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Business · Making operational decisions

Business operations

Businesses make products in one of three ways - job, batch or flow production - depending on how many they make and how different each one is. Technology is changing all three, affecting costs, productivity, quality and flexibility.

  • 6 key terms
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From Making Marketing Decisions

Answer from memory before the answers appear.

  • Name the three parts of the design mix.

    Function, aesthetics and cost.

  • What is an extension strategy?

    An action taken to extend a product's life.

  • What is cost-plus pricing?

    Adding a percentage mark-up to the cost of a product.

  • What is competitive advantage?

    Anything that makes a business more attractive to customers than its rivals.

Learning Objectives

  1. 1Explain the purpose of business operations.
  2. 2Explain job, batch and flow production, with their advantages and disadvantages.
  3. 3Explain what productivity is.
  4. 4Explain the impact of technology on production: costs, productivity, quality and flexibility.

What Are Business Operations?

Operations are the activities that turn inputs into the goods and services a business sells.

  • Inputs

    Raw materials, components, labour, machinery and energy.

  • The process

    Making, assembling, preparing or delivering the product or service.

  • Outputs

    Finished goods or services, sold to customers.

  • The aim

    To produce products of the right quality, at the right cost, in the right quantity, at the right time.

Three Production Processes

  • Job production

    One product made at a time, usually to a customer's individual order. Every product is unique - a wedding dress, a bespoke kitchen, a building.

  • Batch production

    A group of identical products made together, then the process switches to a different batch - loaves of bread, then rolls; a batch of red paint, then blue.

  • Flow production

    Identical products made continuously on a production line, often by machines - cars, cans of drink, chocolate bars.

Comparing Production Processes

  • Number made

    Job: One at a time. Batch: Groups of identical items. Flow: Huge numbers, continuously

  • Product

    Job: Unique, made to order. Batch: Same within a batch. Flow: Identical

  • Cost per unit

    Job: High. Batch: Medium. Flow: Low

  • Workers

    Job: Highly skilled. Batch: Semi-skilled. Flow: Mostly machines, less skilled

  • Flexibility

    Job: Very high. Batch: Some. Flow: Very low

  • Example

    Job: Wedding dress. Batch: Bread. Flow: Cars

Flexibility or Low Cost?

Job and batch production

  • Flexible: products can be changed or customised.
  • Suits small orders and variety.
  • Customers get what they want.
  • But: higher cost per unit.
  • Skilled staff are expensive.

Flow production

  • Very low cost per unit through economies of scale.
  • Consistent quality from machines.
  • Huge output.
  • But: expensive to set up.
  • Inflexible: hard to change the product, and boring, repetitive work.

Productivity

Productivity is the output produced per worker, or per machine, in a period of time.

  • Example

    A bakery worker who makes 400 loaves a day is more productive than one who makes 300.

  • Why it matters

    Higher productivity means more output for the same cost, so the cost of each unit falls.

  • How to raise it

    Better technology, training, and motivated staff.

The Impact of Technology on Production

  • Costs

    Machines are expensive to buy, but reduce labour costs and waste, so cost per unit falls over time.

  • Productivity

    Robots and automated machines work faster and non-stop, producing far more output.

  • Quality

    Computer-controlled machines make every product to exactly the same standard, with fewer mistakes.

  • Flexibility

    Modern computer-aided machines can be reprogrammed quickly, so even flow production can offer some variety.

Case study

Morgan: Still Built by Hand

The Morgan Motor Company has made cars in Malvern, Worcestershire, since 1910. While most car makers use flow production with thousands of robots, Morgan still builds its cars largely by hand, using skilled craftspeople and, on many models, a frame made partly of ash wood. Customers can choose colours, leather and details for their own car. Output is tiny compared with a mass-market factory and each car costs far more - but customers pay for a hand-built, personalised car that flow production could never offer.

1910 Morgan founded in Malvern
By hand How most of each car is built

Which Process?

Choose the best production process for each and explain why: a custom-built garden shed; 50,000 identical cans of cola a day; 200 birthday cards in each of 20 designs; a portrait painting; frozen pizzas in six flavours.

1. Choose job, batch or flow.

2. Explain your choice.

A good answer shows: Job for the shed and the portrait, flow for the cola, batch for the cards and the pizzas, each with a reason about quantity, variety and cost.

Can I...?

  1. 1Explain what operations are.
  2. 2Explain job production.
  3. 3Explain batch production.
  4. 4Explain flow production.
  5. 5Compare the three processes.
  6. 6Explain productivity.
  7. 7Explain how technology affects costs and productivity.
  8. 8Explain how technology affects quality and flexibility.

Summary & Exam Focus

  • Job production: unique products, high cost, very flexible.
  • Batch production: groups of identical products, some flexibility.
  • Flow production: identical products continuously, low unit cost, inflexible.
  • Technology affects costs, productivity, quality and flexibility.

Exam focus

Explain one impact on a business of introducing automated machinery into its production. (3 marks) (3 marks)

Technology questions have two sides: high set-up costs now, lower unit costs and better quality later. Use the business's context to decide which matters more.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Operations
The activities that turn inputs into goods and services.
Job production
Making one unique product at a time, usually to order.
Batch production
Making a group of identical products together before switching to another batch.
Flow production
Making identical products continuously on a production line.
Productivity
Output per worker or per machine in a period of time.
Automation
Using machines and computers to carry out tasks with little human input.

Questions and answers

8 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question Define 1 mark Foundation

Define the term 'batch production'.

Mark scheme — 1 mark available

  • Groups of identical products made together — 1 mark

Model answer

Making a group of identical products together before switching to make a different group.

2. Exam question Outline 2 marks Foundation

Outline one disadvantage of flow production.

Mark scheme — 2 marks available

  • A disadvantage identified, e.g. inflexible / high set-up cost / repetitive work — 1 mark
  • Developed — 1 mark

Model answer

It is inflexible (1), so it is difficult and expensive to change the product to meet different customer needs (1).

3. Exam question Explain 3 marks Foundation

Explain one impact on a business of introducing automated machinery into its production.

Mark scheme — 3 marks available

  • An impact identified, e.g. higher productivity / lower unit cost / consistent quality / high set-up cost — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

Productivity would increase (1). Machines can work faster than people and without breaks (1). This means more is produced for the same cost, so the cost per unit falls and the business could lower prices or increase profit (1).

4. Exam question Analyse 6 marks Core

Source: Oak & Grain Ltd makes wooden dining tables using job production. Each table is made to the customer's exact size and choice of wood by skilled carpenters, taking about two weeks. Its tables sell for £1,500 each. A large furniture retailer has asked Oak & Grain to supply 2,000 identical tables a year at £400 each. Analyse the impact on Oak & Grain Ltd of changing from job production to flow production to meet the retailer's order.

Mark scheme — 6 marks available

  • AO2 (Application, 3 marks): uses the context - made-to-order tables, £1,500 vs £400, 2,000 tables, skilled carpenters — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning about costs, output and flexibility — Level 1-3

Model answer

Flow production would let Oak & Grain make 2,000 identical tables far more quickly, using machines to cut and assemble each one. The cost per table would fall sharply, which is essential because the retailer will only pay £400, compared with £1,500 for a made-to-order table. This could greatly increase its total revenue. However, setting up a production line would be very expensive, and Oak & Grain's skilled carpenters may not be needed, or may leave. It would also lose flexibility: it could no longer make each table to the customer's size and wood choice, which is its current unique selling point. This means it risks losing its existing premium customers while depending heavily on one large retailer.

5. Multiple choice 1 mark Foundation

A wedding dress made to one customer's measurements is an example of:

  1. A Job production Correct
  2. B Batch production
  3. C Flow production
  4. D Automation

Why: A single unique product made to order is job production.

6. Multiple choice 1 mark Core

Which production process usually has the LOWEST cost per unit?

  1. A Job production
  2. B Batch production
  3. C Flow production Correct
  4. D They all cost the same

Why: Flow production makes huge numbers of identical products, giving economies of scale.

7. Multiple choice 1 mark Core

What is productivity?

  1. A The total revenue of a business
  2. B Output per worker in a period of time Correct
  3. C The number of products that are faulty
  4. D The cost of raw materials

Why: Productivity is output per worker (or machine) in a period of time.

8. Multiple choice 1 mark Stretch

How can modern computer-controlled machines make flow production more flexible?

  1. A They remove the need for any workers
  2. B They make every product unique by hand
  3. C They increase the cost of every product
  4. D They can be quickly reprogrammed to make variations Correct

Why: Computer-controlled machines can be reprogrammed quickly to make different versions of a product.