Edexcel GCSE Business: Business operations and managing stock (1BS0) – Revision Notes

These notes condense Pearson Edexcel Level 1/Level 2 GCSE (9-1) Business (1BS0), Issue 2, July 2022, Theme 2, Topic 2.3 Making operational decisions, items 2.3.1 Business operations and 2.3.2 Managing stock. For full explanations and longer worked examples, read the study guide first. The specification says formulae are listed in Appendix 3 and are not provided in the examinations; productivity and unit cost are not in that list, so the forms below are standard forms to learn.

Links: the Business hub, the printable checklist, the practice questions and the free diagnostics.

Definitions to know

Term	Meaning
Business operations	The activity that produces goods or provides services
Job production	One item made to a customer’s own specification
Batch production	A group of identical items made together, then equipment changes for the next group
Flow production	Items move continuously along a line
Productivity	Output per unit of input, usually output per worker (standard form)
Unit cost	Total cost divided by the number of units made (standard form)
Bar gate stock graph	A graph of stock level over time: the line falls as stock is used and jumps up when a delivery arrives
Just in time (JIT)	Stock arrives only when needed, so very little is held
Procurement	Buying the goods and services a business needs from suppliers
Logistics	Moving and storing goods, to the business and to customers
Lead time	The wait from placing an order until the goods arrive (standard term)
Buffer stock	Minimum stock kept as protection against delay or higher use (standard term)

Operations: goods and services (2.3.1)

• Goods are physical and can be stocked. Services happen when the customer asks and cannot be stored.
• A business may do both, such as a shop that sells and installs.

Production processes at a glance (2.3.1)

	Job	Batch	Flow
Output	One-off	Groups	Continuous
Productivity	Low	Medium	High
Unit cost	High	Medium	Low if the line is kept busy
Price	High	Moderate	Can be competitive
Flexibility	Very high	Medium	Low
Main risk	Slow, costly	Time lost on changeovers	Breakdown halts the line; heavy set-up cost

Method for an explain answer: state the point, then add two expansion points. For example, “flow production keeps unit cost low. Fixed costs are spread over a very large number of units, so each unit carries little. The business can then charge a competitive price.”

Technology: four things to balance (2.3.1)

Factor	Plus	Minus
Cost	Less labour per unit	Machines and training cost money
Productivity	More output per hour	Faults can stop output
Quality	Consistent results	A fault is repeated until noticed
Flexibility	Programmable change	Some machines are fixed to one job

Always finish with a judgement about the business in the question: its size, how steady demand is, and whether it makes standard or made-to-order products. A small business with uncertain sales may gain more from flexibility than from a faster machine.

Productivity and unit cost: method

1. Productivity = output ÷ number of workers (in the same time).
2. Unit cost = total cost ÷ units produced.
3. Percentage change = (new − old) ÷ old × 100.

Worked reminder: Kirkdale Textiles

Last month 840 metres of cloth with 7 weavers. This month 1,050 metres with 7 weavers.

Before = 840 ÷ 7 = 120 metres each. After = 1,050 ÷ 7 = 150 metres each.

Change = (150 − 120) ÷ 120 × 100 = 25%.

Worked reminder: batch against flow

A batch workshop spends £18,000 to make 6,000 units: 18,000 ÷ 6,000 = £3.00 each. A flow line spends £60,000 to make 24,000 units: 60,000 ÷ 24,000 = £2.50 each. The flow line is 50p cheaper only because it makes four times as many units.

Bar gate stock graphs: method (2.3.2)

1. Maximum stock is the top of the gate.
2. Reorder level is where an order is placed.
3. Use per day = fall in stock ÷ days.
4. Days from full to reorder level = (maximum − reorder level) ÷ daily use.
5. Buffer on arrival = reorder level − (daily use × lead time).
6. Delivery size = maximum − buffer.
7. Cycle length = delivery size ÷ daily use.

Worked reminder: tyres at a garage

Maximum 400, reorder level 160, use 40 a day, lead time 2 days.

• Days to the reorder level = (400 − 160) ÷ 40 = 6 days.
• Buffer on arrival = 160 − 40 × 2 = 80 tyres.
• Delivery size = 400 − 80 = 320 tyres.
• Cycle = 320 ÷ 40 = 8 days.

Check the shape: if the line ever touches zero before the jump, the lead time is too long or the reorder level too low. A steeper fall means faster use, so a firm with rising sales may need a higher reorder level or a larger buffer.

JIT in brief (2.3.2)

Advantages	Disadvantages
Less cash tied up in stock	A late delivery can stop production
Lower storage and insurance cost	More frequent orders, with possible higher delivery cost
Less waste and damage	Smaller orders may lose discounts
Less space needed	Needs reliable suppliers and good planning

Worked reminder: Marsh Paints

Stock falls from £48,000 to £12,000 on average. Holding costs are 5% a year. Reduction in stock = £36,000. Saving = 36,000 × 0.05 = £1,800 a year. One lost day of production could cost more than this, so the answer depends on supplier reliability.

Suppliers and procurement (2.3.2)

The specification lists five features of a supplier relationship.

• Quality. Poor materials mean poor products.
• Delivery. Cost, speed and reliability.
• Availability. Stock is there when needed.
• Cost. Price paid per unit.
• Trust. Promises are kept; problems are reported honestly.

Total cost of a supplier = price × quantity + delivery + cost of problems (late orders, faulty goods).

Worked reminder: two suppliers

An order of 5,000 units. Supplier X £2.80 a unit = £14,000. Supplier Y £3.10 a unit = £15,500. Y is £1,500 dearer, which is 10.7% more (1,500 ÷ 14,000 × 100). If Y is reliable and X is often late, the extra may be worth paying.

Logistics and supply decisions (2.3.2)

Impact on	Good decisions	Poor decisions
Costs	Right order size, sensible delivery routes	Frequent small orders, empty transport, large unused stock
Reputation	On-time, undamaged goods build a name	Late or damaged goods spread through reviews
Customer satisfaction	Right item, right time, right condition	Stock-outs, delays and complaints

Must-know distinctions

• Productivity against output. Output is the total made. Productivity is output per worker.
• Unit cost against total cost. Total cost can rise while unit cost falls.
• Buffer stock against reorder level. Reorder level is when you order. Buffer is what is left when the delivery arrives.
• JIT against bar gate holding. JIT aims for minimal stock. A bar gate approach holds a buffer on purpose.
• Job against batch. Job means one customer’s special item. Batch means many identical items made together.

Quick self-test

1. State the two purposes of business operations given in the specification.
2. Which process makes one item to a customer’s own specification?
3. Give one disadvantage of flow production.
4. A bakery makes 1,350 buns with 9 staff. Calculate productivity.
5. Calculate the unit cost when £7,200 makes 2,400 units.
6. On a bar gate graph, what does the vertical jump show?
7. Maximum stock 300, reorder level 120, use 30 a day. How many days from full to the reorder level?
8. With lead time 2 days in the same example, calculate the buffer on arrival.
9. State one advantage and one disadvantage of JIT.
10. Name two features of a supplier relationship from the specification.
11. Explain one way a late supplier delivery can harm customer satisfaction.
12. Give one reason why the cheapest supplier may not be the best choice.

Answers

1. To produce goods and to provide services.
2. Job production.
3. High set-up cost, low flexibility, or a breakdown halting the line.
4. 1,350 ÷ 9 = 150 buns per worker.
5. 7,200 ÷ 2,400 = £3.00.
6. A delivery arriving, so stock rises at once.
7. (300 − 120) ÷ 30 = 6 days.
8. 120 − (30 × 2) = 60.
9. Advantage: lower storage costs. Disadvantage: production may stop if a delivery is late.
10. Any two of quality, delivery, availability, cost, trust.
11. The business cannot fill orders on time, so customers wait or leave, and may complain.
12. It may be unreliable or poor quality, so late orders and faulty goods cost more than the price saving.

Where marks are usually lost

• Writing “flow is cheaper” with no mention of volume or unit cost.
• Dividing by the wrong number when working out productivity.
• Quoting total cost when the question asks for unit cost.
• Reading the reorder level as the buffer stock.
• Ignoring the lead time in a bar gate calculation.
• Calling JIT “no stock at all” instead of very little stock.
• Listing supplier factors with no link to the business in the stem.
• Giving only advantages of technology, with no balance.
• Leaving an evaluate or justify answer without a decision.

Frequently asked questions

What is the difference between job, batch and flow production? Job production makes one item to a customer’s own specification, batch production makes a group of identical items before the equipment is changed for the next group, and flow production moves items continuously along a line. Job has the highest unit costs and flow the lowest, provided sales are high enough to keep the line busy.

How do you find the buffer stock on a bar gate stock graph? Multiply the daily usage by the lead time and subtract this from the reorder level. For example, a reorder level of 250 kg, use of 50 kg a day and a 3-day lead time give 250 − 150 = 100 kg of buffer stock when the delivery arrives.

What are the advantages and disadvantages of just in time stock control? JIT means less money tied up in stock, lower storage and insurance costs and less waste. The drawback is little protection against late or wrong deliveries, so production can stop and the business depends on reliable suppliers.

What does the Edexcel GCSE Business specification say makes a good supplier relationship? The 1BS0 specification lists quality; delivery cost, speed and reliability; availability; cost; and trust. The cheapest supplier is not always the best once delivery and late-delivery costs are included.

Official syllabus

Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0), Specification, Issue 2, July 2022, published by Pearson Education Limited. Theme 2, Topic 2.3 Making operational decisions, items 2.3.1 Business operations and 2.3.2 Managing stock (working with suppliers).