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

This guide follows the Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0) specification, Issue 2, July 2022. It covers Theme 2, Topic 2.3 Making operational decisions, content items 2.3.1 Business operations and 2.3.2 Managing stock (working with suppliers). 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 used below are the standard forms, and you should learn them.

Course links: the Business hub, the printable checklist and the free diagnostics. Companion pages: the revision notes and the practice questions.

What the specification asks for

Item	You must be able to	Section
2.3.1	Explain that operations exist to produce goods and to provide services	1
2.3.1	Describe job, batch and flow production	2
2.3.1	Explain how each process affects productivity, costs and competitive prices	3
2.3.1	Explain how technology affects production, balancing cost, productivity, quality and flexibility	4
2.3.2	Interpret bar gate stock graphs	5
2.3.2	Explain the use of just in time (JIT) stock control	6
2.3.2	Explain the role of procurement and relationships with suppliers: quality, delivery (cost, speed, reliability), availability, cost, trust	7
2.3.2	Explain the impact of logistics and supply decisions on costs, reputation and customer satisfaction	8

The command-word table in Appendix 1 sets the depth. “Explain” is a statement of fact with two expansion points and no context. “Analyse” is an extended answer placed in the context the question gives. “Justify” means using the information provided to recommend one of two options. “Evaluate” means reaching a supported conclusion about a business situation.

1. The purpose of business operations

Operations is the part of a business that turns inputs into what customers buy. The specification gives two purposes:

• To produce goods. Physical products such as furniture, bread or phone cases.
• To provide services. Something done for a customer, such as a haircut, a repair or a delivery.

A goods business can make products ahead of demand and keep them in stock. A service is delivered when the customer asks, so it cannot be stored, which makes timing and staffing the main decisions. Many businesses do both: a garage sells tyres (goods) and fits them (a service).

2. Production processes

The specification names three types of production process.

Process	What happens	Typical example
Job	One item made to a customer’s own specification	A hand-built staircase
Batch	A group of identical items made together, then the equipment is changed for the next group	A bakery making 240 rolls, then a batch of loaves
Flow	Items move continuously along a line, usually all day	A bottling line

Services can resemble these too. A wedding photographer works rather like job production because each booking is personal. A busy dental practice runs similar appointments one after another, which is closer to batch work.

Worked example: Sandforth Joinery (job)

A staircase takes 3 workers 4 days each, so 12 worker-days. Labour is paid £140 a day. Materials cost £900 and a share of overheads is £420.

Labour = 12 × 140 = £1,680. Total cost = 1,680 + 900 + 420 = £3,000.

The owner adds 25% to the cost: 3,000 × 1.25 = £3,750.

The price is high because one customer carries the whole cost, and that customer gets exactly what was asked for.

Worked example: Hallam Bakehouse (batch)

Each batch is 240 rolls and the ingredients for one batch cost £48. Ingredients per roll = 48 ÷ 240 = £0.20. Three batches a day give 720 rolls. Between batches the staff clean and reset the equipment, which is time when nothing is produced.

3. How the process affects productivity, costs and prices

The specification asks about the impact on keeping productivity up, keeping costs down and allowing competitive prices.

Productivity is output per unit of input, usually output per worker in a given time. This is the standard form (output ÷ number of workers). Unit cost is total cost ÷ number of units produced, also the standard form.

Process	Productivity	Unit costs	Price
Job	Low per worker, as skilled work takes long	High	High, justified by the personal product
Batch	Moderate. Changeovers cost time	Medium	Moderate, can compete on a range of products
Flow	High. Little waiting	Low, if sales are high enough to fill the line	Can be low and competitive

Flow lines cost a lot to install and run. Their unit cost only falls if the business sells enough to keep the line busy, so a high fixed cost spread over few units makes the unit cost rise again. Flow also lacks flexibility: changing the product can mean stopping the line, and a breakdown at one stage halts everything.

Worked example: Pennine Pickles

Before a new jar-filling machine, 5 staff fill 1,500 jars a day. After, 6 staff fill 2,400 jars.

Productivity before = 1,500 ÷ 5 = 300 jars per worker. After = 2,400 ÷ 6 = 400 jars per worker.

Percentage change = (400 − 300) ÷ 300 × 100 = 33.3% (to 1 decimal place).

Daily costs rise from £2,250 to £3,000. Unit cost before = 2,250 ÷ 1,500 = £1.50. After = 3,000 ÷ 2,400 = £1.25. That is a fall of 25p, or 16.7%.

Total costs rose, but they are spread over many more jars, so the owner could cut the price and still earn more per jar.

4. The impact of technology on production

Technology here includes automated machinery, robots, computer-controlled equipment and software that designs or schedules work. The specification asks you to balance four things.

Factor	How technology can help	How it can hurt
Cost	Lower labour cost per unit, less waste	Buying and maintaining machines is expensive; staff may need training
Productivity	More output per worker and per hour	Breakdowns or software faults stop output
Quality	Consistent results, fewer human errors	Machines repeat a fault until someone spots it
Flexibility	Programmable machines can switch product quickly	Some machines are set for one task and are slow to change

“Balancing” matters. A small business with uncertain sales may find that a machine adds fixed cost and removes flexibility, while a large producer with steady demand gains a lot. Answers that name the factors but never weigh them against the business in the question stay descriptive.

5. Bar gate stock graphs

A bar gate stock graph shows the quantity of one item in stock over time. Time runs along the bottom and stock along the side. As stock is used, the line slopes down. When a delivery arrives, the line jumps straight up, which gives the shape of a gate. The specification asks you to interpret the graph, so practise reading the figures from it.

Standard terms (these are the usual names, not wording taken from the specification):

• Maximum stock level. The highest point after a delivery.
• Reorder level. The stock level at which a new order is placed.
• Lead time. The wait from placing an order until the goods arrive.
• Buffer stock. A minimum quantity kept as protection against late delivery or a sudden rise in use.

Worked example: flour at a bakery

Maximum stock 600 kg. Reorder level 250 kg. Use 50 kg a day. Lead time 3 days.

1. Days from full to the reorder level = (600 − 250) ÷ 50 = 7 days.
2. Use during the lead time = 50 × 3 = 150 kg. Stock when the delivery arrives = 250 − 150 = 100 kg. This is the buffer.
3. Delivery size = 600 − 100 = 500 kg.
4. One full cycle = 500 ÷ 50 = 10 days.

Day	0	7	10	17	20
Stock (kg)	600	250 (order)	100 (delivery, jump to 600)	250 (order)	100 (delivery, jump to 600)

Reading a graph is the same task. Find the top and bottom of the gate, read the order point, and compare the steepness of the line: a steeper fall means faster use.

6. Just in time (JIT) stock control

JIT means materials and parts arrive only when they are needed for production, so the business holds very little stock. It is a different approach from a bar gate system, where a buffer is held on purpose.

Advantages. Less money tied up in stock, lower storage and insurance costs, less waste from items that go out of date or become damaged, and less warehouse space.

Disadvantages. There is little protection against late or wrong deliveries. Production can stop. The business may need more frequent orders, and small orders may cost more per unit. It depends on reliable suppliers.

Worked example: Brightwater Bikes

Average component stock is £90,000. Storage, insurance and damage add up to 9% a year of stock value. Moving to JIT cuts average stock to £25,000.

Before = 90,000 × 0.09 = £8,100. After = 25,000 × 0.09 = £2,250. Saving = £5,850 a year.

But the factory builds 30 bikes a day and each earns £110 profit. One lost day = 30 × 110 = £3,300. Two lost days would cost £6,600, which is more than the whole saving of £5,850.

7. The role of procurement and relationships with suppliers

Procurement is the buying of the goods and services a business needs from suppliers. The specification lists what makes a supplier relationship work:

• Quality. Poor materials lead to poor products.
• Delivery: cost, speed, reliability. The delivery charge, how soon the goods arrive, and whether they arrive when promised.
• Availability. Whether the supplier has the item when needed.
• Cost. The price paid.
• Trust. Belief that the supplier will keep promises and be honest.

The cheapest supplier is not always the best. Compare on total cost including delivery and the cost of problems.

Worked example: Orchard Lamps

An order is 2,000 units. Supplier A charges £4.20 a unit plus £150 delivery, and is late on 20% of 12 yearly orders. Supplier B charges £4.55 a unit with free delivery and is late on 3%. A late order costs £1,800 in lost production.

A = 2,000 × 4.20 + 150 = £8,550. B = 2,000 × 4.55 = £9,100. B costs £550 more per order, or £6,600 over 12.

Late orders: A = 12 × 0.20 = 2.4, costing £4,320. B = 12 × 0.03 = 0.36, costing £648. B saves £3,672.

Net, A is still £2,928 cheaper a year on these figures. Trust, quality and reputation could change the choice, and a good answer says so rather than stopping at the calculation.

8. Logistics and supply decisions

Logistics covers moving and storing goods, from supplier to the business and from the business to the customer. Supply decisions include which supplier to use, how often to order and how much to hold. The specification asks for the impact on three things.

• Costs. Transport, storage and the price of materials. Frequent small orders can raise delivery costs, while large orders raise storage costs.
• Reputation. Late, damaged or incorrect orders spread through reviews and word of mouth. Reliable delivery builds a name.
• Customer satisfaction. Customers want the right item, in good condition, when promised. Stock-outs and delays lead to complaints and lost repeat custom.

These links connect the topic. A supplier delay can lead to a stock-out, then a late customer order, then a poor review.

Common errors

• Describing flow production as “better” in every case. It is only cheaper per unit when sales fill the line.
• Mixing up productivity (output per worker) with total output.
• Forgetting that buffer stock is the level at the moment of delivery, not at the reorder point.
• Writing that JIT removes all risk or all cost.
• Choosing the cheapest supplier on price alone.
• Giving technology advantages with no balancing disadvantage.

Next steps

Test yourself with the practice questions, then recap using the revision notes. The free diagnostics show where to focus.

Frequently asked questions

How do you calculate productivity in GCSE Business? Productivity is output per worker, found by dividing output by the number of workers. If 5 staff fill 1,500 jars a day, productivity is 300 jars per worker.

Is flow production always cheaper than batch production? No. Flow lines cost a lot to install and run, so unit costs only fall if the business sells enough to keep the line busy. Flow also lacks flexibility, as changing the product can mean stopping the line.

How does technology affect production in Edexcel GCSE Business? The 1BS0 specification asks you to balance cost, productivity, quality and flexibility. Technology can raise output and give consistent quality, but machines are expensive to buy and maintain and breakdowns can stop production.

How do logistics decisions affect a business? Logistics affects costs (transport and storage), reputation (late or damaged orders spread through reviews) and customer satisfaction (customers want the right item on time). A supplier delay can lead to a stock-out, a late customer order and then a poor review.

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).