OxfordAQA A-Level Business: Operational performance (9725) – Revision Notes

For full explanations and worked examples, start with the Operational performance study guide. These notes follow the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams from May/June 2027, and cover section 3.2.1 (3.2.1.1 to 3.2.1.3). It is all International AS content, assessed in Unit 2. If you are finishing the older 9625 specification, use your own specification.

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3.2.1.1 Operations management

Formulas to know

Measure	Formula	Unit of answer
Total costs	fixed costs + variable costs	money
Unit cost	total costs ÷ output	money per unit
Waiting times	total waiting time ÷ number of customers	time per customer
Delivery times	total delivery time ÷ number of deliveries	time per delivery
Returned items (%)	returned items ÷ items sold × 100	%
Defects (%)	defective items ÷ items produced × 100	%
Labour productivity	output ÷ average number of employees	units per employee per period
Capacity	maximum potential output	units per period
Capacity utilisation (%)	actual output ÷ maximum potential output × 100	%

Method in steps: any operations calculation

1. Write the formula in words.
2. Substitute the figures, checking the time periods match.
3. Calculate, then round sensibly (money to 2 d.p., % to 1 or 2 d.p.).
4. State the unit: £ per unit, minutes per customer, units per employee.
5. Add one line of meaning if asked: what does the figure tell the manager?

Worked reminders

• Total costs £45,000, output 15,000 units: unit cost = 45,000 ÷ 15,000 = £3.00.
• Output 4,200, maximum 6,000: capacity utilisation = 4,200 ÷ 6,000 × 100 = 70%.
• 9 employees produce 5,400 units: labour productivity = 5,400 ÷ 9 = 600 units per employee.

Other objectives

• Flexibility: changing volume or product type quickly.
• Environmental objectives: less waste, lower energy use, smaller carbon footprint.
• Trade-offs: speed of response versus cost; quality versus speed; green targets versus cost. Objectives vary by context (budget airline: cost; luxury tailor: quality and customisation).

Processes at a glance

Process	Best for	Main plus	Main minus
Job	One-off, made-to-order items	Exactly what the customer wants	High unit cost, slow
Batch	Moderate volumes in several varieties	Variety with some cost savings	Downtime between batches
Flow	High volumes of a standard product	Lowest unit cost	Inflexible, high set-up cost
Mass customisation	Personalised items at volume	Tailored product near flow cost	Complex, costly systems

Labour-intensive = flexible, low capital, but higher labour cost per unit and variable quality. Capital-intensive = low unit cost and consistent quality at volume, but expensive and inflexible.

3.2.1.2 Operations competitiveness

Capacity

• High utilisation: lower unit cost (fixed costs spread); risks: no spare room, no time for maintenance, stressed staff.
• Low utilisation: flexibility, room to grow; risks: high unit cost, sign of weak demand.
• Make: control, quality, protects know-how. Buy: cheaper or specialist, no capital, but dependence and less control.

Matching supply to demand

Method	Plus	Minus
Change output	Uses existing resources	Overtime cost or idle staff
Change inventory	Build stock in quiet periods	Storage, spoilage, out-of-date stock
Outsourcing	Extra capacity without investment	Less control, shared margin
Flexible labour	Labour cost follows demand	Less commitment, ethical concerns
Change capacity	Long-term fit	Slow, costly, hard to reverse

Problems of a mismatch: too little supply loses sales and goodwill; too much means unsold inventory and higher unit costs.

Efficiency and productivity

• Efficiency: output from the fewest inputs. Matters because it lowers unit costs. Improve via technology, lean methods, layout, training. Difficulties: cost, resistance, quality risk.
• Labour productivity: matters most when labour is a big share of costs. Improve via training, equipment, better methods, motivation. Difficulties: cost, hard to measure in services, quality may suffer.

Lean production: four elements

JIT (supplies arrive as needed), Kaizen (continuous small improvements), standardised processes (one best way), teamwork (shared problem-solving). Benefits: less waste, lower inventory costs, faster response. Difficulties: needs reliable suppliers, vulnerable to disruption, culture change takes time.

Customer service

Value: loyalty, repeat business, recommendations, premium prices. Improve by: understanding needs, improving the customer experience, benchmarking, training, rewarding loyalty, monitoring and acting on feedback and satisfaction.

Quality

Method	Key idea
Quality control	Inspect output to find faults
Quality assurance	Build checks into each stage to prevent faults
TQM	Every employee responsible for quality
Quality circles	Small staff groups solve quality problems
Benchmarking	Copy best practice from top performers

Costs of poor quality: scrap, rework, refunds, lost customers, damaged reputation, legal claims. Difficulties of improving: training cost, slower output, culture change.

Wider issues

Technology (online businesses, links with customers and suppliers, computerised inventory control); ethics (product safety, environmental concerns); environment (pollution, carbon footprint); competitiveness (cost, quality, speed, flexibility); links to marketing (forecasts), finance (budgets) and HR (skills and staffing).

3.2.1.3 Inventory and supply chain management

Inventory control chart: key terms

• Lead time: order placed to order received.
• Buffer stock: safety minimum.
• Re-order level: inventory level that triggers an order.
• Re-order quantity: amount ordered.

Re-order level    = buffer stock + (usage per period × lead time)
Re-order quantity = maximum inventory − buffer stock   (when each delivery arrives at the buffer)

Reading a chart: the falling line is usage; its slope is the usage rate. The vertical jump is the delivery, equal to the re-order quantity. The horizontal gap between the re-order point and the jump is the lead time.

Must-know distinctions

• Re-order level (a level of inventory) versus re-order quantity (an amount ordered).
• JIT (minimal inventory, low storage cost, risky if a delivery fails) versus JIC (large safety stock, protected, but costly and risk of waste).
• Quality control (detect faults at the end) versus quality assurance (prevent faults throughout).
• Capacity (a maximum) versus capacity utilisation (a percentage of that maximum in use).

Reasons and influences

Reasons to hold inventory: unexpected demand, late deliveries, bulk discounts, smooth production. Influences on the amount held: predictability of demand, lead time, storage cost, perishability, cash available, JIT or JIC approach.

Supply chain

• Purpose: coordinate suppliers, logistics and delivery to customers to cut cost and improve reliability.
• Sourcing influences: price, quality, reliability, lead time, location, ethics; one supplier (close ties, discounts) or several (spread risk).
• Supply chain issues: delays and shortages halt production and hurt reputation.
• Transparency (knowing where inputs come from) and third-party accreditation (independent certification of suppliers) support ethical claims and protect reputation.

Quick self-test

1. Define capacity.
2. A hotel has 80 rooms and sells 2,040 room-nights in a 30-night month. Calculate its capacity utilisation.
3. Fixed costs are £6,000 and variable cost is £2.50 per unit. Output is 4,000 units. Calculate the unit cost.
4. A van makes 75 deliveries in a total of 2,175 minutes. Calculate the average delivery time.
5. A factory produces 3,500 items, of which 84 are defective. Calculate the proportion of defects.
6. Buffer stock is 300 units, usage is 250 units a week and lead time is 2 weeks. Calculate the re-order level.
7. Which process suits a one-off wedding cake?
8. Name the four elements of lean production in the specification.
9. State the difference between quality control and quality assurance.
10. 18 employees produce 7,560 units in a month. Calculate labour productivity.

Answers

1. The maximum potential output of a business in a period.
2. Capacity = 80 × 30 = 2,400 room-nights; 2,040 ÷ 2,400 × 100 = 85%.
3. Total costs = 6,000 + (2.50 × 4,000) = £16,000; 16,000 ÷ 4,000 = £4.00 per unit.
4. 2,175 ÷ 75 = 29 minutes per delivery.
5. 84 ÷ 3,500 × 100 = 2.4%.
6. 300 + (250 × 2) = 800 units.
7. Job production.
8. Just in Time, Kaizen, standardised processes, teamwork.
9. Quality control inspects finished output to find faults; quality assurance builds checks into every stage to prevent them.
10. 7,560 ÷ 18 = 420 units per employee per month.

Where marks are usually lost

• Dividing by capacity instead of actual output when calculating unit cost.
• Missing the ×100 on capacity utilisation, returns or defects, or adding % to a figure that is not a percentage.
• Using staff numbers at one date instead of the average for the period in labour productivity.
• Leaving out units: “29” should be “29 minutes per delivery”.
• Mixing up re-order level and re-order quantity when reading a chart.
• Describing lean production as just “cutting costs” without naming JIT, Kaizen, standardised processes or teamwork.
• Treating 100% capacity utilisation as automatically good, with no mention of lost flexibility.
• Giving generic points about quality without linking them to the business in the case.

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards, published by OxfordAQA. Section 3.2.1 Operational performance.