Combo with IB Business and Management Marketing 4.

1 The Role of Marketing and 15 others

Study online at quizlet.com/combine/11527899,11616945,12012678,12312615,12455035,12510327,12600571,12600752,17338
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Asset-Led Marketing Market Leaders Market Orientation Market Share Marketing

A business strategy based on the core strengths (core competencies) of the firm. Businesses that adopt this approach use their core assets, such as brand name, to develop and launch new products. Are firms that dominate the market share in a particular market. The business that has the largest market share in an industry, as measured by value or volume of sales, is called the market leader. Is an approach adopted by businesses that are OUTWARD looking. They focus on making products that they can sell, rather than selling products they can make. Measures the value of a firm's sales revenue as a percentage of the industry's total; e.g. a business with 35% market share means that for every $100 sold in the industry, the firm earns $35 of the sales revenue. The management task that links the business to the customer by identifying and meeting the needs of customers profitably. It does this by getting the right PRODUCT at the right PRICE at the right PLACE with the right PROMOTION. A review of the firm's current marketing mix, in terms of its strengths, weaknesses, opportunities and threats. The main elements of a firm's marketing strategy: PRODUCT, PRICE, PROMOTION & PLACE. The document outlining a firm's marketing objectives and strategies for a specified time period. Any medium-to long-term plan for achieving the marketing objectives of a business. A marketing approach adopted by businesses that are INWARD looking. They focus on selling products they can make, rather than making products they can sell. Any activity that seeks to influence social behaviour to benefit the target audience and society as a whole. It DOES NOT mean SOCIAL MEDIA (e.g. Facebook). Markets for goods and services bought by the final user of them. Markets for goods and services bought by businesses to be used in the production process of other products. The total level of sales of all producers within a market. The percentage change in the total size of a market (volume or value) over a period of time. Refers to the use of people in the marketing mix. CRM focusses on what can be gained during the lifetime of a positive relationship with customers.

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Marketing Audit Marketing Mix Marketing Plan Marketing Strategy Product Orientation Social Marketing Consumer Markets Industrial Markets Market Size Market Growth Customer Relations Management (CRM) Ethical marketing Five forces analysis Market research Marketing audit Marketing mix Packaging Physical evidence Position map Primary research Process

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The moral aspects of a firm's marketing strategies. It can be encouraged by the use of moral codes of practice. Michael Porter's model of assessing the nature of competition within an industry by examining five variables (or forces): new entrants, existing competitors, substitutes, suppliers and buyers. The range of marketing activities designed to discover the opinions, beliefs and feelings of potential and existing customers to identify and anticipate the needs and wants of customers. A systematic examination and review of the current position of a firm in terms of its strengths and weaknesses. The four main elements of marketing strategies: PRODUCT, PRICE, PROMOTION and PLACE. (The 4Ps) The eighth 'P' in the marketing mix which focuses on the ways in which a product is presented to the consumer. The image portrayed by a business (or perceived by customers) regarding its observable and tangible features such as the cleanliness and physical size of a business or the presentation of its staff. A visual aid that shows customers' perception of a product or brand in relation to others in the market. Involves data being collected by the researcher since the dtaa does not currently exist. Part of the extended marketing mix which refers to the methods and procedures used to give clients the best possible customer experience.

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Qualitative research Quantitative research Quota sample Random sample Repositioning Sales forecasting Sampling Secondary research Segmentation Targeting Unique Selling Point (USP) Coordinated marketing mix Marketing objectives Marketing strategy Test marketing Sampling error Stratified sampling Cluster sampling Quota sampling Snowball sampling Market segment Market segmentation Consumer profile Target market Corporate image Trend Seasonal variations.

Focusses on the comments, suggestions and opinions of respondents. Qualitative research data are not statistical but can generate in-depth findings. Focusses on the collection and interpretation of statistical and numerical data for market research purposes. A sampling method that involves segmenting the population and then selecting a certain number (the quota) in each market segment. A sampling method that gives every person in the population an equal chance of being selected. A strategy that involves changing the market's perception of a product or brand relative to those offered by rival firms. A quantitative technique that attempts to estimate the level of sales a business expects to achieve, over a given time period. The practice of selecting a representative group (known as the sample) of a population for primary research purposes. Using data and information that has already been collected by another party; i.e. the data or information already exists. The process of categorising customers into distinct groups of people with similar characteristics (such as age or gender), and similar wants or needs for research and targeting purposes. Each distinctive market segment will have its own marketing mix. Different markets can also be targeted, depending on whether they operate in niche, differentiated or mass markets. Any aspect of a product that makes it stand out from those offered by rival businesses. Key market decisions complement each other and work together to give customers a consistent message about the product. The goals set for the marketing department to help the business achieve its overall objectives. A long term plan established for meeting marketing objectives. Marketing a new product in a geographical region before the full scale launch. Errors in research caused by using a sample for data collection rather than the whole target population. Draws a sample from a specified sub-group or segment of the population and uses random sampling to select an appropriate number from each stratum. Using one or a number of specific groups to draw samples from and not selecting the whole population; e.g. using one region or town. Gathering data from a group chosen out of a specific sub-group; e.g. a researcher may ask 100 individuals between the ages of 20 and 30 years. Using existing members of a sample study group to recruit further participants through their acquaintances. A sub-group of a whole market in which consumers have similar characteristics. Identifying different segments within a market and targeting different products or services to them. A quantified picture of consumers of a firm's products, showing proportions of age groups, income levels, location, gender and social class. The market segment that a particular product is aimed at. Consumer perception of a company behind a brand. Underlying movement of the data in a time series. Regular and repeated variations that occur in sales data within a period of 12 months or less.

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Cyclical variations Random variations Boston Matrix Brand development Brand extension Branding Cash cow Consumer goods Differentiation Product differentiation Extension strategy Generic brands New product development (NPD) Marketing myopia Product Product line

Variations in sales occurring over periods of time of much more than a year. May occur at any time and will cause unusual and unpredictable sales figures; e.g. exceptionally poor weather, or negative public image following a high-profile product failure. Is a tool for analysing the product portfolio of a business. It measures whether products have a high or low MARKET SHARE and operate in HIGH or LOW GROWTH industries. Is a long-term product strategy that involves strengthening the name and image of a brand in order to boost its sales. Refers to the use of an existing brand name that is successful to launch a new or modified product. Refers to the use of an exclusive name, symbol or design to identify a specific product or business. It is used to differentiate itself from similar products used by rival firms. Is a term used by the BCG Matrix to refer to any product that generates significant sales revenue due to its large market share in a slowly expanding or mature market. Are items bought by the final user for their own personal consumption. Examples include CONSUMER DURABLES (such as furniture, computers and cars) and PERISHABLES (such as flowers and food) Refers to any strategy used to make a product appear to be dissimilar from others. Examples include quality, branding and packaging. Refers to any strategy used to make a product appear to be dissimilar from others. Examples include quality, branding and packaging. Is an attempt by marketers to lengthen the product life cycle of a particular product. Such strategies are typically used during the maturity or early decline stages of a product's life cycle. Are trademarks that have become synonymous with the name of the product itself. Examples include Coke, Rollerblade, Tipp-Ex and Frisbee. Is the process of getting the latest products on to the market. The easiest way is by making small improvements to existing products. Alternatively, a business could develop and launch entirely new products. Refers to the short-sightedness and complacency of marketers in adapting to changes in the market place. This may be especially true of product orientated businesses. A broad term that refers to any physical or non physical item that is purchased by either commercial or private customers. Describes the varieties of of a particular product that serves the same purpose in a particular market. For example there are many different varieties of the BMW Mini, ranging from the basic model to the top of the range Mini Cooper S. Describes the variety of different product lines that a business produces. Is the typical process that products go through from their initial design and launch to their decline and withdrawal from the market. Research. Launch. Growth. Maturity. Saturation. Decline.

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Product mix Product life cycle Six stages of the product life cycle Product portfolio Product range Stars Strategic business unit (SBU)

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The range of products or strategic business units owned and developed by an organisation. All product lines of a firm's product mix; i.e. all the products sold by the business. Are products in the BCG Matrix that have high or rising market share in a high growth market. Are businesses or divisions owned by a firm that operate as independent profit centres. Each SBU is in charge of a certain product or product portfolio.

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Family branding Product branding Company or corporate branding Own-label branding Manufacturer's brands Brand Cost-Plus Pricing Marginal-Cost Price Contribution-Cost Pricing Full-Cost Pricing Absorption-Cost Pricing Competition-Based Pricing Price Leadership Predatory Pricing Going-Rate Pricing Penetration Pricing Market Skimming Loss Leader Psychological Pricing Promotional Pricing Price Elasticity of Demand Income Elasticity of Demand Cross Elasticity of Demand Advertising Elasticity of Demand Complements Cost-Based Pricing

A marketing strategy that involves selling several related products under one brand name (also known as umbrella branding). Each individual product in a portfolio is given its own unique identity and brand image (also known as individual branding). The company name is applied to products and this becomes the brand name. Retailers create their own brand name and identity for a range of products. Producers establish the brand image of a product or family of products, often under the company's name. An exclusive name, symbol or design used to identify a specific product or business. Adding a fixed mark-up for profit to the unit price of a product Basing the price on the extra cost of making one additional unit of output Setting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit. Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit mark-up. (Absorption-Cost Pricing) Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit mark-up. (Full-Cost Pricing) A firm will base its price upon the price set by its competitors One dominant firm in a market sets a price and other firms simply charge a price based upon that set by the market leader. Deliberately undercutting competitors' prices in order to try and force them out of the market The price charged is based upon a study of the conditions that prevail in a certain market and the prices charged by major competitors Setting a relatively low price often supported by a strong promotion in order to achieve a high volume of sales Setting a high price for a new product when a firm has a UNIQUE or HIGHLY DIFFERENTIATED product with low price elasticity of demand (Skimming) Product sold at a very low price to encourage consumers to buy other products Setting prices that take account of customers' perception of value of the product Special low prices to gain market share or sell off excess stock - includes 'buy one get one free' Measures the responsiveness of demand following a change in price Measures the responsiveness of demand for a product following a change in consumers' incomes Measures the responsiveness of demand for a product following the change in the price of another product Measures the responsiveness of demand for a product following a change in the advertising spending on it

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Are products which are jointly demanded as demand for one often depends on the demand for the other. (e.g. petrol and cars, popcorn and soda, cellphones and cellphone calling plans) Setting prices based on the COSTS OF PRODUCTION rather than the level of demand or the prices set by competitors

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Demand Price Discrimination Price War Skimming Substitutes Supply Law of Supply Law of Demand Promotion Above-the-Line Promotion Below-the-Line Promotion Promotion Mix Advertising Personal Selling Publicity Pull Promotion Push Promotion Sales Promotion Sponsorship Word of Mouth (WOM) Channel of distribution Agent Broker Supply chain management Direct mail Direct marketing

The amount of products that customers are willing and able to buy at each price. For the vast majority of products, as the price increases, demand will tend to fall A pricing strategy that involves charging different prices to different groups of customers for the same product (e.g. child and adult fares at the cinema and on flights) Firms compete by a series of intensive price cuts Setting a high price for a new product when a firm has a UNIQUE or HIGHLY DIFFERENTIATED product with low price elasticity of demand (Market Skimming) Products in competitive demand; i.e. they can be purchased instead of the other (e.g. Coke and Pepsi, private and public schooling) Is the amount of product that firms are willing and able to provide at each price level. As the price of a product increases, its supply will tend to rise (e.g. if the price of corn rises, more corn and less wheat will be supplied) As the price of a product increases, its demand will decrease (e.g. if the price of petrol rises, more people will catch public transport, walk or eventually buy smaller, more eco-friendly cars) The use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorship and public relations to inform consumers and persuade consumers to buy A form of promotion that is undertaken by a business by paying for communication with consumers; e.g. advertising Promotion that is not a directly paid-for means of communication but based on short-term incentives to purchase The combination of promotional techniques that a firm uses to communicate the benefits of its products to customers A method of informative and/or persuasive promotion that has to be paid for. The ultimate aim of advertising is to raise the level of demand for a firm's products. A form of promotional technique that relies on keen and knowledgeable sales staff directly helping and persuading customers to make a purchase The process of promoting a business and its products by getting media coverage without directly paying for it Refers to promotional methods, such as pester power marketing or television advertising, that lure customers into buying a product Refers to using intermediaries, such as real estate agencies, bloggers or financial consultants, to help sell products A short-term incentive designed to stimulate sales of a product; e.g. discount coupons, prize draws, trade fairs and free product samples A promotional technique which involves a business funding, supporting or donating resources for an event or business venture in return for prominent publicity The spreading of good or bad messages about a firm, its products or its customer service. Many people argue that this is the most cost-effective form of promotion The chain of intermediaries a product passes through from producer to consumer Business with authority to act on behalf of another firm; e.g. to market its products A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation The process of managing the network of businesses that are involved in the provision of products to the final consumer Promotional material sent directly to people's homes or place of work Any promotional activity that involves making direct contact with existing or potential customers, such as door-todoor selling, personal selling and direct mail

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Distribution Distributors Intermediaries Telemarketing Retailers Wholesalers International Marketing Pan-Global Marketing Global Localisation Global marketing Business etiquette Exporting Direct Investment E-Commerce Joint Ventures Strategic Alliances Franchising Mergers Acquisitions Takeovers Economies of Scale E-Commerce Viral Marketing B2B B2C Clicks and Mortar E-tailers

The process of getting products to customers at the right time and in the most cost-effective way; it is the PLACE in the marketing mix Are independent businesses that act as intermediaries by specialising in the trade of products made by certain manufacturers Agents or firms that act as a middle person in the chain of distribution between the producers and consumers of a product The use of telephone systems (calls and messaging) to sell products directly to consumers (also called telesales) The sellers of products to the general public (i.e. consumers) that operate in outlets Businesses that purchase large quantities of products from a manufacturer and then separate or 'break' the bulk purchases into smaller units for resale to retailers Selling products in markets other than the original domestic market Adopting a standardised product across the globe as if the whole world were a single market - selling the same good in the same way everywhere Adapting the marketing mix, including differentiated products, to meet national and regional tastes and cultures Adopting a standardised product across the globe as if the whole world were a single market - selling the same good in the same way everywhere The manner, social and cultural context in which business is conducted. International etiquette differs from one country to another so it is important for marketers to be aware of the different protocols that exist The practice of selling domestically produced goods and /or services to overseas buyers to gain access to international markets A business setting up a production and/or distribution facilities in foreign countries Trading via the internet When two or more companies invest in a shared business project, pooling their resources to form a SEPARATE BUSINESS. The companies retain their separate legal identities but share the risks and returns from the joint venture When two or more businesses pool their human, capital and financial resources in a SHARED PROJECT. They DO NOT form a new business with a separate legal identity A business allowing others to trade under its name in return for a fee and a share of the profits Two businesses (occasionally more) agree to integrate as a single organisation. This is when another business buys out another by purchasing a majority stake in the target company This is when another business buys out another by purchasing a majority stake in the target company Reductions in a firm's unit (average) costs of production that result in an increase in the scale of operations; i.e. by producing more The buying and selling of goods and services on the internet The use of social networking sites or SMS text messages to increase brand awareness or sell products Stands for business-to-business and refers to online trade conducted directly for the BUSINESS CUSTOMER rather than the end-user; an example would be Amazon.com supplying books to other book retailers Stands for business-to-consumer and refers to online business conducted directly for consumers;p an example would be Amazon.com selling books directly to private individuals Refers to businesses that combine the traditional main-street existence with an online presence. By contrast, other businesses may have just an online presence (e.g. Zappos.com) Are businesses that operate predominately online (e.g. Zappos.com). They are different to retailers that operate physical stores in shopping malls and other physical outlets

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Online Presence Spam Search Engines SEO Search Engine Optimization Price Transparency Production methods:

A business has a dedicated website for e-commerce. This could be limited to providing information about the business and its products,and may extend to selling products online. Unwanted e-mail (usually of a commercial nature sent out in bulk) Find web pages related to your request; e.g. Google, Bing and Yahoo! Search Engine Optimisation A systematic process of ensuring that a firm comes up at or near the top of lists of typical search phrases related to that business The ease with which consumers can find out the variety of prices in a market 1. Job production 2. Batch production 3. Flow production and mass production 4. Mass customisation 5. Cell production Producing a one-off item specially designed for the customer Producing a limited number of identical products - each item in the batch passes through one stage of production before passing onto the next stage Producing items in a continually moving process - also known as line production Producing large quantities of a standardised product The use of flexible computer-aided production systems to produce items that meet individual customer requirements at mass production cost levels 1. Size of the market 2. The amount of capital available 3. The availability of other resources 4. Market demand for products adapted to customer requirments Finance: - cost of equipment needed to handle large numbers in each batch - additional working capital needed to finance high levels of stocks and work in progress Human Resources: - less emphasis placed on individual's craft skills Marketing: - can no longer promote product as being 'customised to each consumer' - may have to promote the benefits of lower prices and consistent quality Finance: - cost of equipment needed for flow production - any production delays during the change-over period may impact cash flow Human Resources: - risk of low motivation and boredom if traditional line production techniques are used Marketing: - mass production requires mass marketing so market research will be essential to identify largest market segments - accurate estimates of future demand to ensure that output matches demand - promotion and pricing decisions will have to be geared towards a mass marketing approach not niche marketing, so the orientation of the business may have to change

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Job production Batch production Flow production Mass production Mass customisation Factors influencing choice of production method:

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Impact of changing production methods from Job to Batch

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Impact of changing production methods from Batch to Flow

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Impact of changing production methods from Batch or Flow to Cell Production

Finance: - expensive CAM methods may be needed to allow cells to switch from one product to another Human Resources: - recruitment of flexible, adaptable staff keen to work in teams - staff training will be needed to achieve multi-skilling Marketing: - productivity and quality improvements should allow competitive pricing and promotion of the improved quality products The manufacturing or provision of a product relies heavily on machinery and equipment, such as automated production systems. Hence, the cost of capital accounts for a higher proportion of a firm's overall production costs. Measures the level of labour and/or capital efficiency of a business by comparing its level of inputs with the level of its output The method of of turning inputs into outputs by adding value in a cost-effective way The division of a large task or project into smaller tasks that allow individuals to concentrate on one or two areas of expertise. Specialisation is an essential part of mass production. Producing an identical or homogeneous product in large quantities, such as printing a particular magazine, book or newspaper Single one-off items Group of identical products pass through each stage together Mass production of standardised products Flow production with many standardised components but customised differences too Highly skilled workforce Labour and machines must be flexible to switch to making batches of other designs - Specialised, often expensive, capital equipment - but can be very efficient - High steady demand for standardised products - Many common components - Flexible and multi-skilled workers - Flexible equipment - often CAM to allow for variations in the product - Able to undertake specialist projects or jobs, often with high value added - High levels of worker motivation - Some economies of scale -Faster production with lower unit costs than job production -Some flexibility in design of product in each batch - Low unit costs due to the constant working of machines, high labour productivity and economies of scale - JIT stock management easier to apply than with other methods - Combines low unit costs with flexibility to meet customers' individual requirements - High unit production costs - Time consuming - Wide range of tools and equipment needed - High levels of stocks at each production stage - Unit costs likely to be higher than with flow production

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Capital intensive

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Productivity Production process Specialisation Standardisation Main feature of job production Main feature of batch production Main feature of flow/mass production Main feature of mass customisation Essential requirements of job production Essential requirements of batch production Essential requirements of mass/flow production Essential requirements of mass customisation Main advantages of job production Main advantages of batch production Main advantages of mass/flow production Main advantages of mass customisation Main limitations of job production Main limitations of batch production

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Main limitations of flow/mass production Main limitations of mass customisation CAM Computer Aided Manufacturing Economies of scale Cell production Types of financial costs:

- Inflexible - often very difficult and time consuming to switch from one type of product to another - Expensive to set up flow-line machinery and each section needs to be carefully synchronised - Expensive product redesign may be needed to allow key components to be switched to allow variety - Expensive flexible capital equipment needed Computer Aided Manufacturing Using computers to operate and control machines and processes to manufacture a product Factors that cause a producer's average cost per unit to fall as output rises Splitting flow production into self-contained groups that are responsible for whole work units 1. Direct costs 2. Indirect costs 3. Fixed costs 4. Variable costs 5. Semi-variable costs 6. Marginal costs These costs can be clearly identified with each unit of production and can be allocated to a cost centre Costs that cannot be identified with a unit of production or allocated accurately to a cost centre - also known as overhead costs 1. Production overheads - factory rent and rates, depreciation of equipment and power. 2. Selling and distribution overheads - warehouse, packing and distribution costs and salaries of sales staff. 3. Administration overheads - office rent and rates, clerical and executive salaries 4. Finance overheads - interest on loans Remain unchanged (fixed) no matter what the level of output, such as rent of premises Costs that vary with output, such as purchases of flour at a bakery These include both a fixed and a variable cost element, such as a salesperson's fixed basic salary plus a commission that varies with sales The extra cost of producing one more unit of output (additional variable costs), such as the extra cost of producing loaf of bread number 101 after having already produced 100 loaves. The income received from the sale of a product Total income from the sale of all units of the product (Revenue = Quantity x Price) All costs of operating the business during a time period have to be subtracted from total revenue to obtain a profit figure Business income that is not received from sales of products; for example: - the sale of fixed assets - rent from factory or office space received from another business - dividends on shares held in another business - interest on deposits held in a bank Selling price of a product less variable costs per unit Total revenue from sale of a product less total variable cost of producing it A section of a business, such as a department, to which costs can be allocated or charged, such as the restaurant in a hotel A section of the business to which both costs and revenues can be allocated, such as each branch of a chain of shops

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Direct costs Indirect costs Examples of indirect costs:

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Fixed costs Variable costs Semi-variable costs Marginal costs Revenue Total revenue Profit Non-operating income

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Contribution per unit Total contribution Cost centre Profit centre

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Advantages of operating cost and profit centres:

1. Managers and staff will have targets to work towards which should be motivating 2. Targets can be compared with actual performance to identify high and low performing aspects of the business 3. Individual performances of divisions and their managers can be assessed and compared 4. Different aspects of the business can be monitored (e.g., individual prices) and decisions made about the future 1. Managers and workers may consider their part of the business to be more important than the whole organisation 2. Some costs - indirect costs - can be impossible to allocate between cost and profit centres accurately 3. Reasons for poor performance of a profit centre may be due to external factors outside of its control Costing method that only allocates direct costs to cost/profit centres not overhead costs 1. Overhead costs are not allocated to cost centres, so contribution costing avoids inaccuracies and arbitrary allocations of these costs. 2. Decisions about a product or department are made on the basis of contribution to overheads - not 'profit or loss' based on what might be inaccurate full-cost calculation. 3. Excess capacity is more likely to be effectively used, as orders or contracts that make a positive contribution will be accepted. 1. By ignoring overhead costs until the final calculation of the business's profit or loss, contribution costing does not consider that some products and departments may actually incur much higher fixed costs than others. 2. Single-product firms have to cover fixed costs with revenue from this single product, so using contribution costing is less likely to be appropriate. 3. It emphasises contribution in decision-making. It may lead managers to choose to maintain the production of goods just because of a positive contribution - perhaps a brand new product should be launched instead which could, in time, make an even greater contribution. 4. Qualitative factors in decision-making may be important too, such as the image a product gives a business. 5. Products with a low contribution may be part of a range of goods produced by the firm and to cease producing one would reduce the appeal of the whole range. The level of output at which total costs equal total revenue Selling price of a product less variable costs per unit The amount be which sales level exceeds the break-even level of output The amount of revenue needed to cover both fixed and variable costs so that the business breaks even (Breakeven quantity x Price)

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Disadvantages of operating cost and profit centres: Contribution costing Advantages of using contribution costing:

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Disadvantages of using contribution costing:

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Break even point of production Contribution per unit Margin of safety Break even revenue Features of a breakeven chart

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Calculating Break-Even level of production: TR = TC Rule

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Calculating Break-Even level of production: Unit Contribution Rule

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Unit contribution calculation Features of a break-even chart with Margin of Safety

Price - AVC

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Calculating break-even level of production with a Profit Target

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Benefits of Break-Even Analysis:

1. Charts are relatively easy to construct and interpret. 2. It provides useful guidelines to management on break-even points, safety margins and profit/loss levels at different rates of output. 3. Comparisons can be made between different options by constructing new charts to show changed circumstances. 4. The equation produces a precise break-even result. 5. Break-even analysis can be used to assist managers when taking important decisions, such as location decisions, whether to buy new equipment and which project to invest in. 1. The assumption that all costs and revenues are represented by straight lines in unrealistic. 2. Not all costs can be conveniently classified into fixed and variable costs. The introduction of semi-variable costs will make the technique more complicated. 3. There is no allowance made for stock levels on the break-even chart. It is assumed that all units produced are sold. This is unlikely to always be the case in practice. 4. It is also unlikely that fixed costs will remain unchanged at different output levels up to a maximum capacity. A good or service that meets customers' expectations and is therefore 'fit for purpose'

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Limitations of Break-Even Analysis:

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Quality product

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Quality standards Advantages of producing quality products and services are:

The expectations of customers expressed in terms of the minimum acceptable production or service standards 1. Easier to create customer loyalty 2. Saves on costs associated with customer complaints; e.g. compensation and replacement 3. Defective products and loss of customer goodwill 4. Less advertising may be necessary as the brand will establish a quality image through the performance of its products 5. A higher price - premium price - could be charged for such goods and services. Quality can, therefore, be profitable. This is based on the inspection of the product or a sample of products This is a system of agreeing and meeting quality standards at each stage of production to ensure customer satisfaction 1. Prevention: this is the most effective way of improving quality. The design of the product should follow requirements of the customer and allow for accurate production. Quality should be 'designed into' a product. 2. Inspection: traditionally this has been the most important stage, but it does have high costs and these could be reduced by 'zero-defect manufacturing (TQM). 3. Correction and improvement: this is not just about correcting faulty products but is also concerned with correcting the process that caused the failure in the first place, to improve quality in the future. 1. It is looking for problems and is, therefore, negative in its culture. It can cause resentment among workers (inspectors believe they have been 'successful' when finding faults). Workers are likely to view the inspectors as management employees who are there just to check on output and find problems with the work. 2. The job of inspection can be tedious, so inspectors become demotivated and may not carry out their tasks efficiently. 3. If checking takes place only at specific points in the production process, then faulty products may pass through several production stages before being identified - extra cost and time wasted. 4. The main drawback is that it takes away from the workers the responsibility for quality (inspectors now assume this responsibility) which can be demotivating and will result in lower quality output. 1. Puts much more emphasis on prevention of poor quality by designing products for easy fault-free manufacture, rather than inspecting for poor-quality products - "getting it right first time". 2. Stresses the need for workers to get it right the first time and reduces the chances of faulty products occurring or expensive reworking of faulty goods. 3. Establishes quality standards and targets for each stage of the production process. 4. Checks components, materials and services bought into the business at the point of arrival or delivery - not at the end of the production process by which stage much time and many resources may have been wasted. 1. It makes everyone responsible for quality - this can be a form of job enrichment. 2. Self-checking and making efforts to improve the quality increases motivation. 3. The system can be used to 'trace back' quality problems to the stage of the production process where a problem might have been occurring. 4. It reduces the need for expensive final inspection and correction or reworking of faulty products. 1. To involve all staff and this can promote team work and a sense of belonging which aids motivation. 2. To set quality standards for all stages of production so that all materials and all production phases are checked before it is 'too late' and the whole product has been completed . 3. To reduce costs of final inspection as this should become less necessary as all stages and sub-sections of the process have been judged against quality standards. 4. To reduce total quality costs by instilling in the whole organisation a culture of quality, it is possible for quality assurance to lead to reduced costs of wastage and faulty products. 5. To gain accreditation for quality awards, e.g, ISO 9000. Internationally recognised certificate that acknowledges the existence of a quality procedure that meets certain conditions.

233. 234.

Quality control Quality assurance Three stages of effective quality control:

235.

236.

Weaknesses of inspecting for quality:

237.

How quality assurance is different from quality control:

238.

Advantages of quality assurance:

239.

Why it is important to establish quality assurance systems:

240.

ISO 9000

241.

To obtain ISO 9000 accreditation a firm must demonstrate that it has:

1. Staff training and appraisal methods 2. Methods for checking on suppliers 3. Quality standards for all areas of the business 4. Procedures for dealing with defective products and quality failures 5. After-sales service An approach to quality that aims to involve all employees in the quality improvement process Producing goods and services with the minimum of wasted resources while maintaining high quality People within the organisation who depend upon the quality of work being done by others The aim of achieving perfect products every time Japanese term meaning continuous improvement 1. Management culture must be directed towards involving staff and giving their views and ideas importance (the experience of workers in their day-to-day jobs is invaluable). 2. Team working - suggesting and discussing new ideas to improve quality or productivity is best done in groups. Each Kaizen group should meet regularly. 3. Empowerment - by giving each Kaizen group the power to take decisions regarding workplace improvements, this will allow speedier introduction of new ideas and motivate staff to pursue further ideas. 4. All staff should be involved. 1. Some changes cannot be introduced gradually and may need a radical and expensive solution. 2. There may be real resistance from senior managements due to their existing culture (especially authoritarian managers). 3. At least in the short-term there may be tangible costs to the business of such a scheme, such as staff training to organise meetings and lost output as a result of meeting time. 4. The most important advances tend to be made early on during the Kaizen programme, with later changes showing diminishing returns. Comparing the performance - including quality - of a business with performance standards throughout the industry 1. Identify the aspects of the business to be benchmarked. 2. Measure performance in these areas. 3. Identify the firms in the industry that are considered to be the best. 4. Use comparative data from the best firms to establish the main weaknesses in the business. 5. Set standards for improvement. 6. Change processes to achieve the standards set. 7. Re-measurement. 1. Offers a faster and cheaper way of solving problems than firms attempting to solve production or quality problems without external comparisons. 2. Areas of greatest significance for customers are identified and action can be directed to improving these. 3. A process that can assist the firm to increase international competitiveness. 4. Comparisons between firms in different industries, such as customer service departments in a retailer compared to a bank, can encourage a useful cross-over of ideas. 5. If the workforce is involved in the comparison exercise, then their participation can lead to better ideas for improvement and increased motivation. 1. The process depends on obtaining relevant and up-tto-date information from other firms in the industry. If this is difficult to obtain, then the benchmarking exercise will be limited. 2. Merely copying the ideas and practices of other firms may discourage innovation and original ideas. 3. The costs of the comparison exercise may not be recovered by the improvements obtained from benchmarking.

242.

Total quality management (TQM) Lean production Internal customers Zero defects Kaizen Conditions necessary for Kaizen to operate:

243.

244. 245. 246. 247.

248.

Limitations of Kaizen

249.

Benchmarking Stages in the benchmarking process:

250.

251.

Benefits of benchmarking:

252.

Limitations of benchmarking:

253.

An evaluation of quality issues:

1. Quality is not an option. It is a fundamental aspect of all successful businesses. 2. Quality is an issue for all firms, in all sectors of industry. It is essential for business to put quality of products and customer service at the top of their priorities to survive in competitive markets. Improving quality has obvious cost advantages if the rate of defective products is reduced. 3. Satisfying customers will give clear marketing advantages when seeking further sales. 4. Involving all staff in quality improvement programmes can lead to a more motivated workforce. 1. They are strategic in nature - as they are long-term and have an impact on the whole business. 2. They are difficult to reverse if an error of judgment is made - due to the costs of relocation (sunk costs). 3. They are taken at the highest management levels and are not delegated to subordinates. 1. High fixed costs of a site and buildings with convenience for customers and potential sales revenue. 2. The low costs of a remote site with limited supply of suitable qualified labour. 3. Quantitative factors with qualitative ones (see below). 4. The opportunities for receiving government grants in areas of high unemployment with the risks of low sales as average incomes in the area may be low. A business location that that gives the best combination of qualitative and quantitative factors. These are measurable in financial terms and will have a direct impact on either the costs of a site or the revenues from it and its profitability. 1. High fixed site costs; e.g., high break-even level of production 2. High variable costs; e.g., labour 3. Low unemployment rate; e.g., problems with skilled labour recruitment 4. High unemployment rate; e.g., low average consumer incomes 5. Poor transport infrastructure; e.g., raises transport costs for both materials and finished products. 1. Site and other capital costs such as building or shop-fitting costs 2. Labour costs 3. Transport costs 4. Sales revenue potential 5. Government grants 1. Profit estimates - coming from costs and revenues 2. Investment appraisal - payback, average rate of return, etc 3. Break-even analysis - fixed costs, variable costs, pricing, level of demand 1. Safety 2. Room for further expansion 3. Managers' preferences 4. Labour supply 5. Ethical considerations 6. Environmental concerns 7. Infrastructure 1. The pull of the market 2. Planning restrictions 3. External economies of scale 4. Multi-site locations The relocation of a business process done in one country to the same or another company in the other country A business with operations or production bases in more than one country 1. To reduce costs 2. To access global markets 3. To avoid protectionist trade barriers + government financial support to relocate business + good educational standards + highly qualified staff + avoidance of problems associated with exchange rate fluctuations

254.

The three characteristics of location decisions: An optimal location one that will be a balance of:

255.

256. 257.

Optimal location Quantitative factors Disadvantages to a business of nonoptimal location decisions: Quantitative factors influencing location decisions:

258.

259.

260.

Quantitative techniques to assist in location decisionmaking: Qualitative factors influencing location decisions:

261.

262.

Other locational issues:

263.

Offshoring Multinational Benefits of an international location:

264. 265.

266.

Limitations of international location: Research and development Invention Innovation Product innovation Process innovation The importance of R&D to business: R&D limitations:

1. Language and communication barriers 2. Cultural differences 3. Level of service concerns 4. Supply chain concerns 5. Ethical consideration The scientific research and technical development of new products and processes The formulation or discovery of new ideas for products or processes The practical application of new inventions into marketable products New, marketable products such as the Apple iPad New methods of manufacturing or service provision that offers important benefits 1. Competitive advantage 2. Customer loyalty 3. Premium prices 4. Publicity 5. Lower costs 1. R&D does not always lead to innovation 2. R&D is expensive and has an opportunity cost 3. Inventions do not always lead to successful innovative products 4. Competing R&D spending may result in even more successful products 5. Ethical issues can sometime outweigh the potential commercial benefits Refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designs used in business Legal property rights over the possession and use of intellectual property

267.

268. 269. 270.

271.

272.

273.

274.

Intellectual property Intellectual property rights Patent Copyright Trademark Benefits of intellectual property: Factors affecting the level of R&D and innovation by a business:

275.

276. 277. 278.

Legal righ of an invention for a certain period of timet to be the sole producer and seller Legal right to protect and be the sole beneficiary from artistic and literary works A distinctive name, symbol, motto or design that identifies a business or its products - can be legally registered and cannot be copied 1. Sets a business apart from its competitors and encourages increased sales as a result of this distinctiveness. 2. Be sold or licensed to provide an important revenue stream. 3. Form a key part of the branding process and assist in the marketing of the firm's products. 4. Can be given a financial value on a firm's balance sheet which increases net assets. 1. The nature of the industry. Rapidly changing technologies - consumer expectations - in pharmaceutical products, defence, computer and software products and motor vehicles lead to the need for substantial investment in R&D by leading firms. Other businesses such as hotels and hairdressing would need to spend far less as the scope for innovation is more limited. 2. The R&D and innovation spending plans of competitors. In most markets, it is essential to innovate as much as or more than competitors if market share and technical leadership is to be maintained. However, a monopoly may limit R&D spending if it believes that the risk of a more technically advanced competitor entering the market is limited. On the other hand, profits from a monopoly could be used to finance research and development into innovative products if the risk of competitor entry into an industry is high. 3. The risk profile or culture of the business. The attitude of the management to risk and whether shareholders are prepared to invest for the long term will have a significant effect on the sums that businesses can inject into R&D programmes. 4. Government policy towards grants to businesses and universities for R&D programmes and the range and scope of tax allowances for such expenditure will influence decisions by businesses. 5. Finance is needed for effective R&D. In many firms this many be limited and will restrict the number of new innovations that could be made.

279.

280.

281. 282.

Stock (inventory) Manufacturing businesses will hold stocks in three distinct forms:

Materials and goods required to allow for the production of and supply of products to the customer. 1. Raw materials and components. These will have been purchased from outside suppliers. They will be held in stock until they are used in the production process. 2. Work in progress. At any one time the production process will be converting raw materials and components into finished goods and these are 'work in progress'. For some firms, such as construction businesses, this will be the main form of stocks held. Batch production tends to have high work-in-progress levels. 3. Finished goods. Having been through the complete production process goods may then be held in stock until sold and despatched to the customer. 1. Opportunity cost. Working capital tied up in stocks could be put to another best alternative use. The capital might be used to pay off loans, buy new equipment or pay off suppliers, or could be left in the bank to earn interest. 2. Storage costs. Stocks have to be held in secure warehouses. They often require special conditions, such as refrigeration. Staff will be needed to guard and transport the stocks which should be insured against fire or theft. 3. Risk of wastage and obsolescence. If stocks are not used or sold as rapidly as expected, then there is an increasing danger of goods deteriorating or becoming outdated. This will lower the value of such stocks. Goods often become damaged while held in storage - they can then only be sold for a much lower price. 1. Lost sales. If a firm is unable to supply customers 'from stock', then sales could be lost to firms that hold higher stock levels. This might lead to future lost orders too. In purchasing contracts between businesses, it is common for there to be a penalty payment clause requiring the supplier to pay compensation if delivery dates cannot be met on time. 2. Idle production resources. If stocks of raw materials and components run out, then production will have to stop. This will leave expensive equipment idle and labour with nothing to do. The costs of lost output and wasted resources could be considerable. 3. Special orders could be expensive. If an urgent order is given to a supplier to deliver additional stock due to shortages, then extra costs might be incurred in administration of the order and in special delivery charges. 4. Small order quantities. Keeping low stock levels may mean only ordering goods and supplies in small quantities. The larger the size of each delivery, the higher will be the average stock level held. By ordering in small quantities, the firm may lose out on an important economy of scale such as discounts for large orders. The optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs The minimum stocks that should be held to ensure that production could still take place should a delay in delivery occur or production rates increase. The number of units ordered each time. The normal time taken between ordering new stocks and their delivery. The level of stocks that will trigger a new order to be sent to the supplier. Holding high stock levels 'just in case' there is a production problem or an unexpected upsurge in demand. 1. failure of supplying firm to deliver on time 2. production problems halting output 3. increased consumer demand. A stock control method that aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production and completed products are produced to order.

283.

Three costs associated with stock holding:

284.

Costs of not holding enough stocks:

285.

Economic order quantity (EOQ) Buffer stocks Re-order quantity Lead time Re-order stock level Just in case (JIC) Why just in case production methods requires buffer stocks: Just in time (JIT)

286.

287. 288. 289. 290. 291.

292.

293.

Advantages of Just in Case Stock Management:

1. Stocks of raw materials can be used to allow the firm to meet increases in demand by increasing the rate of production quickly. 2. Raw-material supply hold-ups will not lead to production stopping. 3. Economies of scale from bulk discounts will reduce average costs. 4. Stocks of finished goods can be displayed to customers and increase the chances of sales. 5. Stocks of finished goods used to meet sudden, unpredicted increases in demand - customers can be satisfied without delay. 6. Firms can stockpile completed goods to meet anticipated increases in demand as with seasonal goods or products, such as toys at festival times. 1. High opportunity costs of working capital tied up in stock. 2. High storage costs. 3. Risk of goods being damaged or becoming outdated . 4. 'Getting it right first time' - a key component of lean production - matters less than with JIT as other supplies are kept in stock to replace defective items. 5. Space used to store stock cannot be used for productive purposes. 1. Relationships with suppliers have to be excellent. 2. Production staff must be multi-skilled and prepared to change jobs at short notice. 3. Equipment and machinery must be flexible. 4. Accurate demand forecasts will make JIT a much more successful policy. 5. The latest IT equipment will allow JIT to be more successful. 6. Excellent employee-employer relationships are essential for JIT to operate smoothly. 7. Quality must be everyone's priority. 1. Capital invested in inventory is reduced and the opportunity cost of stock holding is reduced. 2. Costs of storage and stock holding are reduced. 3. Space released from holding of stocks can be used for a more productive purpose. 4. Much less chance of stock becoming outdated or obsolescent. Less stock held also reduces the risk of damage or wastage. 5. The greater flexibility that the system demands leads to quicker response times to changes in consumer demand or tastes. 6. The multi-skilled and adaptable staff required for JIT to work may gain from improved motivation. 1. Any failure to receive supplies of materials or components in time caused by, for example, a strike at the supplier's factory, transport problems or IT failure, will lead to expensive production delays. 2. Delivery costs will increase as frequent small deliveries are an essential feature of JIT. 3. Order administration costs may rise because so many small orders need to be processed. 4. There could be a reduction in the bulk discounts offered by suppliers because each order is likely to be very small. 5. The reputation of the business depends significantly on outside factors such as the reliability of supplying firms. 1. There may be limits to the application of JIT if the costs resulting from production being halted when supplies do not arrive far exceed the costs of holding buffer stocks of key components. 2. Small firms could argue that the expensive IT systems needed to operate JIT effectively cannot be justified by the potential cost savings. 3. Rising global inflation makes holding stocks of raw materials more beneficial as it may be cheaper to buy a large quantity now than smaller quantities in the future when prices have risen. 4. Higher oil prices will make frequent and small deliveries of materials and components more expensive. The proportion of maximum output capacity currently being achieved.

294.

Disadvantages of Just in Case Stock Management:

295.

Important conditions for JIT to be successful:

296.

Advantages of Just-in-Time (JIT) Stock management systems:

297.

Disadvantages of Just-in-Time (JIT) Stock management systems:

298.

Reasons why JIT may not be suitable for all firms at all times:

299.

Capacity utilisation

300.

Capacity utilisation is calculated by the formula:

301.

Potential drawbacks to operating at full capacity for a long period of time: Excess capacity Full capacity Capacity shortage Outsourcing (or subcontracting) Business process outsourcing (BPO) Reasons for outsourcing:

1. Staff may feel under pressure due to the workload and this could raise stress levels. Operations managers cannot afford to make any production scheduling mistakes, as there is no slack time to make up for lost output. 2. Regular customers who wish to increase their orders will have to be turned away or kept waiting for long periods. This could encourage them to use other suppliers with the danger that they might be lost as long-term clients. 3. Machinery will be working flat out and there may be insufficient time for maintenance and preventative repairs and this could lead to increased unreliability in the future. Exists when the current levels of demand are less than the full capacity output of a business - also known as spare capacity. When a business produces at maximum output. When the demand for a business's products exceeds production capacity. Using another business (a 'third party') to undertake a part of the production process rather than doing it within the business using the firm's own employees. When this is done by firms in another country it is called 'offshoring'. A form of outsourcing which uses a third party to take responsibility for certain business functions, such as human resources and finance.

302.

303. 304.

305.

306.

307.

1. Reduction and control of operating costs. Instead of employing expensive specialists that might not be kept busy at all times it could be cheaper to 'buy in' specialist services or products as and when needed. Outsourcing firms may be cheaper because they benefit from economies of scale, as they may provide similar services to a large number of other businesses. Much outsourcing involves offshoring - buying in services, components or completed products from low-wage economies. 2. Increased flexibility. By removing departments from the staff payroll and buying in services when needed, fixed costs are converted into variable costs. Additional capacity can be obtained from outsourcing only when needed and contracts can be cancelled if demand falls much more quickly than closing down whole factories owned by the business. 3. Improved company focus. By outsourcing 'peripheral' activities the management of a business can concentrate on the main aims and tasks of the business. These are called the 'core' parts of the business. So, a small hotel might use management time to improve customer service and outsource the accounting function completely. 4. Access to quality service or resources that are not available internally. Many outsourcing firms employ quality specialists that small to medium-sized businesses could not afford to employ directly. 5. Free up internal resources for use in other areas. If the human resources department of an insurance company is closed and the functions bought in, then the resulting office space and computer facilities could be made available to improve customer service.

308.

Drawbacks to outsourcing:

1. Loss of jobs within the business. Workers who remain directly employed by the organisation may experience a loss of job security, reducing motivation. Bad publicity may result from redundancies, especially if the business is accused of employing very low-wage employees in other countries to replace the jobs lost. The firm's ethical standards could be questioned. 2. Quality issues. Internal processes will be monitored by the firm's own quality assurance system. This will not be so easy when outside contractors are performing important functions. A clear contract with minimum service-level agreements will be needed. The company contracting out the functions may have to send quality assurance staff out to the business undertaking the tasks to ensure that product quality and customer service standards are being met. 3. Customer resistance. This could take several forms. Overseas telephone call centres have led to criticism about inability to understand foreign operators. Customers may object to dealing with overseas outsourced operations. Boughtin components and functions may raise doubts in customers' minds over quality and reliability. 4. Ethical concerns. If outsourcing is undertaken by firms in countries with poor human rights or employment rights records, it may be cheaper for the business that has outsourced - but how will the media and consumers view this potentially unethical decision? 5. Security. Using outside businesses to perform important IT functions may be a security risk - if important data were lost by the business, who would take responsibility A specific and temporary activity with a start and an end date, clear goals, defined responsibilities and a budget. Using modern management techniques to carry out and complete a project from start to finish in order to achieve pre-set targets of quality, time and cost. Planning technique that identifies all tasks in a project, puts them in the correct sequence and allows for identification of the critical path. The diagram used in critical path analysis that shows the logical sequence of activities and the logical dependencies between them - and the critical path can be identified. The earliest time an activity may begin. The earliest finish time of the immediately preceding activity.

309. 310.

Project Project management Critical path analysis Network diagram Earliest start time (EST) Latest finishing time (LFT) Float Dummy activity

311.

312.

313.

314.

The deadline for a particular activity so that the entire project can be completed in the minimum time.

315. 316.

Spare time (if any) that may be available. A logical dependency between two indirectly linked tasks in a project. it is used to prevent an illogical path from being followed.