term used to describe the making and providing of both goods and services.
Making any product or service involves 3 stages:
INPUT PROCESS OUTPUT
(Raw (Using the raw (Finished good
Materials) materials) getting too
the consumer)

3. What Resources Does A Business Need Before It Can Start Production?
LAND LABOUR CAPITAL ENTERPRISE
How Do Businesses Decide On A Supplier For Raw Materials?
The following factors should be taken into account:
Price
Quality
Quantity
Time
Dependability

4. Which Methods Of Production Can A Business Decide To Use?
When a firm has decided what to produce, it must also decide how to go about producing it. Normally this will depend on 4 things:
The nature of the product - A vacuum cleaner is likely to be produced using a machine, whereas a violin is more likely to be produced by hand.
The number of customers wanting to buy the good - A car which is in high demand, such as Ford, will be produced using an assembly line type of production, whereas a specialised care which is not in such demand, like a Ferrari, will be built by a small number of skilled craftsmen, using a limited amount of machinery.
Labour - If labour is available and cheap, then a firm may choose to use less machinery.
Technology - New ideas and inventions may result in changes in how things are produced – e.g. today the use of computer-aided manufacturing is widespread with a computer controlling the machinery in the production process

5. THERE ARE 3 MAIN PRODUCTION METHODS:
JOB production
BATCH production
LINE/FLOW/MASS production

6. JOB PRODUCTION
One job is done from start to finish, then another job is done from start to finish and so on.
Example - Making a designer dress
Advantages
Disadvantages
There is a ‘personal touch’.
Labour costs will be high as the process is likely to be Labour-intensive.
Likely to be more motivating for workers – they see the product through all stages of production.
With a project many of the costs will not be recovered until the product is finally paid for e.g. building an extension to a factory.

7. BATCH PRODUCTION
In batch production there are a number of similar lines of production and each line will be produced in a batch, then another similar line will be produced
Example - A bakery
Batch of White Bread -> Batch of Brown Rolls -> Batch of Wholemeal Bread
Advantages
Disadvantages
Each batch can be changed to suit the requirements of the customer
Careful planning is required for the operation to run smoothly
Less skilled workers are likely to be required, as only one part of the operation needs to be completed by a particular worker – this will cut costs.
Workers motivation may be reduced if they are not involved in the process from start to finish.

8. LINE PRODUCTION
The product is passed down a line with a series of operations being carried out to complete the process.
Example – Car Manufacturing
Advantages
Disadvantages
The goods are produced on a large scale – benefits from economies of scale.
A large amount of money may be required to set up this type of operation.
It is more Capital Intensive. Nowadays production is likely to be controlled by computer.
Lack of motivation for the workers. This may be boring and lead to high rates of absenteeism and high staff turnover.
Each product is identical
If the machine breaks down then production further down the line will grind to a halt.

9. People Or Machines? USING MACHINES
Advantages
Disadvantages
Robots can do work which may be dangerous
Loss of personal contact
Can operate 24 hours a day, 7 days a week – machines don’t need to eat or sleep!
A machine cannot answer all individual queries
Greater consistency – machines produce the same result every time
Machines can break down

10. How Do Products Get To Customers?
Direct to Through a Through a By using an
the customer wholesaler retailer agent

11. Direct to the Customer
Producers sell directly to the customer by placing advertisements in newspapers and magazines. This has become quite a popular way of selling items such as CDs and books. Sometimes these items may only be available by buying directly from the manufacturer.
Through being contacted directly by the firm (generally by letter). An example of this would be buying a product from The Reader’s Digest.
Through a catalogue – people read through the catalogue at home and order from the company eg Next Directory offer 24-hour delivery of the product. Marks and Spencer have also introduced Direct Shopping from home.

12. Examples of wholesalers include Makro (Cash and Carry) and CostCo
Through a wholesaler
Wholesalers act as a link between the company manufacturing the good and the consumer wanting the good.
WHOLESALER
Advantages
Disadvantages
The wholesaler breaks down the quantities delivered by the manufacturer into smaller units, which the retailers require.
The wholesaler needs to be paid, so profits will be less.
The wholesaler has a well-established distribution network.
The wholesaler may not promote the product well enough.
The wholesaler pays the cost of storing the goods.
Examples of wholesalers include Makro (Cash and Carry) and CostCo

13. DEPARTMENT STORES – Harrods, John Lewis INDEPENDENT RETAILERS - Spar
Through a retailer
To overcome some of the disadvantages of having a wholesaler selling your goods, some manufacturer now prefer to sell directly to retail organisations.
What types of retail outlets are available to a firm when distributing its product?
SUPERMARKETS - Tescos
MULTIPLE STORES – B&Q
DEPARTMENT STORES – Harrods, John Lewis
INDEPENDENT RETAILERS - Spar
HYPERMARKETS – huge retail outlets which sell both food and other goods under one roof e.g. Sainsburys
CONSUMER CO-OPERATIVES (Co-ops)

14. Through an agent
An agent is the link between the person who wants to sell the good or service and the person who wants to buy the good or service.
Example
Travel agents sell holidays to customers and earn a commission – they never actually buy the holidays, but simply sell them on behalf of a company.

15. How Does A Business Decide On How To Distribute Its Products?
A firm must get the product to the right place at the right time. The decision on how to distribute will depend on the product and the type of market.
TYPES OF PRODUCTS
If the good is perishable, fragile or crystal, then handling should be minimised. Direct selling or through a retailer would be best.
Does the product require to be installed by a qualified person – eg a computer? If so then direct selling would be better. Is delivery and installation included in the price?
Is the product of low value? If so then a wholesaler could be used where the company does not bear the cost of holding large stocks of low value items.
Is the good being sold as a specialist good – eg designer jeans? If so would it be better to have a more personal link with the customer? For example, a wedding dress or specially designed outfit would need to be tried on a few times.
MARKET
If the market for the good is very large then it may be necessary to use a wholesaler to reach the customers as easily as possible.
If the time taken to provide the good or service is important then the link is more likely to be direct, e.g. computer repairs need a direct link as the customer requires fast service.

16. How Do Firms Control Stocks?
E-Notes
The 3 main types of stock held are:
Raw Materials
Work-in-progress
Finished Goods
Benefits of holding stocks?
Supplies are available when needed
Discounts may be available for buying in bulk
Customers’ orders can be met immediately

17. How Do Firms Control Stocks?
E-Notes
What are the costs of holding stocks?
Money, which is tied up in stock, might be put to better use
Risk that the money value of the stock will fall – e.g. due to a change in fashion
Warehousing
Insurance
Labour costs involved in stock control

18. Stock Control
E-Notes
Businesses must have an effective stock control policy, which details each item of stock:
Maximum level
Minimum level
Re-order level
Re-order Quantity

19. E-Notes
Many Japanese Businesses Operate A Just-in-time (JIT) System Of Stock Control
Materials are only ordered when required for production
Normally no emergency or back-up stocks are held
Close linkage with the firm and the supplier are essential
Computers are used extensively to connect demand, production and delivery
Cost savings are made, as stock levels are almost non-existent

20. What Is Meant By Quality?
E-Notes
What Is Meant By Quality?
QUALITY CONTROL
At certain points in the production process, products are checked to ensure that they meet agreed quality standards.
QUALITY CIRCLES
These involve small groups of workers meeting at regular intervals to discuss where improvements can be made.
TOTAL QUALITY MANAGEMENT (TQM)
This is a system of doing things right the first time. No errors are tolerated. All staff is involved in ensuring absolute quality of their work.
BENCHMARKING
Copying the best techniques used by another organisation regarded as the ‘best’.

21. What Are Customer Services?
E-Notes
What Are Customer Services?
politeness of staff
replacement of faulty goods
quick reaction to problems or complaints
efficient service
high quality goods sold
Recently businesses have become more ‘consumer-led’. This is because they know that by doing so they may:
increase their market share
keep their existing customers
attract new customers
All of the above are necessary if businesses are to survive and succeed.