Paper 2 prep

1. business ownership
Public corporation:
Pros:
- Social objectives rather than solely profit objectives
- Loss-making services might still keep operating if the social benefit is great
- Finance is raised by the government
Cons:
- A tendency towards inefficiency due to lack of strict profit targets
- Subsidies from government can also increase inefficiencies
- Government may interfere in business decisions for politics reasons

The legal structure of business organizations-the private sector

#sole trader:

The sole proprietor has unlimited liability- this means the business owner has full
legal responsibility for the debt of the business.

#Partnership:
-does not create a separate legal unit
-a grouping of individuals

Limited companies:
1. limited liability:

2. legal personality:
-A company is recognized in law as having a legal identity separate from that of its
owners.
-This does not take all legal responsibilities away from the managers and owners.
3. Continuity
-contributes through the inheritance of shares.

Private limited company

"limited" or "LTD" ("PRE” in some countries)- legal form

Shares owned by the original sole trader, relatives, friends, and employees.

Public limited companies

('plc' or 'inc')
-very substantial funds for expansion
-Advertise their shares for sales and have them quoted on the stock exchange.

Legal formalities in setting up a company

公司章程：公司名字，授权，地址，目标
内部运转机制

Other forms of business organization

#Cooperatives :
-especially in agriculture and retailing
*Features:
-all members can contribute to the running of the business.
-all members have one vote on important meetings
-Profit is shared equally among members.

#Franchise

特许经营：使用现有成功企业的名称，标志和交易系统的企业
2. Source of finance
Source of finance
Business ownership and sources of finance
Finance for limited companies:
 Internal source: raising finance from the business's assets or profits left in the
business (retained earnings)
 Retained profits: profits after tax are retained in a company rather than paid
out to shareholders as dividends.
 Sale of unwanted assets
 Reductions in working capital
 Sale and leaseback of non-current assets: sell non-current assets that they still
intend to use, but which they do not need to own. Non-current assets: assets
kept and used by the business for more than one year.
# Evaluation of internal sources of finance:
Has no direct cost to the business, does not increase the liabilities or debts of the
business, and there is no risk of loss of control by the original owners as no shares are
sold. But slow down business growth.
 External source: raising finance from sources outside the business, for
example, banks.
Long term:
 Hire purchase: a company purchases an asset and agrees to pay fixed
repayments over an agreed period.
The asset belongs to the purchasing company once the final payment. Avoids
making a large initial cash payment to buy the asset. The interest rate can be
higher than for a bank loan.
 Leasing: a lease is a contract outlining the terms under which one party agrees
to rent an asset—in this case, property—owned by another party.
Avoid the cash purchase of the asset. The risk of using unreliable or outdated
equipment is reduced, reducing the inconvenience of having to repair it. But the
high cost.
  Share capital: Share capital is the money a company raises by issuing common
or preferred stock. Permanent finance is raised by companies through the sales
of shares.
 Debentures: A debenture is a type of bond or another debt instrument that is
unsecured by collateral.
 Bank loans: loans that do not have to be repaid for at least one year. Offered
either a variable or a fixed interest rate.
Fixed rates provide more certainty, but they can turn out to be expensive if the
loan is agreed upon at a time of high-interest rate. The right to sell an asset is
given to the bank if the company cannot repay the debt.
 Business mortgage: long-term loans to companies purchasing a property for
business premises, with the property, with the property acting as collateral
security on the loan.
 Government grant: given to small businesses or those expanding in developing
regions of the country. Often conditions are attached, such as location and the
number of jobs to be created, but if conditions are met, grants do not have to
be repaid.
 Venture capital: Venture capital (VC) is a form of private equity and a type of
financing that investors provide to startup companies and small businesses that
are believed to have long-term growth potential.
Short term:
 Bank overdraft: allows the business to overdraw on its account at the bank by
making payments up to a greater value than the balance in the account. High-
interest rate.
 Trade credit: Trade credit is a business-to-business (B2B) agreement in which
a customer can purchase goods without paying cash up front, and paying the
supplier at a later scheduled date. Drawbacks: Discounts for quick payment
are often lost if the business takes too long to pay its suppliers.
 Debt factoring: sell these claims on trade receivables to a debt factor. Debt
factoring a company's profits is made by discounting the debts and not paying
their full value.
图片

Finance for an unincorporated business

Obtain from:
 Bank overdraft & bank loans, including Microfinance:
Microfinance: providing financial services for poor and low-income customers who
do not have access to the banking services, such as loans and overdrafts, offered by
traditional commercial banks.
There is evidence that entrepreneurship is greater in regions with microfinance
schemes in operation - and that average incomes are rising because of more
successful businesses.
One possible drawback to microfinance is that interest rates can be quite high as the
administrative cost of many small loans is considerable.
 Crowdfunding:
Crowdfunding: the use of a small amount of capital from a large number of
individuals to finance a new business venture.
In a successful venture, the crowdfunding will receive either: their initial capital back
plus interest - this is sometimes known as peer-to-peer lending or an equity stake in
the business and a share in profits when these are eventually made.
Benefits: 1. Easy to obtain, no extra pressure on owner 2. Free publicity
Drawbacks: 1. needs to keep accurate records of thousands of investors to pay back.
2. Sharing it on the internet means that it could be copied by others before the
entrepreneur has had a chance to start the business.
 Credits from suppliers
 Loans from family and friends
 Owners' investment
 Taking on partners with capital to invest.

29.4 Factors affecting the source of finance

图片

3. Marketing
Role of marketing

The market involved several management:

 Market research
 Product design and packaging design
 Pricing, advertising, and distribution
 Customer service

Marketing objectives and corporate objectives

To be effective marketing objectives should
 Be linked to corporate objectives and be focused on helping the business
achieve those overall targets

Why are marketing objectives important?

 Provide a sense of focused direction for the marketing department and help the
business to achieve its overall corporate objectives.
 Business success can be measured against the targets set by the objectives
 Marketing objectives can be broken down into regional and product sales
targets.
 Marketing objectives form the basis of marketing strategy. Marketing
objectives will impact the marketing strategies adopted. It is necessary to have
a clear vision of the business's objectives to discuss how marketing decisions
can help to achieve them. Examples of marketing strategies include:

Coordination of marketing with other departments

Finance
 Uses the Sales forecasts of the market department to help construct cash flow
forecasts and operational budgets
 Ensure necessary capital is available to pay
Human resources
 Uses sales forecast to prepare a workforce plan
 Ensure the recruitment and selection of qualified and experienced workers are
sufficient
Operations
 Market research-new product development
 Uses sales forecast to plan the capacity needed

consumer marketing and industrial marketing

Consumer products: goods or services sold to end users.
Industrial products: goods or services sold to businesses.
Consumer products are often classified into:
1. Convenience products-purchased frequently- e.g. sweets and soft drinks
2. Shopping products- usually required some planning and research by
consumers before purchasing- washing machines
3. Specialty products-brought infrequently, often expensive, and with strong
brand loyalty. e.g. cars and designer clothing
Industrial products are often classified into:
1. Materials and components- needed for production to take place e.g. steel
2. Capital items-equipment, machinery, and vehicles e.g. lathes, IT system
3. Services and suppliers - business services and utilities e.g. power supplies.

Differences between selling businesses rather than consumers are:

 Industrial products
 More complex
 Industrial buyers have more market power and are better informed
 Industrial buyers rarely buy on impulse
 Mass media advertising and sales promotion techniques are not used in
industrial
 Mass marketing is common in consumer markets

17.5 Mass marketing and niche marketing

Mass marketing: selling standardized products or ranges of products in the same
way to the whole market.
Niche marketing: identifying and exploiting a small segment of a larger market by
developing differentiated products to suit that segment.

Mass market:
 Made up of customers who are willing to purchase a standardized product
(undifferentiated product)
 High sales
 Low price
Niche market
 Buy differentiated products
 Size of a niche market is often small
 Market research

Market segmentation
The identification of different groups of customers with common needs within a
market and the marketing of different products or services to those customer
groups.
Aim- different products are targeted at different segment

Methods of market segmentation

Aims-to builds a picture of the typical consumer and their key characteristics.
Consumer profile: a quantified picture of a business's consumers, showing data about
their age groups, income level, location, gender, and social class.

1. Geographic difference: tastes often vary between different geographic areas-

offer different products and markets in location-specific ways- ways in which
products are promoted are also different.
2. Demographic differences: demographic is the study of population data and
trends, and demographic factors, such as age, gender, income, family size,
social class, and ethnic background, can all be used to segment the market.
 3. Psychographic factors: these are factors to do with differences between
people's lifestyles(people's opinions, interests, and choice of leisure activities)
personalities(difficult to measure or define) , values, and attitudes.

Advantages and disadvantages of the market segment

17.7 customer relationship marketing

Customer relationship marketing: using marketing activities to build and
establish good customer relationships so that the loyalty of existing customers
can be maintained.
Aims- to ensure that customers buy from the business in the future.
#Also means fewer customers buying products from competitors.

CRM-communication- gain information-income, product preference, buying habits,

and so on- marketing tactics can then be adapted to meet the customer's need.
Developing effective long-term relationship[ways]:
 Targeted marketing- the products and services they have indicated.
 Customer service and support- after-sales service and effective call centers
 Communicate regularly with customers-updates on new products
 Using social media- track and communicate with customers

Cost and benefits of CRM

Cost:
- IT system and software are needed and employees need to be trained to respond to
customer feedback.
- effective CRM campaigns may require the use of an external marketing consultancy
at high cost
- CRM needs an existing customer base
- it maybe costly to respond to each customer’s feedback, especially containing
special request.
Benefits:
- higher sales and cost-efficient
- sustainable strategy
- loyal customers often recommend the business to friends and families
- cost less to attract new customers.

4. Break-even analysis
Break-even analysis
Break-even analysis: uses costs and revenue data to determine the break-even point
of production
Margin of safety: the amount by which the current output level exceeds the break-
even level of output.

The break-even equation

Break-even level of output = fixed cost/ contribution per unit
Contribution per unit: the price of a product less the direct costs of producing it.

The graphical method:

 Fixed cost
 Total cost
 Revenue

Use of Break-even technique

 A marketing decision - the impact of a price increase that makes the sales
revenue line steeper
 An operations management decision - the purchase of new equipment which
raises fixed costs but reduces variable costs, resulting in reduced total costs
 A location decision - which location to select

The benefits of break-even analysis

^ charts are relatively easy to construct and interpret
^ analysis provides useful guild lines
^ comparisons can be made [ in different options and situations]
^ the equation produces a precise result
^ assist when making decisions
The limitations of break-even analysis
^ the assumption that costs and revenues are always represented by straight lines is
unrealistic
^ the revenue line can be influenced by the price reductions needed to sell a high level
of output
^ Not all costs can be easily classified into fixed and variable costs
^ makes no allowance for inventory level [ assumed all units are sold]
^ unlikely that fixed cost will remain unchanged at a different level of maximum
capacity
^ New business will be based on forecasts and could be inaccurate

5. Business objectives
The importance of objective:
=A business aim helps to direct, control and review the success of a business activity.
If no objectives:
-no sense of direction or focus for the management team or employees
-do not know what to achieve
-no way of assessing success or failure
-investors will not be keen to invest in the business as it is unlikely to have a clear
future

"SMART":
S-specific: focus on what the business does and should apply directly to that business.
M-measurable: objectives that have a quantitative value are likely to prove to be more
effective targets for directors and staff to work towards.
A-Achievable: objectives set too high will demotivate
R-realistic and relevant: compared with the resources of the company and should be
expressed in terms relevant to the people who have to carry out.
T-Time-specific: A time limit should be set when an objective Is established.
Objectives of Private sector Business:

-profit maximizing( producing at the level of output where has greatest positive
profits) to finance further growth and to persuade business owners
Limits:
1. Focus on short-term profit may encourage competitors to enter
2. Seek to gain higher share
3. Owner more concern about leisure time
4. Most business analysts performance though return on capital employed
5. Shareholder prioritize other objectives
6. Difficult to assess where is the point best profiting.
-Profit satisficing
Means aiming to achieve enough profit to keep the owner satisfied.
=In contrast to profit maximization

-survival
Key objective of start ups. Once the business has become firmly established, then
other longer-term objective can be established.
-increasing market share
Indicate that the business's marketing strategies are proving more successful than
those of its competitors.
Benefits:
1. Keen to stock and promote the best-selling brand
 2. Be supplied to retailers at a low discount rate-keen to stock them-give
producer a higher profit margin
3. Effective promotional campaigns
-increasing shareholder value
Pursuing strategies to increase return to shareholders
-corporate social responsibility(CSR)

Influential pressure groups are forcing businesses to reconsider their approach to

decision-making
*pressure groups: organization created by people with a common interest or aim,
who put pressure on businesses and government to change policies so that an
objective is reached.
-growth
Less likely to be taken over
Benefit from economic of scale
Higher salaries and fringe benefit
Limits:
1. Expansion is too rapid lead to cash flow problems.
2. Be achieved at the expense of lower profit margins.
3. Larger business can experience diseconomies of scale
4. Using profits to finance growth can lead to lower short-term returns to
shareholders.
5. Growth into new business areas and activities-loss of focus and direction for
the whole organization
-maximizing short term revenue
=benefit managers and workers when salaries and bonuses are dependent on sales
revenue levels

Objectives of public sector

-to provide an efficient reliable service to the public
-to encourage economic and social development
-to create employment or prevent major job losses if the industry is making a financial
loss
-to meet financial targets set by the government
-to achieve high environment standards.
Objectives of social enterprise

Aims, mission statements, objectives, and strategies.

# Business aims
=very long-term goals that a business hopes to achieve.
=The core central business's activity is expressed in its business aims.
*common:
-embracing-designed to provide guidance to the whole organization

#mission statement

$evaluation of mission statement

Pro:
 Inform group outside what the central aim and vision are
 Motivate employees
 Include moral statements or values-help guide and direct individual
employees' behavior
 Establish what the firm is about, for the benefit of other group
Con:
 Too vague and too general
 Just to make stakeholder groups feel good
 Virtually impossible to analysis or disagree with.
 Lacking in specific details

Relation between mission, objectives, strategy and tactics

Annual(company)report: a document that gives details of a company's activities over
the year, including its financial accounts.
Business strategy: a long term plan of action for a business, designed to achieve a
particular objective.
Tactic: a short-term action a part of an overall strategy.

Aims and objectives provide the focus for business strategies

Once a strategy has been decided, then small-scale tactical decisions must be taken

The role of objectives in the stages of business decision-making

1. Set objectives
 2. Assess the problem or situation
3. Gather data about the problem and possible solutions.
4. Consider all decision options
5. Make the strategic decision
6. Plan and implement the decision
7. Review its success against the original objectives.

How objectives might change over time

>Newly formed business-satisfied the survival objective-pursue goals of growth or
increased profit.
>Competitive and economic environment change-force the business to switch from
growth to survival as its main aim.
>short-term goals fit to long-term goals

Translation of objectives into targets and budget

Target: a short-term goal that must be reached before an overall objective can be
achieved.
*senior management is to convert the overall objectives of the business into targets
for individual departments, groups, and individuals.
Budget: a detailed financial plan for the future.

! Communicating objectives!
Benefits:
 1. Employees and managers have a greater understanding of both individual
and company-wide goals
2. Employee understand the overall plan and how their individual goals fit into
the company's objectives
3. Shared the responsibility for target and objectives by interlinking their goals
with those of others.
4. Managers stay in touch with employee's progress more easily.
#if failed to communicate:
-resistance to change & potential industrial action

Ethical influence on business objectives and activities

Evaluating ethical decisions

In short-term:
 Can add to business cost
 Not taking bribes to secure business contracts can mean failing to secure

significant sales.不受贿以获得商业合同可能意味着无法获得大量销售。
6.Human resource
Human resource management: purpose and role
#Aims to recruit capable, flexible and committed people.
*if managed effectively, the business is more likely to achieve its overall objectives.
Human resources management(HMR): the strategic approach to the effective
management of employees so that they help the business gain a competitive
advantages.
It focus on:
 Workforce planning( how many employees, what skill, are needed in the
future)
 Recruitment& selection
 Developing employees by appraising and training them.
 Preparing contract
 Dismal and redundancy of employees
 Taking responsibility
 Monitoring and improving employee morale and welfare
 Introducing and managing payment
 Measuring and monitoring employee performance

Working force
Workforce planning: forecasting the numbers of workers and the skills that will be
required by the organization to achieve its objectives.
Workforce audit: a check on the skill and qualifications of all existing
workers/management

Number of employees required depend on

1. Forecast demand for the products-influenced by market and external
conditions, seasonal factors, competitors' action, trends in consumer tastes.-
help to establish labor needs.p
2. The productivity level
3. The objectives of the business: plans to expand?;increase customer customer-
service levels?
4. Changes in the law regarding workers' right
5. The labor turnover and absenteeism rate: higher the rate-greater needs to
be replaced.

The skills of the workers required

Depend on:
 Pace of technology change in the industry
 Need for flexible or multi-skilled workers
Labor turnover
 Measures the rate at which employees are leaving an organization.
Number of employees leaving in 1 year/ average number of people employed×100
#High labor overturn
*cost
  Recruiting, Selecting , and training new staff
 Poor output level & customer services due to staff vacancies
 Difficult to establish customer loyalty due to lack of regular, familiar contact
 Difficult to establish team spirit
*potential benefits
 Low-skilled and less-productive staff might leave
 New ideas and practice
 Help business to plan to reduce employee numbers
!! High labor overturn is more likely in areas of low unemployment, as there may be
better paid and more attractive jobs available locally.
!! It is also true that some industries have a higher overturn rates than others.- many
learners, part-time find job in fast-food restaurant-over100%
!! In other organizations, labor turnover rates can be very low- law practice and in
scientific research.

Recruiting and selecting employees

Will be necessary when:
@ the business is expanding and needs a bigger workforce
@employees leave and need to be replaced
Recruitment: the process of identifying the need for a new employee, defining the job
to be filled and the type of person needed to fill it, and attracting suitable candidates
for the job.
Selection: the series of the steps by which candidates are interviewed, tested and
screened to choose the most suitable person for a vacant post.
Recruitment agency: a business that offers the service of recruiting applicants for
vacant post.

#recruitment and selection:

-Job description: a detailed list of the key points about the jobs to be filled, starting all
its key tasks and responsibilities.
-information for vacant job:
[Job title]
[details of the tacks to be performed]
[responsibility involved]
[place in the hierarchical structure]
[working conditions]
[how the job will be assesses and how performance will be measured]
-Person specification: a detailed list of the qualities, skills and qualifications that a
successful applicant will need to have
*based on the job description-cause these factors can only be identified once the
nature and complexity of the job have been determined.
-preparing a job advertisement
--need to reflect the requirements of the job and the person specification
->application form :- most common way
A set of questions answered by a job applicant to give a potential employer
information about the applicant, such as educational background and work experience
-Making a shortlist for applicants:
Based on their personal details and work experience, often contained in a CV or
resume.
*curriculum vitae: a detailed document highlighting all of a person's professional and
academic achievements, work experience and awards.
*resume: a less detailed document thana CV, which itemizes work experience,
educational background and special skills relevant to the job being applied for.
*Reference: comment form a trusted person about an applicant's character or previous
work performance.
-Selecting between the applicants
=interviews
# Assessment : achievements, intelligence, skills, interests, personal manner and
personal circumstance.
=aptitude tests
Ability in a specific test
=psychometric task
Test characters-attitudes and personality by using role plays, questions and problem-
solving situation.
#Assessment centers: a place where a range of test is used to judge job applicants on
their potential ability to perform a particular role.

#internal recruitment: when a business aims to fill a vacancy from within its existing
workforce.
#external recruitment: when a business aims to fill a vacancy with a suitable
applicant from outside of the business, such as an employee of another organization.

Pros of internal recruitment:

 Already be known to the selecting team.
 Know internal method- no need for training.
 Culture of the business will be well understood by applicants
 Quicker
 Cheaper(external advertising& recruitment agency.
 Internal staff a career structure and a chance to progress.
 New-have not get used to new style of management.
Pros of external recruitment:
 Bring new ideas-help to focus on future
 Wider choice of potential applicants
 Avoids resentment
 Standard of applicants could be higher.

Employment contracts
Definition: a legal document that sets out the terms and conditions governing a
worker's job.
#features:
 Responsibilities and main task
 Permanent or temporary
 Working hours & flexibility expected
 Holiday entitlement & other benefits
 The number of days' notice

Redundancy and dismissal of employees

Redundancy: when a job is no longer required, the employee doing this job becomes
unnecessary through no fault of their own.
Dismissal: being dismissed or fired from a job due to incompetence or breach of
discipline.
Unfair: ending a worker's employment contract for a reason that the law regards
being unfair.

Dismissal if fair:
1. Inability to do the job
2. Negative attitude
3. Disregard of required health and safety procedures.
4. deliberate a destruction of an employer's property
5. Bully other employees
Unfair:
1. Pregnancy
1. A discriminatory reason
2. Being a member of a union.

#Employee morale and welfare

Employee morale: overall outlook, attitude and level satisfaction of employees when
at work.
*If employee morale is high, productivity often increases and labor turnover is low
Employee welfare: employees' health, safety and level of morale when at work.

 Work-life balance
Definition: a situation in which employees are able to allocate the right amount
of time and effort to work and to their personal life outside work.
Change more rapid:
[customers expect to have goods and services available outside traditional
working hours.]
[Organizations wants to match their business needs with the way their
employees want to work]
[Globalization has led to much greater levels of competition, so efficiency and
flexible are important for a business to remain competition.]
 Method to control balance:
[flexible working]
[teleworking-working from home]
[Job-sharing: allows two people to fill one full-time vacancy although each
worker will only receive a proportion of the full-time pay]
[sabbatical period: an extended period of leave from work of up to 12 months.]

 Impact of diversity and equality in the workplace

Equality policy: practices and processes aimed at achieving a fair organization
where everyone is treated in the same way without prejudice and has the
opportunity to fulfil their potential.
Diversity policy: practice and processes aimed at creating a mixed workforce
and placing a positive value on diversity in the workplace.

Promoting equality impact:

1.creating an environment with high employee morale and motivation.
2.developing a good reputation and the ability to recruit top talent based on
fairness.
3.measuring employee performance by their achievement, not by any
discriminatory factor.
Promoting diversity impacts:
1.bigger market share-attracted by diverse sales force
2.selection based on merits not on discrimination
3.increasing creativity
4.achieving culture awareness
5.promoting diverse language skills

#Training and developing employees

Training: work-related education to increase workforce skills and efficiency.
Types of training
 Induction training: introductory training program to familiarize new recruits
with the systems used in the business and the layout of the business site.
 On the job training: instruction at the place of work on how a job should be
carried.
 Off the job training: training undertaken away from the place of work.
Impact of training on a business and its employees:
=training can be expensive
=lead to well-qualified employees-better paid job
#Poaching: when one business seeks to employ well-trained workers from another
business.
 Discouraged some businesses from setting up expensive training program

*link between training and development of workers and businesses:

 1. poorly trained workers-unsatisfied customer service-accident: health, safety-
food
2. Increase the level of employee satisfaction and motivation-sense of
achievement-×trained: road and demotivated. The multi-skilling of workers -
great benefit to a business - especially-rapid economic& technology change.
Multi-skilling: the training of an employee in several skills to allow for greater
flexibility within the business.

Development and appraisal of employees:

(continuous process)
Includes:
1. Form of new challenges and opportunities
2. additional training courses
3. Promotion with additional delegated authority
4. Chances for job enrichment
Sense of self-fulfillment- HR establish career plan- feel relevant and realistic-
individual's progress and improvement be geared to the needs of the company.
#employee appraisal: The process of assessing the effectiveness of an employee
judged against pre-set objectives.

Employee development to encourage intrapreneurship:

 Encouraged to be independent thinkers and creative
 Given opportunity to mix and workers with other skilled employees from
different department
 Empowered with the authority and resources they need to introduce
innovations
 Assured that some failure is expected and acceptable
 Encouraged to start with small ideas and innovations

Management and workforce relations

Benefits of cooperation between management and the workforce
 Fewer days are lost through strikes and other forms of industrial action.
 It will be easier for management to introduce change in the work place.
 Contribution be recognized- pay levels and other benefits might reflect this.
 Agreement on more efficient operations will increase the competitiveness.
 Workers' practical insight into the way the business operate can contribute to
more successful decisions.

Why do workers join trade unions:

Collective bargaining: the process of negotiating terms of employment between an
employer and a group of workers who are usually represented by a trade union
official
Trade union recognition: when an employee formally agrees to conduct
negotiations on pay and working conditions with a trade union rather than bargain
individually with each worker.

Benefits of collective bargaining:

 Save time and prevent workers from feeling that one individual has obtain
better pay and conditions than others
 Useful channel
 Impose discipline on members who plan to take hasty industrial action that
could disrupt a business
 The growth of responsible , partnership unionism has given employers a
valuable forum for discussing issues of common interest and making new
workplace agreement.

Disputes between trade union and management

Forms of industrial action
 Continue collective bargaining
 Go slow
  Work-to-slow
 Overtime bans
 Strike action

Method to try to resolve an industrial dispute:

 Negotiations
 Public relations campaign
 Threats of redundancies
 Changes of contract
 Lock-outs
 closure

7.Inventory management
Managing inventory
Reasons for holding inventory
1. Raw materials and components: The business can meet increase In demand by
increasing the rate of production quickly.
2. Work to progress: Main form of inventory held. The value of work in progress
depends on the length of time needed to complete production and on the
method of production. Batch production tends to have high work-in-progress
levels.
3. Finished goods: can be displayed to potential customers and increase the
chances of sales. Also, to cope with sudden unpredicted increase in demand.
To meet anticipated increase in demand.
Inventory management: The process of ordering, storing and using a company's
inventory.
Without inventory management:
 Insufficient inventories to meet changes
 Out of date inventories might be held.
 Wastage caused by mishandling or incorrect storage conditions.
 High inventory levels have high costs and opportunity costs.
 Late deliveries, low discounts from suppliers.
Cost of holding inventory
 Opportunity cost: working capital ties up in goods in storage could be put to
other uses. [During periods of high interest rates, the opportunity cost of
inventory holding increases.]
 Storage costs
 Risk of wastage and obsolescence : lower the value of inventory. [outdating;
damaged while held in storage or moved.]
Benefits of holding inventory
 Reduces risks of lost sales
 Allows for continuous production
 Avoids the need for special orders from suppliers
  Large order of new supplies reduce cost
Optimum order size
Economic order quantity: the optimum or least-cost quantity of stock to re-order
taking into account delivery costs and stock-holding cost.

Inventory control charts

->help an inventory manager to determine the appropriate order time and order
quantity.
-> allow an analysis of what would happen to inventory levels if an unusual event
occurred.
Key features:
 Buffer inventories [ minimum inventory level that should be held to ensure
that continuous production is possible should delivery delays occur or output
increase ] The greater the degree of uncertainty about delivery times or
production levels, the higher the buffer level. The greater the cost involved in
shutting production down and restarting, the greater the potential cost
savings from holding high buffer levels.
 Maximum inventory level: limited by space or by the financial costs of holding
even higher inventories. [ = economic order quantity +buffer level ]
 Re-order quantity: [ number of units ordered each time ] This will be
influenced by the economic order quantity.
 Lead time: [ the time between ordering new supplies and their delivery. ] The
longer this period of time, the higher will be the re-order inventory level and
buffer level.
 Re-order level: [The level of inventory that triggers a new order to be sent to
suppliers. This depends on how long it takes suppliers to deliver new supplies
and the rate of usage of inventory.
Importance of supply chain management
Supply chain: the network of all business and activities involved in creating a product
for sale, starting with the delivery of raw materials and finishing with the delivery of
the finished product.
Supply chain management: handling the entire production flow of a product( from
raw materials to finished product) to minimize costs but improve customer service.
Supply chain management aims to reduce the time that takes to convert raw materials
into completed products available by sale by:
 Establishing excellent communications with supplier companies.
 Cutting the time taken to deliver all materials required for production by
improving transport systems.
 Speeding up the new product development process to improve the
competitiveness of the business.
 Speeding up the production process with technology and flexible workforces
 Minimizing waste at all production stages to cut costs.

Benefits of effective supply chain management

 Improves customer service: deliver quickly
 Reduce operating costs: purchasing costs, inventory costs, production costs
fall.
 Improves profitability: By reducing waste time…

24.2 just-in-time inventory management

Definition: aims to avoid holding inventories by requiring supplies to arrive just as
they are needed in production and completed products are produced to order.
# aims to achieve zero buffer inventories
Just-in-case inventory management: aims to reduce the risk of running out of
inventory to the minimum by holding high buffer inventory levels.
Conditions for JIT to operate successfully
 Excellent supplier relationships
 Production employees must be multi-skilled and flexible
 Equipment and machinery must be flexible
 Accurate demand forecasts
 IT equipment Is needed for JIT
 Excellent employee-employer relationships
 Quality must be everyone's priority

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