Business operations: turning inputs into the thing the customer pays for
Definition
Business operations: everything a business does to turn its inputs into the goods or services it sells, and to get them to the customer.
- Operations is the doing part of a business, and every operation has the same three stages whatever is being sold.
- Inputs: the raw materials, staff time, machinery, energy and premises the business puts in.
- What the business does to them: the baking, assembling, cutting, cooking or advising that changes those inputs into something usable.
- Outputs: the finished good or the completed service the customer receives and pays for.
Example
- Greggs turns flour, fat, meat and bakers' time into hot food sold from shops on high streets and retail parks.
- The baking and the hot counter are what a customer will hand over money for, when a sack of flour is not.
- Greggs sells at low prices in high volume, so its operations have to hold the cost of making each item down or that price stops working.
The two purposes Edexcel names: to produce goods and to provide services
- To produce goods means making a physical product to the right specification, in the right quantity and on time, and each of those three fails in its own way.
- Wrong specification: the item does not do what was promised, so it comes back as a return and the business pays for the materials and labour twice.
- Wrong quantity: make too few and customers are turned away, make too many and cash sits in stock that may never sell.
- Late: the customer buys from a rival who had it ready, so the sale is lost and the marketing spent winning that customer is wasted.
- To provide services means delivering the service consistently every time, because a service is produced and consumed at the same moment.
- A service cannot be stored in a warehouse or inspected before the customer gets it the way a good can, so the checking has to be built into staff training and the process itself instead of happening at the end.
Common Mistake
- Do not write as though operations only happens in factories, because a gym, a bank and a barber all run an operations function.
- A poor haircut has already been delivered by the time the customer notices, so it cannot be pulled off the shelf and replaced.
- That is why a service failure usually costs a refund plus a customer who never books again, while a faulty good can at least be swapped.
Quality and cost: doing it right, and doing it cheaply enough to make money
- Managing quality is a purpose of operations because the product has to do what the customer expected it to do when they paid.
- Poor quality costs the business twice over, since it refunds revenue it had already counted and then pays again for the materials and labour of a replacement.
- Being efficient means getting the same output from fewer inputs, which pulls down the cost of producing each unit.
Note
- Quality control and quality assurance, the two systems used to manage quality, are covered in the guide on managing quality.
- How much stock to hold, and how suppliers are chosen, are covered in the guide on working with suppliers.
Why operations decides the price you can charge and whether customers come back
The same purposes are met in completely different ways depending on what is being sold.
| Local bakery | Car factory | Hairdresser | |
|---|---|---|---|
| Output | Goods, made fresh daily | Goods, made in huge volume | A service, nothing to store |
| Main inputs | Flour, ovens, bakers | Steel, robots, assembly staff | Stylist time, scissors, a chair |
| Operations priority | Freshness and daily timing | Low cost per car | The same result every visit |
| Cost of getting it wrong | Unsold stock thrown away | The whole line stops | The customer never returns |
- The priority row is the one that moves, so there is no single best way to organise operations, only the way that fits the product, and an exam answer has to fit the business in front of it.
- Operations set the cost of producing each unit, which sets the lowest price the business can charge and still make money, which in turn decides how it competes.
- Aldi and Lidl carry a narrower range so each line is bought and handled in bulk and sold cheaply, while Dyson spends heavily on engineering and charges a premium for the result.
- Operations also decide whether the order arrives when it was promised, which decides whether the customer comes back, and repeat customers cost far less to serve than the new ones marketing has to buy.
Exam technique
- Name the actual inputs and outputs of the business in the source booklet, because application marks are gated on that context rather than on "raw materials" in general.
- Say whether the business sells a good or a service before you write about quality, since a service cannot be checked before the customer receives it.
- When the command word is explain or analyse, carry the chain through: the operations problem, the effect on cost or on the customer, then the effect on profit.
- The link most often dropped is the last one, where an answer names a late delivery but never says the sale went to a rival.
Self review
- What are business operations?
- Name the three stages every operation has, and give one input and one output for a pizza takeaway.
- Give two ways producing goods can go wrong, and the consequence of each.
- Why can a service not be checked for quality before the customer receives it?
- Explain how the cost of producing each unit affects the price a business can charge.
