Setting Operational Objectives

AQA Business A Level

3.4 Decision Making to Improve Operational Performance
Learning Objectives
By the end of this topic you should be able to understand:

• The value of setting operational objectives

• Costs
• Quality
• Speed of response and flexibility
• Dependability
• Environmental Objectives
• Added Value
What is Operations?

Operations is a function of business concerned with the production of

goods and services and process after that till it is sold to both the
consumer and other businesses. After sale service is also a part of
operations e.g. Installing a washing machine.

• NOTE: Products are tangible such as

cars, tablets, phones. Services are
intangible such as mortgages,
transport or education.
Stages of the operations process-

The following is the stages of operations-

Raw Material manufacturing transportation retail disposal/recycling

The operation process has several stages and that there are several businesses involved in the supply
chain.

Note: 1. UK retailers have to give information to the customers on how they can return the goods if they
are faulty or if they do not want it. Also, information is given on how they can reuse or recycle items.

2. Different types of businesses have different operations for eg.

-For a courier service , the operation process would involve storing and transporting goods.
-For a search engine such as Google it will be gathering, analysing and distributing information.
Operations decision-making process involves -

1. Setting operational objectives.

2. Analysing the data collected from the operations
department.
3.Making the operations decisions based on the data.
4. Implementing the decisions
5. Reviewing to see if they are on target and taking
actions .
What is Production?
Production is the process by which inputs (resources) are
transformed into outputs in the form of product or service.

Example

Hops
Barley PRODUCTION
Yeast INPUTS OUTPUTS Beer
PROCESS
Water
Malt
Brewing
Fermentation
The Size and Nature of Firms
• The size of a business will often
determine the manufacturing
methods that they will use.

• The larger a business is, the more

finance they have available to
invest in capital and mass
production techniques.

• Bigger businesses also have a

larger customer base that need
products to be readily available.
SMEs

Smaller firms are more likely to

better understand the individual
needs of their customers.

They are more frequent users of

small-scale manufacturing
techniques such as batch
production.
Operations and Technology
• Improvements in modern technology have meant that customers,
retailers and manufacturers all have developed far closer
relationships.

• One of the main developments in operations has been the growth

of mass customisation.

• This is where mass produced goods are adapted to meet the

individual needs of customers.
The Workforce & Operations
For a firm that produces small-
scale, bespoke items that meet
the individual needs of
customers, higher skilled staff
are employed.

Such skills are expensive to employ

and develop further through training
but firms are able to charge a
premium price for the final product or
service provided.
The Workforce & Operations

Firms that utilise mass-production

(flow production) techniques do
not usually require highly skilled
staff.

Employees working in mass

production industries are often
cheaper to employ.
Operational Objectives
• Operational objectives are the targets set by the Operations function that specifically
relate to production.

• The objectives of the Operations function will relate directly to the overall corporate
objectives of the business.

EXAMPLE If the corporate objectives of a

company is to increase sales by 15%
across the next 2 years, then the
operational objectives might focus
upon improving production
capabilities.
Operational Objective Examples

QUALITY The operational objectives of a

business are influenced by the
OPERATIONAL OBJECTIVES

COSTS specific corporate aims and

priorities of that business. The
market is also continuously
FLEXIBILITY
changing and to be effective, a
firm’s operational objectives must
SPEED OF
RESPONSE regularly change to reflect this.
ENVIRONMENTAL
OBJECTIVES

ADDED VALUE
 Quality
• These quality targets might include:

Product is correct weight Product is correct colour Product is correct shape

• Quality in this context refer to whether the operational procedures have been followed
each and every time e.g. a low value budget item can still have quality if consistently
produced according to the manufacturers’ own quality targets.
Costs
• All firms seek to minimising costs so as to try and maximise
their profits and reduce unnecessary waste and inefficiency.

• Manufacturing costs are ultimately passed on to the end

customer in the form of the selling price for the good and so
higher costs for the manufacturer equate to higher prices for
the customer.

• If a product has a lot of substitutes then it will have a high

price elasticity value, and so a high selling price can make the
firm uncompetitive.
Methods of Cost Cutting

Switch Supplier
Restructuring Minimise Waste
• Change to a cheaper
• Firms might delayer
supplier for • Make a greater use of
i.e. Removing levels of materials. However,
the hierarchy. technology to reduce errors and
cheaper supplier reduce waste .
• Employees are one of means that quality • Stop producing unprofitable
a firm’s largest costs, will be affected
so if you reduce goods.
some, the cost can be
reduced.
 Flexibility
If a business can meet consumer needs more
precisely than others this may give it an
advantage. E.g. A tailor may make a suit to fit you
according to your needs .The more flexible a
business is, the better it will meet the demands
and increase the demand.
Methods of Improving Flexibility
Zero Hours Contracts
• Extra staff can be quickly added when needed to increase production levels.
• However, The lack of job security can create a negative response.

Lean Production
• Minimal inventory levels are held according to the demand for the product.
• Production linked to actual orders instead of producing first and then seeking
a customer.

Multi-Skilling
• Training of employees to enable them to do several tasks.
• Minimises disruption through absences, since staff can perform several tasks,
they can cover for staff who are absent.
Speed of Response
It refers to how quickly a business is able to produce/develop
their goods and supply it to the customer.
Customers perceive a direct correlation
between speed and the value of your
product or service. If your product is
delivered quick to the customer , then
it is very valuable.

Customers are often willing to pay a

premium price for faster delivery or
manufacturing lead times. The extra
speed however, must not be delivered
at the expense of product quality!
Environmental Objectives
• Modern business practices are often
carefully examined by stakeholders such
as the government and local community.

• New rules and regulations might force a

business to modify their activities e.g.
reduce carbon emissions. This could add
to a firm’s costs and this might be passed
on to customers in the form of higher
prices.

• Recent years have seen pressure for

increased recycling and reduced pollution
levels. Firms need to respond and modify
their operations or risk losing customers.
Wider Ethical Considerations
Business Location -The business
should act ethically while
selecting the location for the
business. For eg. Green belt
Employee Care Safety Features
areas should not be used as a
business location as it will effect
the wildlife etc. And it will be
ethically incorrect.

When conducting the

If technology is business operations it is
introduced in business, important that health
it can happen that the and safety measures are
productivity is improved followed to protect the
but then the employees employees even if it
lose their job security means the cost will
and the business needs increase so that you are
to have balance when considered as an ethical
introducing new business who care for
technology, so that the employees and
employees are therefore this can be the
protected USP for the product that
is manufactured.
 Added Value
Adding value is the process of increasing the worth of product by
modifying it in some way.

• Adding value is one of the main objectives of Operations.

• The aim is to make sure that the actual price charged for the final
product is worth more than the cost of its individual parts and assembly.

• Value can be added to both goods and services.

Ways of Increasing Added Value

Add Extra Raise Selling

Features Prices

Strengthen Increase
Branding Convenience
Branding adds value
• Branding provides a business with a means of differentiating their
good or service.

• Premium brands are able to sell their goods for a significantly

higher price.
 Raise Selling Prices
• One option to add value is to simply increase the selling price.
• However the success of this strategy depends upon the price elasticity of a
product or service.

• An item with a highly price elastic value will see a substantial decline in sales if
the selling price is raised and this will mean a fall in sales revenue.

• Also, in order to increase price you need to add certain features to your
product/service.
Added Value-

Consumers receive unique products

Increased brand recognition and Lower sales as prices rise
company image will improve Damage to the brand image if
Higher profits for the manufacturer customers feel exploited by the
Increased profits might see higher higher prices, if the added value is
shareholder dividends , therefore the not beneficial to the customers.
sale of shares for that business will Falling sales might see rising costs .
increase and this will help the
business to expand , as they can use
the money that they have got from
the shareholders for their business.
Defect Rate:
Reducing the defect rate is one of the objective of operations department.
Operations manager may measure the proportion of products that are
thrown away, have to be reworked or are sent back by customers for being
faulty. If there are too many defects the manager needs to take decisions
to reduce it.

Safety targets:
Operations manager may set targets to limit the health risk to employees
eg. They may aim to eliminate accidents and injuries.
Quick Fire Five
1. Analyse why raising the selling price might not be the best
way to add value to a product or service.
2. Identify 2 methods of cutting costs for a business.
3. Identify three key operational objectives for a business.
4. State the meaning of the term ‘mass customisation’.

Start 5 minutes End

Quick Fire Five - Solutions
Possible answers include:
 Objective Test
1 2
Which of the following is NOT one of Which option identifies two methods of
the main operational objectives of a adding value to the operations of a firm?
business?
a) Faster Response / Branding
a) Dependability b) Market Research / R&D
b) Market Research c) Cheaper Suppliers / R&D
c) Speed of Response d) Innovation / Market Research
d) Quality

4 A manufacturer of yoghurts may add

3 value to their products through all of the
Which operational objective is being
following factors except:
met when a firm is consistently meeting
their operational targets in relation to
a) Offering a home delivery service
the manufacturing of their good?
b) Offering customer specified flavours
a) Speed of Response c) Switching to a more expensive
b) Quality supplier
c) Cost d) Strengthening the branding of
d) Environment yoghurts
Objective Test- Answers
1 B Market research can be used to inform operational objectives.

2 A Speed of response means that a firm becomes more convenient.

A strong brand helps strengthen your firm’s image.

3 B The meeting of quality standards ensures consistency for a firm.

4 C Switching suppliers will add to a firm’s costs and reduce profits.

Exam Practice – Essay
Q. Adding value is the best way to ensure
business success . Evaluate . 15 marks
 INTRODUCTION- Adding value is the process of increasing the worth of product by modifying it in some way.
Adding value to the product may enable the business to achieve success in the future but there are other
factors as well which has to be taken into account.

Agree-2- 3 points and disagree – 2-3 points.

Agree ( write as a third person )

Point- Increasing the added value of a product or service can ensure future success of the business
Explanation- Because -----
Evidence- (Example)
Link- Therefore, thus, hence...

Disagree( write as a third person )

Point- However, Increasing the added value of a product or service may not ensure future success of the
business
Explanation- Because -----
Evidence- (Example)
Link- Therefore, thus, hence...

Conclusion- (Write as a first person)- In conclusion , I think …

Note: You can add few new points in the conclusion.
Essay - Solution
Key points to consider might include some of the following: