CAIE A-Level Business A2 9 Operations Management Questions

Analyse two problems SF may experience when implementing total quality management (TQM).

2

Note:

- Only reward problems/disadvantages.

- If more than two problems are referred to, reward the best two.

- L2AN (3 marks) is possible for just one point made.

All annotation ( $\mathbb{K}$ ) sam ( AN ) should be in the left margin.

Indicative content

AO1 Knowledge and understanding

Definition of relevant terms (max K 1 mark)

- TQM is a method of quality assurance that aims to involve all employees in quality improvements.

- Encourages workers to get it right first time and to achieve zero defects.

Knowledge of problems when implementing TQM (max K 2 marks)

- Problems may include:

- Cost of training for employees.

- Resistance from employees.

- Short term negative impacts on productivity and or quality as changes are embedded.

- Lack of managerial skills of motivation, delegation of decision making, teamwork, communication and coordination.

- Requires a change in culture within the business.

- Impact of making quality inspectors redundant.

- Time consuming - with a reason e.g. training staff, changing culture, change policies, employees checking work.

- Nature of the product - TQM on ice cream - how to implement quality checks?

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SF once.

Developed application, ${ }^{\triangle \mathrm{PP}}+{ }^{\mathrm{APP}}$ applies knowledge to SF twice.

Max one ${ }^{\mathrm{APP}}$ for application for the first problem and max one ${ }^{\mathrm{APP}}$ for application for the second problem.

- SF's use of flexible contracts including part-time, temporary and zero-hours.

- Temporary workers employed at harvest time for short period.

- Current approach focuses on detection of quality problems rather than prevention.

- Factory operating close to capacity.

- Limited training given to peripheral employees.

- Unskilled workers - more training required.

PUBLISHED

2

AO3 Analysis

Limited analysis ${ }^{\mathrm{AN}}$ - candidate shows one link in the chain of analysis.

Developed analysis ${ }^{\text {L2 AN }}$ - candidate shows two or more links in the chain of analysis.

- Difficult to change culture of business as many employees are on flexible contracts and may therefore lack commitment to the business AN .

- Cost of training will be relatively high as workers on temporary contracts not in the business for long. Each new group of temporary workers at harvest time each year will need training, increasing costs ${ }^{\text {AN }}$.

- No need for quality inspectors so may need to make redundancies AN adding to costs of implementation and causing concerns over job security which could reduce productivity L2AN.

- In short-term may result in increase in defective products as adjusting to TQM approach takes time. This could result in short-term customer dissatisfaction and impact sales negatively AN and therefore reducing profit L2AN.

Accept all valid responses.

AO1 Knowledge and understanding

Knowledge □ (max 1 mark) can be awarded for any relevant business knowledge about operations, including:

- The transformation process

- Efficiency, effectiveness, productivity and sustainability

- Capital intensive and labour intensive operations

- Job, batch, flow and mass customisation

- Managing inventory, including JIT

- Capacity utilisation

- Outsourcing

- Location

- Economies and diseconomies of scale

- Quality management, including benchmarking

- The influence of human, marketing and finance resource availability on operations decisions

- The changing role of Information Technology (IT) and Artificial Intelligence (AI)

- The need for flexibility with regard to volume, delivery time and specification

- Process innovation: changing current processes or adopting new ways of producing products or delivering services

- Location

- Internal and external economies and diseconomies of scale

- Quality management

- Benchmarking

- Improving flexibility and innovation

- Enterprise resource planning (ERP)

- Lean production

- Operations planning, including critical path analysis.

Award ${ }^{[\mathrm{DEV}]}$ for any explanation of relevant business knowledge, up to a max of 2 marks.

1 K for identification and 1 DEV for a point of explanation

1 K for identification and 2 DEVs for two points of explanation

1

AO2 Application

Application ${ }^{[m \ll]}$ (max 2 marks) can be awarded for applying operations/operations strategy to CA between 2019 and 2024 CA's operations decisions, including:

- CA is Nala's first job after university, only experience before being made Operations Manager was as a cleaner for CA.

- Planning opening of the new city Z branch, including:

- The use of critical path analysis

- 13 weeks to plan and open the branch (assuming no delays)

- Float available on activities C, D, F, G and H

- Critical path = A, B, E and J

- No built-in time to respond to research results

- Lean production methods introduced by Nala in 2021, including:

- Kaizen (continuous improvement) introduced throughout city Z branch

- All cleaners are placed in a quality circle, including one manager and eight cleaners in each team

- A target to ethically recycle 90% of customers waste

- Just in time re-ordering of cleaning materials

- CA's new AI system introduced in 2022, including:

- Majority of customer services operatives made redundant

- Chatbot system to interact with customers

- Book appointments, answer customer queries and take complaints

- Poor customer/media reaction

- Comparison between the operations of the city Z branch and the city A branch of CA in 2023, including:

- City Z branch has lower revenue than city A

- City Z branch has sightly improved revenue between 2021 and 2023 ( 2% increase)

- City A branch has 10% improved revenue between 2021 and 2023

- City Z branch has improved revenue, same number of cleaners whereas city A branch has increased cleaners

- City Z branch has a loss of $\$ 0.1 \mathrm{~m}$ in 2023, compared to an increased profit for city A branch.

- City Z branch has increased direct costs, despite introduction of lean production methods

- Rate of inventory turnover has increased in city Z branch (suggesting improvement) but may not have added to cost savings.

1

AO3 Analysis

Analysis is likely to be based on how operations may have affected CA's decision making ( $\triangle 1$ and $\begin{array}{r}A2 \text { and }{ }^{\triangle 3} \text { ) between }\end{array}$ 2019 and 2024, including:

- Nala's inexperience - poor decision making - too much responsibility - may have been integral to the failure of city Z branch - particularly important since city A branch has increased profitability.

- Did the city Z branch open too quickly? - Is 13 weeks long enough to plan such a large investment? - poor implementation of decisions.

- Critical path analysis is a useful theoretical tool, but does it have enough practical value when Nala and the business are new to the city? - increased costs - reduced profit.

- Built-in float may suggest inefficiency - Was the rent paid for too long before opening? - increased costs - reduced profitability.

- Employee recruitment in city Z had float - increased costs - reduced profit.

- However, CPA may have led to a more efficient opening - reduced costs - increased profit.

- No float between advertising and bookings - efficient.

- CPA allowed Nala to focus on what areas are most important - increased efficiency.

- Kaizen may have allowed more creative ideas to come from every area of the business - lower costs - however also detracts from the primary task of the cleaners (and other employees) - increased costs.

- Likewise, quality circles may detract from cleaning - may theoretically (academically) increase value of workforce but could lead to wasted time not focused on primary tasks like cleaning - increased costs. Also there may be problems of bringing mainly part-time employees together for meeting - may incur additional costs for wages. Also, attendance and contributions might depend on whether workers are paid for attending or not - employees may feel resentful and become demotivated - deceased productivity.

- Ethical recycling of customer waste may provide a USP to CA in city Z - however only if customers value this in the market.

- Just in time ordering may decrease costs of holding inventory - however it may lead to wasted time without necessary supplies.

- Chatbot system may lead to reduced indirect costs (less customer service employees needed) - however seems to have irritated customers and may lead to losing established customers going to other firms.

Link between figures in Appendix 4 and operations decisions.

1

AO4 Evaluation

Evaluation $\left({ }^{\mathrm{N} 1}\right.$ and ${ }^{\mathrm{N} 2}$ and ${ }^{\mathrm{N} 3}$ ) including:

Evaluation will largely depend on the points raised in the analysis.

- A judgement over the extent to which operational decisions between 2019 and 2024 led to the failure of CA's city Z branch.

- Discussion over the contribution of the separate and combined decisions on the eventual failure of the city Z branch,

- The extent to which the decisions alone led to the failure of the city Z branch.

- Other likely influences on the failure of the city Z branch, such as the state of the economy in city Z, human resource management of the cleaners and indirect staff, Nala's personality, unrealistic expectations of the board of directors of CA, marketing of CA, especially for the city Z branch, the financing given to help the city Z branch become successful etc.

- The extent to which the failure of the city Z branch could be attributed to the operational decisions alone.

- The extent to which CA itself was deemed successful (city A branch).

Accept all valid responses.

1

Exemplars for awarding evaluation:

L2 □

including: (developed supporting evidence)

Analyse two benefits to CD resulting from internal economies of scale.

Note:

- Only reward benefits.

- If more than two benefits are referred to, reward the best two.

All annotation ( K , APP $\mid \mathrm{AN} L^{\mathrm{L} 2}$ ) should be in the left margin.

1

Indicative content

Responses may include:

AO1 Knowledge and understanding

Definition of internal economies of scale (max K1 mark)

- Internal economies of scale result from the increase in scale of operations of the business.

- Internal economies of scale include: marketing, purchasing, technical, financial and managerial.

Knowledge of benefits of internal economies of scale to CD

Benefits include:

- Reduced unit costs.

- Increased productivity due to greater technical economies.

- Being able to recruit higher quality managers.

- Lower costs for finance.

AO2 Application

Max one ${ }^{\text {APP }}$ for application for the first element and max one ${ }^{\text {APP }}$ for application for the second element.

- Household cleaning product market is competitive.

- Competition from MNCs (likely to have low unit costs).

- Competition from smaller businesses in the environmental market segment (CD can gain price advantage).

- Substantial marketing budget (keep unit marketing costs low).

- Increased costs of chemicals and other materials due to inflation.

- Shareholder pressure for higher returns (link to profit margins).

AO3 Analysis

Limited analysis AN – candidate shows one link in the chain of analysis.
Developed analysis L2AN – candidate shows two or more links in the chain of analysis.

• Reduced unit costs enable a reduction in price AN making CD more competitive and increasing sales L2AN.
• Lower unit costs could give CD a higher profit margin AN and therefore increase profits with which to satisfy shareholder desire for higher returns L2AN.
• Lower unit costs could offset the increasing cost pressures that CD faces and reduce the need to increase prices to customers AN.

Accept all valid responses.

3(c)

Indicative content

Responses may include:

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of lean production or knowledge of impact on operational objectives.

Developed knowledge K+K will be demonstrated through knowledge of lean production and knowledge of impact on operational objectives.

- Definition of lean production: reducing all forms of waste.

- Lean production techniques:

- TQM

- Quality circles

- Cell production

- JIT

- Kaizen

- Simultaneous engineering.

- Need for capital investment such as ERP or flexible machinery.

- Knowledge of relevant ratios such as inventory turnover.

AO2 Application

Limited application, APP applies knowledge to CQ once.

Developed application, $\xrightarrow{\text { APP }}+\xrightarrow{\text { APP }}$ applies knowledge to CQ twice.

- Inventory turnover of 3.08 means that inventory is currently kept for 119 days on average. Objective is to increase inventory turnover to 5 times.

- Need to hold bamboo material for production and finished shoes to meet fluctuations in demand.

- 5% of output is defective - in six months =6000 units. Objective is to cut this by 50%.

- CQ has only just taken over the factory. Objective to increase production to full capacity within eight months and reduce workforce size.

- The shoe manufacturer had been unprofitable when CQ took it over.

- Unions have agreed to changes in working practices.

3(c)

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- By reducing all forms of waste CQ will be more efficient, and this will reduce unit cost of production AN making CQ more competitive. L2 AN

- Lean production includes TQM and quality circles. Giving workers responsibility for quality may increase motivation resulting in a reduction in defective output, AN improve quality and productivity, making CQ more competitive. L2 AN

- Lean production includes JIT manufacturing. Aim to hold zero inventory which will increase inventory turnover AN resulting in less inventory holding costs. L2 AN

- Training of employees will be required thus increasing costs of CQ AN but this could increase motivation of employees resulting in higher productivity. L2 AN

- Lean production aims to use less of everything and therefore may enable production to be maintained whilst reducing the size of the labour force AN and therefore reduce unit costs. L2 AN

- Lean production by building relationship with suppliers could eliminate the supply chain failures AN thus reducing the high levels of inventory previously needed. L2/AN

- Use of JIT may result in CQ running out of inventory and therefore lead to a loss of sales. AN

AO4 Evaluation

Limited evaluation ${ }^{\text {EvAL }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ EvaL - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {L3 }}$ | ${ }_{\text {Eval }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Elements that the evaluation/judgement might depend on:

- Effectiveness will depend on supplier relationships and reliability of receiving supplies when needed. Supply chain with bamboo coming from the US may make JIT production difficult to implement due to long lead times.

- Can CQ predict demand accurately? JIT risks lost customers if demand is underestimated.

- Is inventory turnover high or low compared to competitors?

- Was part of the problem that workers are unfamiliar with the production methods for the bamboo shoes after the takeover?

- Cost of the investment and current financial situation of CQ such as its high gearing.

PUBLISHED

3(c)

- Significance of other factors that may also impact success of LP:

- Existing factory, workers may have an ingrained culture to overcome.

- Evaluation of alternative approaches to achieving objectives such as investment in capital equipment or increased marketing expenditure to increase sales and inventory turnover.

- Supported overall judgement about introduction of LP.

- Accept all valid responses.