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Teaching guide: Decision making to improve operational performance (podcast)

These podcast teaching guides cover topics from our AS and A-level Business specifications. You can download them below.

Podcast 4: Decision making to improve operational performance

This podcast covers the specifications' fourth subject area, ‘Decision making to improve operational performance’. It includes: Setting operational objectives; Increasing efficiency and productivity; and Managing inventory and supply chains.

Transcript

Hello and welcome to the AQA AS and A-level Business podcast, supporting your teaching of our new specifications, available from September 2015.

We believe that our holistic approach to the study of business equips students with the academic as well as the practical skills they need to succeed – and helps the students of today develop the fundamental skills needed by the business leaders of tomorrow.

This podcast is the fourth of six, and covers the fourth subject area of the new specifications, ‘Decision making to improve operational performance’ in which we cover the following topics:

* Setting operational objectives;

* Increasing efficiency and productivity; and

* Managing inventory and supply chains.

Topic one: Setting operational objectives and analysing operational performance

In this part of the specification students need to consider the types of decisions operations managers might make and what influences these decisions will have on the organisation. These might include ethical or environmental factors: think of the debate over outsourcing to low wage economies, or the impact of increasing levels of consumer interest in how environmentally friendly a process is.

Technology is also a key issue for students to bear in mind when studying this topic. For example, technological advances have made mass customisation more feasible and have improved communication along the supply chain.

It is also important for students to link operations decisions to other functions of the business. A handy example to discuss is that expanding capacity may only be possible if the finance is in place, the demand is there and you have the right people and skills to provide the services required.

The decision making cycle can be a useful reference point throughout the teaching of this section of the specification. A starting point is the objectives that operations managers might set. These include targets such as costs, quality, speed of response and dependability.

Students need to think what might make some operational objectives more relevant or more important than others. A simple example of this is transport: buses versus taxis.

We want a bus service to be dependable (i.e. it arrives on time) but do not expect it to be particularly fast or flexible (it follows it set route). By comparison, we expect a taxi service to be flexible and take us where we want but do not expect it to be particularly cheap.

Businesses do not necessarily need to try and make all objectives equally important – indeed they are unlikely to be able to – and so there will be trade-offs. The more flexible a business wants to be the more expensive it might become. The better the quality it wants to achieve the more costs might increase.

Students therefore need to consider what are the key operational issues in a particular market – is it keeping costs down? Being able to deliver quickly? Being environmentally conscious? Again, stress the importance of context: all of these issues depend on how the business is going to compete.

Managers must analyse their operational position to decide what to do to reach their operational objectives. This will involve analysing operational data such as unit costs, capacity utilisation and labour productivity. Students need to be able to calculate and interpret their findings. They need to understand what might have caused changes in the data and analyse the significance of their findings in a given context. Labour productivity for a process that is very capital intensive may be much higher than for a labour intensive process, for example.

Topic two: Making operational decisions to improve performance: increasing efficiency and productivity

Students then need to be able to analyse the types of decision that operations managers might make to achieve the objectives. In relation to efficiency and productivity, managers might consider issues such as the level of capacity, how to increase labour productivity, lean production and the degree of capital intensity.

Building on the theme of the inter-related nature of business the focus should be on the impact of changes in these areas and what influences operations decisions:

* what might make it difficult to introduce lean production?

* why might a business be more labour intensive than capital intensive?

* why might a business be reluctant to invest in new technology?

Managers will also consider the level of quality they want to achieve. Students need to appreciate that quality measures the extent to which a process meets set targets rather than it necessarily being a “premium product”.

Some areas for discussion might include: how important is it that every cup of coffee in Starbucks is the same? That every car produced meets the same standards? That every phone call is answered in 5 minutes?

In reality there is always some variation in a service or product: the important question here is what amount of variation in output can a business accept? How many resources will it take to achieve a given level of quality? What standards need to be set? What difference does this make in terms of customer satisfaction and competitiveness? What are the costs of poor quality?

It is important for quality to be understood in terms of targets and measurable factors rather than seen as some vague description of a premium product. Students need to understand that a process can be very high quality whilst producing a relatively low price product: an example of this is McDonalds.

Topic three: Making operational decisions to improve performance: managing inventory and supply chains

In this topic we examine some more operational objectives such as how flexible the business can be in terms of the service or products it provides, how fast it can deliver and how dependable it is.

Once again, context is key: speed of delivery may be a competitive advantage in the world of Amazon but not as important when you are going out for an evening meal and are happy to take time over it.

It may be critical to business customers that flights arrive on time so they can get to their meetings; on a family holiday it may be more important that the overall experience is enjoyable and relaxing even if it takes longer.

Flexibility may be important if you are providing personalised products but less significant in fast food where speed of service may be more important to customers than being able to choose from a wide range of different meals or have it personally cooked to their own tastes.

Students should also appreciate the potential difficulties of matching supply and demand – how many sandwiches should you prepare or cakes should you make for the next day? Too few and you miss potential sales. Too many and you are left with unsold inventory.

Students should explore issues such as capacity levels, inventory levels, outsourcing, using part time and temporary labour and producing just in time. With each of these decisions there will be various factors to consider, including the impact on costs, on quality, on speed of delivery.

Managing inventory is a key part of matching supply to demand: students will need to consider a number of factors:

* how expensive is holding inventory?

* what are the consequences of running out of products?

Another important decision in operations is choosing suppliers. Students should be able to analyse the range of factors that might make a business choose one supplier rather than another, including:

* to what extent will a supplier impact on speed of delivery?

* will it affect the ability of the business to hit set quality standards?

The concept of the supply chain is important in this section. Students need to appreciate that a business often relies on others and therefore its choice of suppliers (and the supplier’s choice of their suppliers) are all important in terms of competitiveness.

Thank you for listening to this AQA business podcast. You can find information on the specifications and the resources available to support your teaching of them on the AQA website: just visit aqa.org.uk/business

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