The factors in choosing a supplier (the purchasing mix), the management of inventory (stock control) including the costs of over-stocking and under-stocking, the methods of production (job, batch and flow), and the use of technology in operations.

What this dot point is asking

The SQA wants you to know how a business turns inputs into finished goods: how it chooses suppliers (the purchasing mix), how it manages inventory (stock control) and the cost of getting it wrong, the three methods of production (job, batch, flow), and how technology improves operations.

Choosing a supplier: the purchasing mix

A business buys raw materials and stock from suppliers, and choosing the right one affects cost, quality and reliability. The factors are known as the purchasing mix.

Managing inventory (stock control)

Inventory (stock) is the raw materials, work in progress and finished goods a business holds. Holding the right amount is a balancing act, because both too much and too little are costly.

• Over-stocking (holding too much): ties up money in stock that could be used elsewhere, costs more to store, and risks stock going out of date, being damaged or stolen.
• Under-stocking (holding too little): risks running out, which halts production, delays orders and loses sales and customer goodwill.

To control stock, a business sets a maximum level (the most it will hold), a minimum level (a buffer it should not fall below), and a re-order level (the point at which it orders more), so a re-order arrives before stock runs out.

Methods of production

A business chooses how to make its product, depending on the product and the size of the market.

• Job production: one unique item made at a time, to a customer's exact order (a wedding cake, a tailored suit, a bridge). Highly customised and good quality, but slow and expensive per unit.
• Batch production: a group of identical items made together before switching to the next batch (a run of loaves, then a run of rolls). More efficient than job and allows variety, but machines stand idle between batches and there is less customisation.
• Flow production: large numbers of identical items made continuously on a production line (bottled drinks, cars). Very fast with a low cost per unit, but needs heavy investment and offers no customisation; a fault can stop the whole line.

Technology in operations

Technology has transformed how businesses produce and manage stock:

• Automated stock control using barcodes updates inventory instantly as items are sold or used, so re-ordering is accurate.
• EPOS (Electronic Point of Sale) tills record every sale, total takings and reduce stock automatically.
• CAD (Computer-Aided Design) designs products on screen quickly and accurately before they are made.
• CAM (Computer-Aided Manufacture), including robots and 3D printers, makes products automatically with speed and consistency.

Technology raises speed, accuracy and consistency and lowers cost, but it is expensive to buy and can put people out of work.

Try this

Q1. Identify two factors in the purchasing mix. [1 mark]

• Cue. Any two of: price, quality, reliability, quantity, lead time.

Q2. Describe one cost of under-stocking. [2 marks]

• Cue. Running out of stock halts production and loses sales and customer goodwill.

Q3. Outline which method of production suits making one-off tailored suits. [2 marks]

• Cue. Job production, because each suit is a unique item made to a customer's exact order.